One of the biggest drivers of long-term electric vehicle sales won’t be sustainability or societal pressures, but overall cost of ownership. As with solar power, EV sales won’t hit mass adoption rates until consumers are choosing the technology on the basis of economics rather than environmentalism.
Consumers are typically capable of directly comparing sticker prices of vehicles, but struggle when assessing the overall lifetime cost of ownership. In a survey by researchers from Indiana University and the University of Kansas, a majority of respondents failed to correctly answer basic factual questions about plug-in electric vehicles. Most of the wrong answers dealt with financial benefits, with respondents typically underestimating the cost advantages of going electric. So although EV’s typically cost less over the long run (despite the higher initial purchase price), car buyers have proven unwilling to pile into EV’s until the initial price is lower than the gas-guzzling competition.
Until mass-market EV’s like Tesla’s (TSLA, Financial) Model 3 and GM’s (GM, Financial) Bolt hit the market, the price of gasoline will remain another major factor influencing consumers' choice of buying a gas-powered vehicle or an EV. “We know that consumers are extremely price sensitive and shop for gasoline based on price, and that the price per gallon affects their overall feelings about the economy,” said John Eichberger, executive director of the Fuels Institute.
With oil prices averaging roughly $50 in 2015 (down 50% from 2014 highs), we can get a fairly straightforward case study of how falling energy prices impacts car buying habits. While U.S. EV sales continue to hit records, year-over-year growth has slowed to its lowest levels in years. Considering total U.S. car sales hit a 15-year record last year, EV’s as a percentage of cars sold actually fell. In 2013, electric-drive vehicles were 3.84% of U.S. vehicles sold. By 2014 (which saw lower oil prices in the second have of the year), electric-drive vehicle’s share fell to 3.47%. In 2015 (which saw a full year of depressed oil prices), the decline accelerated to just 2.87% of cars sold. Data so far in 2016 anticipates a further drop to roughly 2.5%.
Clearly, low oil prices have had a hand in slowing electric vehicle adoption. Another factor working against EVs will be rising fuel economy standards for traditional vehicles. By 2018, car manufacturers need to produces vehicles with an average economy of 40 MPG. In 2022, it should rise another 25% to 50 MPG. If the cost to fill up your car impacts EV buying habits, it would make sense that improving fuel standards should pose yet another threat to mass adoption. While mass-market cars like the Tesla Model 3 and GM Bolt will alleviate most consumer concerns (ie. range anxiety and high initial cost), lower oil prices and improved fuel economies should keep a lid on EV adoption over the near-term.
