How could rising gas prices affect the EV market?

As the war in Iran drives gas prices skyward, some U.S. consumers are considering electric vehicles as a cost-saving measure. The national average gas price is now over $4 per gallon (and in some states over $5), according to AAA, which means many Americans are understandably looking for less expensive transportation modes. But not all experts believe this sudden spike in gas prices will automatically lead to a surge in the EV market.

What did the commentators say?

Many drivers look to electric vehicles because they “assume their electricity prices won’t be affected by the crises” around the world, said The Associated Press. The fickle nature of oil prices means consumers with gas-powered vehicles are “more vulnerable to fluctuating prices that result from global conflict than those who charge their cars.” Electricity prices are “regulated and much less volatile than gasoline prices,” said Erich Muehlegger, an economics professor at the University of California, Davis, to the AP.

And some may have already reached the point where they want to switch. According to a 2022 AAA survey, “$4 a gallon is the threshold at which a majority of Americans will make changes to their driving habits or lifestyles,” said Vox. This is especially true in California, where the $5-per-gallon gas price means the state has “already passed the point at which EVs are the cheaper option.”

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Drivers who switch to EVs can save up to $2,000 per year on gas, while hybrid drivers still see savings of up to $1,500, according to the U.S. Department of Energy. And while Congress “eliminated a federal tax credit that could close the price gap between new electric vehicles and cars that run on gasoline,” there are still some states that “offer credits, rebates or other financial support for electric car buyers,” said The New York Times.

However, potential savings in gas could be offset by an increase in energy costs. Electricity prices have been “increasing nationally for a variety of reasons, including surging power demand from new data centers,“ said the AP. Increased natural gas prices can also “increase the cost of generating electricity,” though these costs “haven’t risen as quickly or as much as oil prices have recently.” And the upfront sticker cost of an EV is “still more than that of a gasoline-powered vehicle.”

What next?

Other factors could preclude a spike in electric vehicle sales. It’s “unclear how long high fuel prices will last,” because they are largely dependent on the war in Iran, said Vox. The limited “availability of chargers for electric vehicles is another barrier to adoption.” Rising gas prices and a general economic downswing can also “put a damper on consumer confidence more broadly.”

For now, the EV market seems to be swinging upward for many car companies. March was Subaru’s “best month ever for electric vehicle sales,” the automaker said in a press release. Toyota Motor North America, which runs the U.S. operations of Toyota and Lexus, saw EV sales in March “up 2.5% on a volume basis and up 6.6% on a daily selling rate basis,” said the company, representing more than half of its total sales volume.