February 16, 2016

Are low gas prices killing the electric car?

Was the drop in plug-in electric vehicle (PEV) sales in 2015 just a speed bump on the road to a much brighter future for electric drive? Green Car Reports , citing Navigant Research, seems to think so, and predicts that the market will rebound with the further development of charging infrastructure and the launch of new PEV models.

Some background: Last fall at The Energy Collective, Leslie Hayward had a great infographic on the state of the plug-in electric vehicles (PEV) market from 2011 through the third quarter of 2015:

From their market debut in early 2011 until the end of 2014 in US, PEVs delivered continually growing monthly sales. From August 2014, the market saw a drop in PEV sales, and in 2015 things got worse, even though the availability of charging infrastructure has continued to grow. Even the most prominent PEVs, such as Nissan LEAF, Chevrolet Volt, Toyota Prius, and Tesla Model S were feeling the pinch. In 2015, no significant new models were released, and Toyota has conspicuously shifted its focus toward hydrogen vehicles.

What happened to the market in 2015?

One possible reason of this sudden change in the PEV market is the dramatic decrease of gasoline prices since August of 2014:

With gasoline becoming more and more affordable these days, the fuel cost savings of a PEV compared to a conventional gasoline vehicle is not enough to offset the high initial cost of buying a PEV. Take the 2015 Nissan Leaf as an example. Its initial cost is about $32,065. One comparable model – the 2015 Honda Civic offers 33 miles per gallon and only costs about $21,440 currently. Since the federal government offers $7,500 of federal tax credit, the initial cost difference between Nissan Leaf and Honda civic is $3125. In the US, the average electricity price is 12 cents per KWh. When gasoline costs $4 per gallon, it takes just over 3 years for a 2015 Nissan Leaf buyer to see the pay back of using electricity to power the vehicle, assuming they drive 12000 miles per year. However when the gasoline price drops to $1.90 (the current nationwide average gas price in U.S.), the payback period is over 12 years. Since Nissan promises the life span of Leaf’s battery to be eight years, there seems to be an obvious financial disadvantage of choosing a Nissan Leaf over a Honda Civic when gasoline is cheap.

The EV sales of this January witnessed a slight increase compared to Jan 2015 and Jan 2014, but it is not yet safe to say that EV sales will rebound in 2016. Even though consumers take multiple aspects such as environmental benefits and vehicle performance into consideration when they decide whether to buy an EV or a conventional vehicle, financial costs are an important consideration for mainstream buyers, and the financial appeal of PEVs is taking a beating from low gas prices.