Opinion: Oil Prices and Electric Vehicle Growth


Since I live in the energy capital of the world, I thought I should weigh in with my opinion on the recent oil prices and their effect on the growth of the electric vehicle industry. Strap on your tinfoil hat because I am going to hit the conspiracy theories first.

Let me add the big caveat that this is totally written from a US perspective. I know there are many international readers and local situations in other countries differ greatly.

2014 Oil Price falling (from NASDAQ.com)

2014 Oil Price falling (from NASDAQ.com)

Oil prices:

Most people know, but just to recap, the price of crude oil has dropped by 40% in recent months. The price of crude oil directly related to the price paid at the pump for gasoline, but not exactly equal. i.e. $60 / barrel of oil does not mean $60 / barrel of gasoline. Crude oil has to be processed at a refinery and then transported to the gas station.

For the first time in a long time supply of oil has outpaced demand. This is largely due to recent oil production expansion in North America. OPEC (http://en.wikipedia.org/wiki/OPEC) has also decided not to reduce their own output, which is causing speculation that the low prices will continue to hang around for awhile.



Here is the conspiracy theory view:

OPEC is keeping supply up, forcing the oil prices lower to determine the real cost of North American oil production. The general economic idea is that the companies will stop extracting if they are not making a profit on the oil. The real economics of drilling activity, ramp up, ramp down, asset depreciation, etc. make reality much more complex.

Adding into the complexity, most current drilling operations are a combination of natural gas and crude oil extraction. Natural gas is not as portable as oil, so natural gas tends to have localized (and even seasonal) pricing that is completely decoupled from the barrel price of oil. As natural gas has displaced coal on the US electrical grid, the local demand may support continued drilling activity.  Keep in mind, there is also almost no oil used for electricity production except for Hawaii and Alaska.

So now I will offer an even bigger conspiracy theory:

OPEC is really worried about the electrification of vehicles and is trying to drive down the price of gasoline to prevent the shift to electrification. In reality, the plug-in industry is so small that it is probably not on OPECs radar, but it is fun to inflate ourselves and speculate 😉

Now the part we really care about, what does this mean to electric vehicle sales:

Nissan released This Image Via Facebook

The best looking Nissan LEAF color


I will break this category into four groups. High priced BEVs (Tesla and maybe the i3), “affordable” purpose built BEVs (LEAF and i3, so far), BEV variants of ICE vehicles, (Focus EV, eGolf, etc.), and finally compliance BEVs (Spark EV, 500e, Rav4 EV RIP, Fit EV RIP, etc.).

Even with very low gas prices (~$2.00 / gallon), BEVs have a lower cost to operate than their ICE peers. BEVs also have the quiet “luxury” ride, silky smooth acceleration, convenience of home charging, and the green appeal. There is also the group of BEV purists (you know who you are) that will always choose to use absolutely no gas.

The high priced EVs are insulated from the economies of gas for a couple reasons: the buyers are not as price sensitive and the cost of the battery fades as the MSRP goes up.

Ironically the other BEVs that would be affected the least are the compliance cars. These OEMs have to get their CARB credits, so they will do whatever it takes to move them off the lots (great lease rates, unlimited mileage leases, included insurance, and who knows what they will come up with next).

The “affordable” purpose built BEVs will face a little more pressure. They will need to sell based on the benefits outlined above, but might not have the argument of “its a free vehicle if you consider the cost of gas.” That is statement I have seen used many times, especially in areas with large incentives.

Finally the BEV variants. They will feel the most pressure on their sales. It is so easy to cross shop Focus vs. Focus EV or Golf vs. eGolf, that any hit to the economics make the comparison harder on the BEV. The OEMs have seemed to take the strategy of differentiating the BEV versions as Eco models. If OEMs chose to make the BEVs higher performance or higher luxury than available with the ICE, I would see the sales being more insulated from oil prices.

Chevy Volt

The soon to be forgotten Chevy Volt 1.0


I am grouping everything with a plug and a gas tank in here. Since there are so many nuances to the types, please cut me some slack on the generalizations. I am going to hit this topic slightly differently as well. We will look at all electric range (AER), purpose built vs. variant, and luxury/supercars. AER will just scale from high (i3 REx and Volt 1.0) to low (PiP).

PHEVs still have the advantage of (partially) fueling at home, quiet and smooth ride (when operating on electricity), and lower operating costs. Almost all the same benefits exist as in BEVs, just to a lower degree in some cases.

Lets just knock out the slew of luxury/supercars first. There will be little to no effect on the sales of these vehicles. Most of these examples (P1, i8, 918, etc.) use the electric power to increase the performance, and maybe to help meet regulations so they can still sell this category of vehicle.  The production is usually so low, they are often sold out long before production finishes.  Even the Panamera SE and other $100k plug-ins are already selling on features other than the cost of gas.

Let’s look at the purpose built (Volt 1.0) vs. a variant (Fusion Energi). Just for comparison purposes, pretend they have the same AER and mode of operation (i.e. full acceleration in electric mode). The variant vehicle is going to get cross shopped with the ICE version more often. This is a benefit to the plug-in version when gas prices are high, and a detriment when gas prices are low. At the critical time of purchase, if a potential buyer can compare sticker prices on identical vehicles, with and without plug, the cost of gas could be a tipping point in either direction.

Finally all electric range (AER). Looking at this factor by itself, in a vacuum.  The longer the AER the less the price of gas matters. The more miles that can be driven on electricity the faster the payback for premium of the battery. The actual MSRP price difference is the other key factor that would be weighed side-by-side with the annual fueling cost. But generally, I think the gas prices will hit the sales of the “20 mile” PHEVs more than any other plug-in. It should hit the PiP the most based on this theory, but it seems that Toyota has never tested the actual demand for the PiP. There has been a continuous inventory shortage and only offer it in limited markets.

I do have a concern that some of the new plug-in entries due to hit the market the next year or two, will face stronger headwind with low gas prices. Let’s hope the new OEMs don’t throw in the towel after their first effort. If they make great products, the sales will follow.

Prius V is Definitely Not an "Electric Car"

The Prius Family pretty much defines the word “hybrid”

Hybrids or HEVs:

I am going to be very brief on this one. I am talking about vehicles that market themselves as hybrids and use electric motors to increase their miles per gallon, but only use gas to power the vehicle. The trend is already well documented: low gas prices significantly hurt hybrid sales. PHEVs already pose a significant threat to “regular” hybrids. An extended period of low gas prices could be the nail in the hybrid coffin. The Prius is probably the safest, because of its loyal following and tremendous brand presence. It will get hurt, the rest will get slaughtered.

Toyota Mirai

Toyota Mirai will launch into compliance land in 2015


Fuel Cell Electric Vehicles or FCEVs:

I will address fuel cells, just to prevent the comment that I forgot them. At this point oil prices have absolutely no bearing on the success or failure of fuel cell electric vehicles. Fuel cell vehicles are really still in the EV1 stage. There has not been a single vehicle sold to consumers. There have been a couple lease and return programs, but no option to fully own. Toyota and others will start the first real test campaign in the compliance markets in 2015. Time will tell if consumers will love them and the supporting infrastructure will flourish.


As usual, feel free to critique my opinion in the comments 🙂

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46 Comments on "Opinion: Oil Prices and Electric Vehicle Growth"

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I know the TV news people like to say things when gas is cheap, truck sales soar, or when gas is expensive, Prius sales soar. However, in order to gain some perspective on this, I charted the sales of trucks, sedans, and the Prius vs. inflation adjusted gas prices. There are some minor trends, but nothing like the entertainment news likes to yell at you from the TV.



Also, if I had the time & data, I’d like to chart oil consumption vs price over the last 20 years. How much does expensive gas really affect use? Everyone still has to drive to work. Goods must still be shipped. I’m guessing it just digs into disposable income and less money is spent elsewhere. For example, in my chart above, when gas prices are high, overall vehicle sales tend to go down.


I can get that as a canvas wrap and holiday card? Cool! I just found the solution to *all* my holiday shopping.


Interesting. It looks as if auto sales are cyclic in nature and are decoupled from gas prices.


Yes, that’s exactly what it looks like.
Tesla sales, of course, won’t be impacted by lower gas prices, because it’s selling: Luxury, quiet ride, and rocket like performance, along with better for the environment no pollution. Also it’s selling fuel-at-home, which are all other EV’s and PHEVs.


Oh boy! That look like a schyzo brain graph!

I just want to say since you commented on the media. Anyone who takes all of that in from TV or radio? And they allow it to form their views and opinions of what’s going on in the world? Well they a doing that through influence of almost all lies and deceptions? And I don’t know how much of society does that? But apparently enough do to keep the media conglomerates in business? I myself don’t believe a thing that comes through the standard media? The internet is where people can get the true gist of what’s going on in the world! Sure even there there are lots of lies and deceptions? But if a person takes a topic and thoroughly and exhaustively investigates it? Then they can find out the real truth on the matter? And this is the main reason that the Obama administration is trying to regulate the internet? Its making this government and other governments and main power families and money families of the world very nervous! Because if enough people would really check things out through use of internet? Then they would know! And knowledge is power! But most people are all caught up in… Read more »

With the exception of Tesla, and probably Nissan Leaf, no EVs would be produced without California Air Resources Board (CARB) Zero Emission Vehicle (ZEV) mandates.

People buy them for various reasons, from personal savings (lower total cost of ownership, TCO) to a desire to use domestically produced fuel for economic and energy security reasons, to a better driving experience, to a desire to have a lower environmental impact (air pollution, CO2).

But the reason they are produced is regulatory requirements. Full stop.

As CARB ZEV requirements ratchet up, we’ll see more electrics on the road, with a temporary detour by Hyundai, Toyota and Honda due to a perverse incentive in CARB regulations. But as 200 mile batteries and extensive Quick Charge infrastructure erase any purported H2 advantage, that experiment will quickly conclude.

Low oil prices may cause temporary month to month fluctuations in sales numbers, but the overall trend is set by regulations aimed at addressing the health effects of air pollution.


I like the Full Stop…OK but also some partial stops too. If we break down the regs, we got CA ZEV regs, we got Federal $7500 tax credit, we got CA HOV incentives, and we got state rebate incentives up to $6000 in some states for BEV…less for PHEV. If the CA HOV green PHEV stickers ever end, that’s a partial stop right there.


“But the reason they are produced is regulatory requirements. Full stop.”

Sorry, but this is just silly! There are other countries in the world making and using EVs apart for the US, you know! And they are not in the least bit interested in the CARB!


That’s why I put the full stop in there. The credits are a little carrot so that the automaker’s don’t lose as much money as they ordinarily would (no one was going to buy a $45k 76 mile range Ford Focus electric). That addresses the demand side. A little.

But the automakers *would not have built these cars* without the stick.

The stick is the *requirement* that they build the cars or lose their California franchise. The 8 other “section 177” states are “me too”. Would not have happened without CARB.

Other regions, like the EU, also have regs that *require* low emissions, although they go about it in a different way.

If you are thinking that *production* is happening because of consumer demand (as ardent as it is for EV advocates), that’s just not the case. Production is occurring because of regulatory requirements.

Which is why, with the exception of Nissan, no automakers is creating demand for EVs by advertising.
(Tesla doesn’t advertise because they are supply constrained and know how to use the Internet, and the Media).

Mark Hovis

Good to see you writing again Josh! As for the topic, somebody had to write it.

Now the price of EVs are still higher than ICE’s, but while focusing on gas price alone, it is also worth noting that the fuel itself has to make it to roughly a $1/gallon to be as cheap as electricity. As for the cost of the EV, this is effected in time by the dropping price of batteries $/kWh.

The other important question is how long will gas remain cheap? From what I have read, it will begin to take its toll if it stays this way for over a year.

But lastly to my gas loving friends, wouldn’t you love a fuel that isn’t constantly riding the roller coaster up and down? Wouldn’t you love a fuel that does not require you to send you sons and daughters to defend? Wouldn’t you love a fuel that could be produced from a clean energy source and not effect the environment? And wouldn’t you love a fuel that REMAINS cheap instead of just long enough to effect your buying decisions?


And a fuel that puts itself into your *tank* silently while you sleep at night.

David Murray

To say that EVs aren’t on OPEC’s radar would be foolish. I’m sure they are keeping a close eye. They know Electrified vehicles aren’t going to put a dent in their market for several years. But they aren’t dumb enough to think that it won’t eventually happen. So to secure their future, I wouldn’t be a bit surprised if they haven’t been planning ways to stop or slow the growth of EVs. Now whether this current drop in the price of oil is related, who knows.


It’s interesting what Norway is doing. They are an oil producer/exporter, but they see the writing on the wall. So they sell their stuff to the rest of the world and use the profits to fund their own sustainable energy plans.


I always thought that was brilliant of them. Too bad we’re not as smart here in the US.


We are saddled with the Lets-Pick-The-Worst-Option Republicans. Look how a small country can outperform us with better government.

It’s sick.

Mark C

Personally, I believe it is somewhat related to EV’s, but more closely related to trying to make fracked oil and tar sands oil too expensive. They want those producers go out of business. That would take most new production out of the picture and give the oil producing cartels a tighter grip on pricing.

That said, if EV’s continue and the cartels succeed at stopping fracking and tar sands oil production, I believe the environment overall will be better off.

I read somewhere about the salt industry having an unnatural {my poor choice of wording} hold on countries back before refrigeration. When salt was almost the only way to preserve meat, countries providing salt had a lot of power. If/when we reduce our need for oil sufficiently, it will take away a great deal of the cartel countries power.

David Murray

I would also like to add that I don’t believe any manufacturer will “throw in the towel” if demand is low for their plug-in product. They know that gas prices will not and cannot stay at this price. Within a year it will probably be back up to $3 or $4 per gallon.

However – there is one silver lining in all of this. If gas prices were to stay low, manufacturers would have to figure out how to convince people to buy it without the gas price argument. Which means they may start designing more for performance than economy.


If solid-state batteries are actually going to be here in 4 years, and at 100 dollar per kWh ( which is cheaper then the ICE solution ) then any company that abandons EV’s is on a path to Bankruptcy.


I’m not a CAFE standard expert but as I understand it manufacturers need to get their overall fleet average up over the next 5-10 years eventually hitting number only a HEV can get as a fleet wide average.

If fuel prices go down to a buck and folks want to buy more trucks and SUV’s the manufacturers will be forced to increase the purchase price of gas guzzlers in order to subsidize EV’s so they can have their fleet average where it needs to be.

At least that’s where I think it will go in the US as long as policy doesn’t change. Gas prices will in effect not make a difference.

Anthony Fiti

While I would agree with your first conspiracy theory (OPEC is trying to figure out how much shale oil costs, and that may take a full year to figure out due to seasonality, etc.), and even say its not a conspiracy theory but a logical reason, I disagree with the second theory – that OPEC is trying to forestall EV penetration.

Gasoline is going to be around a long, long time. The lifespan of a car is 20 years, and EVs/Plug-ins are still less than 1% of sales. Even if battery costs fall dramatically and batteries improve dramatically by 2030, only then will they start to tip the sales scales in their direction. We’ll be very lucky if we use zero gasoline/diesel by 2080.


A tweak. Bloomberg was reporting last night that coal is 22% more profitable in electric generation, than natural gas. It was 2012’s $2/mmbtu levels that changed the dynamic. At $4, the U.S. has gone back to 39% coal fired generation. These are averages, and prices differ everywhere you go.

BEV/PHEV’s need new buyers. Hybrids can be used like gas cars, and each one of these new buyers confronts “Why am I doing this?”, “What does this add up to?”, “Will my habits have to change?”.

My belief is all buyers do this, and its as foolish to think a Tesla buyer doesn’t, as it is that he doesn’t consider depreciation. Of course, many do.

Adam Jonas called a 40% oil-related decline, 500k to 300k units from Tesla by 2020. Make of that what we will, I don’t think he has the direction wrong. He was also making the call on Model E/III, where gas prices may have a more relevant impact. It’s all kind of crazy talk, when he can reduce a $320 price target by only 30 bucks??

These oil prices won’t last. Maybe that’s a more appropriate assumption?

pete g

There are several factors that drove our use of coal back up to 40% in the last year.
The main one was last years polar vortex. Wich made natural gas in short supply in the winter months, utilities ran their coal fired electric generators that usually only get used in the summer.

Second is the drought in the southwest has reduced the electricity supplied by hydroelectric dams.
Solar and wind power continue to grow and now acount for 7% of U.S electricity up from 1% in 2008.


This statement of yours – ” I think the gas prices will hit the sales of the “20 mile” PHEVs more than any other plug-in”

– is already borne out by the sales #s. Just look up the monthly chart on this site.

OTOH the good news are all leading BEVs seem to fare well so far, the Leaf first foremost. To a large degree the BEV segment has now decoupled itself from week-by-week or even month-to-month cost comparisons with ICE.

Rather than driven by pure cost arithmetic, most current BEV buyers – whether affordable or luxury – are consciously buying into a new paradigm (whether environmental, technological, consumer-oriented, or otherwise).

We all know there’s enough attractive power in the concept of a new paradigm on its own, as long as the cost arithmetic is not too crazy negative.


Great writeup, thanks!

I agree with your assessment especially in the USA, gasoline prices at the pump tend to follow the world price.

In other countries, where fuel prices are much higher due to taxes I do not expect these market shifts.

pete g

Let me just through a couple of facts into the discussion.

In 2008 the average new vehicle sold in the U.S got 20.1 mpg. In August that number had climbed to 26.0 mpg.

Truck sales are always highest in the last 4 months of the year. So fuel economy drops.

The midwest had a record breaking corn harvest this year so we are producing more ethanol & biodiesel than ever before. We are also starting trade talks with Cuba whose a big exporter of sugar cane wich is a better source of ethanol.

In the first half of this year world crude oil demand was flat, and last year it only went up by 1%.

Sales of EVs and PHEVs has exploded in China & Europe this year, and are still up by 20% in the U.S. Which til now was the #1 market for Plug-ins

pete g

1 more fact

Most drivers of all plug-ins are very happy with their Vehicles and would never go back to an ICE.


I’ll throw in my 2 cents about diesel too, since you “forgot them”…. 😉

The price of diesel is staying absurdly high for no rational reason in most of the US.

I realize that there are differences in taxes, but in England petrolprices.com is showing very similar prices between diesel and petrol. While here in the US, gasbuddy.com is showing that diesel price drops are lagging far behind the drops in gas. In many places, by more than a dollar!

As a percent difference, the gap between the two is growing rapidly. At 2 dollars per gallon for gas, the price is 50% more expensive when the price for diesel is $3 bucks a gallon! If this continues, the price rationalization for higher mpg diesel passenger vehicles won’t justify buying a diesel anymore. The market share for diesels in the US could be hurt, just when car makers have finally been talking about bringing more high mpg diesels to the market. Like the Ram 1500 diesel, and Jeep diesels. Not to mention VW/Audi TDI’s and rumored future diesels from Honda, etc.

Gene Frenkle

The Saudis are very worried about natural gas and electric vehicles. If oil was at $150 a barrel for an extended period of time the U.S. would begin switching. The U.S. would also export more natural gas to Mexico which results in more oil exports. The U.S. would also export more natural gas to the Caribbean which displaces oil.

The Tesla is a superior vehicle that happens to be an EV, it will sell regardless of the price of gasoline because it is superior. The next Volt appears to be superior and the price will be the deciding factor. Still, for $2k I would choose an option that allows me to fill up at home for $1.50 (less than $1 if off peak pricing is available) and drive 50 miles regardless of the cost of gasoline. The Prius only makes sense for taxis and people that drive a lot because it is durable, relatively spacious, and it does get great gas mileage.

It’s the Saudi’s sandbox and they are jealous of other kids that have showed up to play in it. They threw a temper tantrum, (it always got them what they wanted before), and they are even being mean to their followers, others in OPEC. Contrary to the wishes of other OPEC members, not only do they not curtail production they raise it. Twisting the knife. Objectives: I think the Saudi objectives are both politically and economically motivated. Their intent is to regain market share as less liquid and highly leveraged operations, all over the world, mainly in N.A. get stressed and go bankrupt, lay down rigs, lay off workers, etc.. On the political front they want to damage ISIS which largely subsists on oil revenues from captured facilities. Hurt the Iranians whom they hate for many reasons and as their main rival in the region. Hurt the Russians, and Putin. Outcome: With rising supply and weakening demand I think this will be the last great Saudi Gambit that will be played. Once they have forced marginal players out they will begin to slowly cut production perhaps as early as the Spring, and prices will go up. I think overall it… Read more »

Good work; nice survey article;
Teslas are too expensive for me to consider; but, I’m thankful high riders are buying them; for every Tesla sold, the Giga Factory is advanced and I see that as the missing puzzle piece, “The Better Battery,” to push all maker’s BEVs center stage.

Nissan has an advantage over the other “low cost” makers in that their Leaf sales have helped offset development costs and they can now present a well-engineered, reliable, road-proven car to buyers. I own a 2011 and I’m satisfied with its performance, except for the limited range. If they fix that and the hot battery temperature problem, I see Nissan leading low-end sales.

It’s interesting that GM insists on only offering a serial hybrid when they have everything already in the Volt to make it a BEV. But, I think, like everyone else, they are waiting on “The Better Battery.” Hurry up with the GF, Elon.


I think the low oil price is because OPEC is trying to weed out the high cost competitors i.e. tar sands and shale oil. Once a couple of them have folded the oil price will get back to normal or probably a bit higher, it shouldn’t take more than a year. It’s a classic dumping scheme.

The EV market is still in its infancy and it probably won’t be much affected by the oil prices for a couple of years. People buying Tesla’s isn’t doing it because of gas prices but because it is an exciting car. The other manufacturers all have fossil burners still on sale, if the demand for the LEAF goes down a little the next year it’s not much of a problem for Nissan they’ll just sell more of the other cars instead.

Everybody is waiting for better batteries for the EV market to really explode. That is still a couple of years away and OPEC won’t be able to keep the price down for that long so I don’t think the current price situation will affect the EV development very much.

Scott Franco

The Saudis are not stupid enough to believe that USA production could be stopped by dipping the price. Sure, it would cause a shakeout, followed by the stronger players taking over the leases of the weaker players. That oil is not going anywhere. Even if they got most USA production to shut down, it would just restart with new players and new crazy money when the oil price rises again, negating the whole idea of exterminating competition this way.


OPEC is keeping supply up to hurt Russia and destroy Iran… collateral damage is the U.S. Oil Fracking industry….

Ocean Railroader
I have a odd theory that the growing population of electric cars is helping to create $2.00 a gallon gas. The idea is based off of if you have a factory building 800 to 1000 Teslas every week. And on top of that you have Tesla building a new super charger station every week. While at the same time you got other car makers pumping out EV’s and building quick chargers. This is slowly nibbling into existing oil demand. But on top of that it provides slack in the oil supply system. The spare capacity vs demand may only need to be anywhere from 500,000 barrels to a million barrels to drive down oil prices. Here is why the EV’s are doing this. I was reading in this book Twilight in the Desert along with several Peak Oil books. That a oil supply cut of 10% would raise gas prices by several dollars a gallon. The reason is that the world is constantly burning oil and is set up to need a curtain amount of oil each day and week to keep it running. If you add say a million new gas cars to the roads this raises the amount… Read more »

More interesting for me is not “Oil Prices and Electric Vehicle Growth”

but “Electric Vehicle Growth and Oil Prices