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Will cheap gas and coronavirus kill electric cars?

By many measures, 2019 was a banner year for efforts to take electric cars mainstream. Ford announced the Mustang-branded Mach E. General Motors quietly prepared to resurrect the fuel-thirsty Hummer with an eye on electrification. Elon Musk invited truck owners to the EV party with the controversial Cybertruck. And, in the United States, electric cars outsold vehicles equipped with a manual transmission for the first time ever. It was a small victory, because EVs and stick-shifts represented merely 1.6 percent and 1.1 percent, respectively, of the new car market. But while stick shifts were losing ground, EVs were seemingly just starting to take off.

Tesla Cybertruck

Then 2020 arrived.

Now, coronavirus has drivers locked up at home fearing a pending recession, and rock-bottom low fuel prices have eased the sting of driving a gas guzzler. Tesla has shut down its Fremont, California, factory, and Rivian has pressed pause on its electric pickup. Will people still want EVs? Can they still afford them? And if they can’t, will EVs survive?

Gas wars

Several factors conspired to send prices at the pump spiraling downward in early 2020. The coronavirus-related lockdowns and miscellaneous stay-at-home orders keeping millions of people around the world confined obviously dented demand for gasoline and diesel, and the supply side was slow to adjust its production levels, which created a surplus.

gas prices
Regionally low gas prices are visible during an outbreak of the COVID-19 coronavirus in Orinda, California, March 30, 2020. Gas prices have reached record lows in the United States during the outbreak. Getty Images

News of the fast-spreading pandemic overshadowed a bitter oil war that pitted Saudi Arabia (a founding member of OPEC) against Russia. Saudi Arabia wanted to cut production in early March, while Russia preferred to wait it out and see how the virus would affect short- and long-term demand. Some analysts argued Russia hoped to grab a slice of Saudi Arabia’s market share by pressuring it to reduce its output without slashing its own production, but we’re not here to discuss foreign policy. The bottom line is that folks in Wisconsin are paying about $1.30 per gallon.

The national average stands at $1.85, according to AAA, and that’s in spite of some states, like California and Hawaii, hovering at or above the $3-per-gallon mark. California makes its residents pay America’s highest fuel tax, while Hawaii suffers from being a group of islands in the middle of the Pacific Ocean.

For context, I remember paying about $1.40 per gallon when I got my driver’s license in 2004, and that represents approximately $1.92 when adjusted for inflation. Or, put another way, someone filling up a Dodge Challenger Hellcat’s 18-gallon fuel tank is spending roughly $35 right now. If driving is so cheap, what incentive do motorists have to ditch gasoline in favor of an electric car with zero local emissions? Why not treat themselves to a big, sweet-sounding V8?

2020 Audi E-Tron Sportback
2020 Audi E-Tron Sportback

Audi, which sells the E-Tron and plans to add many more electric models to its range in the 2020s, isn’t worried about low oil prices getting in the way of its electrification offensive. “We have progressed beyond the typical consumer buying a luxury electric car because of savings,” Cody Thacker, its director of electrification, told Digital Trends.  “Customers are buying electric cars for the distinct driving experience, the convenience of waking up fully charged each morning without ever visiting a gas station, and the desire to make a buying decision with a material environmental impact.” These customers would go electric even if gas was free, he adds.

Luxury is the key word here. The person spending nearly $80,000 on an E-Tron, or over $100,000 on a Porsche Taycan, could afford a tank of gas even if prices spiked to over $6 a gallon (which, by the way, is what many Europeans are paying). For them, going electric is a personal and an environmental choice, not a budget-led decision.

But smaller, cheaper electric cars may be in jeopardy. Motorists in the market for, say, a Nissan Leaf (which carries a base price of $31,600) are far more likely to factor fuel costs into their purchasing decision than those buying a Taycan, so the equation tilts towards the internal combustion engine when you add $1.30-a-gallon gas into it. And EV drivers do care about saving money: In 2019, an AAA survey found that while environmental concern motivated 74% of would-be EV buyers, 56% cited lower long-term costs as a reason to ditch gas.

Used EVs 2017 Chevy Bolt EV
2017 Chevy Bolt

“Saving on fuel costs is still a component for many EV shoppers. It’s more of a consideration for some than others, but saying it’s a nonissue for all of them isn’t accurate,” Karl Brauer, the executive publisher of AutoTrader and Kelley Blue Book, said. This is especially true in California, where gas tends to be more expensive.

Stalling out

What’s nearly certain is that the number of electric cars sold in the United States in 2020 won’t be greater than 2019’s total. New-car sales tumbled during the first quarter of 2020 as lockdowns and economic uncertainty kept buyers at home; Nissan notably posted a 30 percent decline. The second quarter is off to a bad start, and the online-buying programs popping up like spring daisies can’t offset the drop. The market will recover, but not every lost sale will be made up for by the end of the year, and motorists might look at cheaper cars when they start buying again.

“The bigger issue remains the overall economic outlook,” Brauer says. “Every electric vehicle costs more than its non-EV equivalent, so buying one is always more expensive (with rare exceptions, like my $49-a-month lease on a Fiat 500e that just ended). When unemployment is up, and economic optimism is down, people spend less money. That’s going to impact car sales in general, and higher-cost cars specifically, which is bad news for relatively expensive EVs.” For example, Hyundai asks $20,300 for the gasoline-powered Kona and $37,190 for the electric model. The federal tax credit brings that figure down to about $30,000.

We’re not in Norway; the electric car is a niche product in America. Those who argue otherwise either have something to gain from it, are blind, or are overly optimistic. They’ll reach the mainstream eventually, but it’s going to take several years, and until then the segment will stay fragile and heavily dependent on government incentives. While 2020 won’t kill the electric car, production delays, economic concerns, and stay-at-home orders will slow the technology’s march toward becoming the new normal in the United States.

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