Surging gas prices are driving demand for electric cars
Dismayed by spiking gas prices, more drivers are considering making the switch away from expensive fossil fuels. But don’t expect to buy an electric vehicle in a pinch.
Periods of pain at the pump tend to push consumers toward more fuel-efficient options. When oil prices surged around the Great Recession in 2008, for instance, buyers shunned big SUVs and trucks while gobbling up small cars and hybrids.
And in 2022, as Russia’s invasion of Ukraine shocks global energy markets and the price of gas in the US hovers above $4 per gallon, you’d think we’d start to see a similar pattern. But there’s a catch this time around: No matter how eager consumers are to go electric, there simply aren’t very many cars to buy. Those that are available are probably quite expensive.
Online vehicle marketplace Cars.com saw searches for electric models shoot up 112% on March 8, as compared to before the war on February 24. Searches for used EVs surged 130%.
When the price of gas goes up, Cars.com always sees searches for efficient vehicles increase “comically fast,” said Joe Wiesenfelder, the website’s executive editor. “There’s nothing out of the ordinary about what we’re seeing, except the landscape against which it’s happening.”
Thanks to a chip shortage and havoc up and down the automotive supply chain, the inventory of new cars at US dealerships is at a fraction of pre-pandemic levels. At the beginning of March, the US supply of new vehicles stood at 1.07 million units, 2.4 million below the same time in 2020. Even without a shortage, battery-powered cars are a low-production, niche item, making up less than 3% of US vehicle sales in 2021.
Low supply coupled with record inflation means car prices are up as well, putting already-expensive electric models even more out of reach for ordinary consumers. According to the car-buying site Edmunds, the average price paid for a new EV hit $60,054 in February, a $1,820 premium over their average MSRP. During the first week of March, Edmunds saw searches for electric and hybrid vehicles jump 18%.
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Tesla, the leading electric-car maker, raised prices across its lineup by as much as $12,500 last week after its CEO, Elon Musk, complained of “significant” inflationary pressure in materials and shipping costs. A Tesla Model 3, the company’s cheapest offering, now starts at $47,000, $10,000 more than a year ago.
Moreover, the war in Ukraine threatens to push EV prices even higher as prices of metals like nickel, a key material in battery cells, surge. Russia is a key producer of metal.
As automakers bet billions on an electric future and as electric-car sales remain incredibly low one can’t help but wonder: Could today’s gas prices make a lasting impression on people’s car-buying habits? Will anyone remember this moment when they make their next car purchase months or years down the line?
“The larger swath of the consumers, they will forget,” said Ivan Drury, senior manager of insights at Edmunds, noting that once gas prices declined and the economy recovered after 2008, people flocked back to SUVs and pickups. Today, those categories make up over 70% of the vehicles sold annually in the US.
But every gas crisis drives some people to seriously consider greener alternatives, he said. That prospect looks especially promising given the sheer number and variety of new electric models just over the horizon.
“With every single gas spike, you end up with a portion of consumers that do deviate and say, ‘you know what, I’m over it,'” Drury said.
