Plunging Gas Prices Expose Fickle EV Flirtation

When what went up, goes down, it doesn’t go alone. That’s what’s happened in the fickle flirtation between consumers and electric vehicles. In June, gasoline prices peaked at historical levels above five dollars a gallon. EV love abounded as consumers looked for an alternative. But now that the price at the pump retreated nationally to below $4.00 a gallon for regular, the thrill for EVs ebbed.

“The percentage of shoppers that are very likely to consider buying or leasing an EV in the next 12 months is 28%, down 1.6 percentage points from June,” wrote Elizabeth Krear, vice president, electric vehicle practice at J.D. Power in a report this week.

Kevin Roberts, director of industry insights and analysis at car shopping website CarGurus
CARG
.com told Forbes.com it’s a predictable swing in consumer preference.

“Historically what tends to happen is U.S. consumers are highly sensitive to gas prices. When the first shock (of gas prices going up) they tend to quite significantly move. As those gas prices go down they quite quickly go back to what they were interested in previously,” observed Roberts. “It tends not to be a sticky situation. Now that national gas prices is back under $4.00 a gallon I think everyone’s just gone back to what they were interested in previously, especially with how tight new and used EV inventory is.”

That dearth of inventory is hitting many of those who were seriously considering making the switch to an electric vehicle financially daunting.

“The average transaction price of an EV is $64,000, $19,000 higher than the average gas-powered vehicle,” wrote Krear. “In July, price was the primary reason that shoppers rejected EVs. In fact, the proportion of EV rejectors saying price was the primary reason for rejection increased four percentage points from June.”

On the used vehicle side, supply is so tight, in some cases dealers are engaged in bidding wars to land the few EVs available at wholesale auctions according to a recent survey by ACV Auctions.

“While we are seeing record levels of interest in EVs, supply chain issues still exist for new vehicles, causing long waitlists, and it may be a few years before this will stabilize. Therefore, demand has spiked in the used EV market,” ACV CEO George Chamoun told Forbes.com. “Last quarter, used electric vehicles made up the second largest portion of EV purchases, following new Tesla
TSLA
sales according to inventory data obtained by Recurrent.com including over 50,000 car dealers.”

To mitigate inventory challenges ACV is using several tools to widen sourcing. One is called Live Appraisal which makes it possible for consumers to sell their vehicles through ACV’s marketplace by its dealer partners. Sales increased 30% year-over-year in the second quarter according to Chamoun.

The survey of 535 dealers in 47 contiguous states (ACV does not operate in Wisconsin) that conducted business with ACV this year revealed reasons beyond simply price that repelled, or gave pause, to consumers about making the switch.

“The top questions dealers were receiving in relation to customers buying EVs were around the logistics of charging the pure electric vehicle while traveling, the time it takes to charge the battery, and cost of maintenance for EVs compared to traditional vehicles, said Chamoun. “When it comes to hybrid vehicles though, we believe that’s a sweet spot for dealers and anecdotally, we hear very little concern from a consumer hesitancy standpoint.”

Even with the prospect of federal tax incentives for buying certain electric vehicles in the air, Kevin Roberts at CarGurus says the real consideration for many will be the total cost of ownership, for which the equation is taking an unfortunate turn.

“The thought was the battery pack price was going to keep going down, like straight line down, year over year then eventually total cost of ownership would go down and we’d be at parity with internal combustion engines,” said Roberts. “But the price of lithium, nickel and cobalt has been going up so much that the entire narrative we had there, which is the cost of the battery pack was declining, is actually reversing in this case because now the cost of the battery pack is actually going up and that’s actually putting more upward pressure on the actual vehicle price.”

Roberts believes consumers will eventually get over range anxiety and other charging concerns as the infrastructure builds out.

But despite gas prices continuing to edge downward and new EV offerings on the horizon, electric vehicles are still too costly for many consumers and hesitation over maintenance and other technical concerns are repelling potential customers.

Yes, there’s a lot of talk and excitement over some attractive and technically amazing electric vehicles, but during an Automotive Press Association webinar last week, Toyota Motor North America executive vice president of sales Jack Hollis put reality in concise perspective, observing, the “rhetoric” around electric vehicles is way out ahead of consumer demand.

That’s now. As conditions change, so do consumers’ affections.