With gasoline prices rising above $4 a gallon, electric vehicles are becoming more attractive to car buyers. But a combination of supply chain restrictions, a global shortage of chips, above-average prices and low inventory at dealerships will put EVs out of reach for most people.
Interest in switching from gas to electricity is at an all-time high. Car dealership website Edmunds reports that the number of people looking for hybrids, plug-in hybrids or electric vehicles jumped 39 percent from February to March and 18 percent in the last week.
Making this purchase will not be easy for most people, given the dearth of new electric vehicles on the market. Affordable electric vehicles are more expensive than their petrol equivalents and stocks are extremely low. The same goes for hybrids and small to midsize cars, which tend to be at the very bottom in terms of supply. So for those looking for relief from high gas prices, the solution – or patience – is more electric vehicles! — or less driving.
Making this purchase will be difficult for most people.
Electric vehicle sales have grown exponentially from last year, but they still account for only 4.5% of new vehicles sold in the US. The average selling price of a new electric vehicle is still about $10,000 higher than the industry average, including gas and electric vehicles. In terms of price, an electric car is the equivalent of an entry-level luxury car.
Even if you can afford a new electric car, good luck finding one. U.S. vehicle inventory levels — the number of vehicles available for purchase at any given time — have dropped about 60 percent from last year and 70 percent from 2020 to about 1.1 million vehicles, according to Cox Automotive. As of Feb. 21, electric and hybrid vehicles account for just about 25,100 units, or 2.4 percent of total shipments, according to the company.
“If moving to a new electric vehicle is a top priority for you right now, it won’t be easy to make a purchase,” said Jessica Caldwell, executive director of analysis at Edmunds.
Automakers have been slow to acknowledge demand for electric vehicles
Automakers have been slow to recognize the demand for electric vehicles; It wasn’t until Tesla’s valuation began skyrocketing that most car companies’ plans to build electric vehicles really took off. And before that, the auto industry has abandoned more fuel-efficient vehicles like sedans and station wagons in favor of huge trucks and SUVs that have higher profit margins and use more fuel.
In recent years, automakers have phased out smaller, more fuel-efficient vehicles such as the Honda Fit, Chevy Sonic, Ford Fiesta and Toyota Yaris. In their place come behemoths like the Cadillac Escalade or even midsize SUVs like the Ford Bronco.
Not surprisingly, owners of large vehicles are the hardest hit by rising gasoline prices. The driver of a full-size SUV pays about $110 more each month to operate his vehicle, Cox said. A full-size pickup now costs $100 more per month than it did in March 2021.
The last time gasoline prices topped $4 a gallon was during the 2008 financial crisis, demand for huge cars plummeted. More car buyers have turned to fuel-efficient vehicles, and some have stopped shopping altogether.
This time the dynamics are different. High gas prices are colliding with vehicle shortages, supply chain constraints and a global chip shortage, creating the perfect storm for car buyers. The cars they would apply for—small, economical, or even just electric—are not available. Huge trucks and SUVs are available, such as the Ram 1500 or the Jeep Grand Cherokee, both of which Cox Automotive says are the most affordable new vehicles right now.
“We live in a unique time,” said Michelle Krebs, senior analyst at Autotrader and Cox Automotive.
“We live in a time unlike any other.”
To make matters worse, car dealers apply huge markups to most new electric vehicles. According to Edmunds, the average transaction price for a new electric vehicle rose 3% in February compared to the manufacturer’s suggested retail price, mainly due to markups. This is steeper than the increase in the average transaction price for all new vehicles (gasoline and electric vehicles) in February, which was 1.5% above the average suggested retail price. And remember, the average MSRP for an EV is already higher: In February, the average price of a new EV was over $60,000.
On top of that, commodity prices are rising. Russia’s invasion of Ukraine is pushing up the price of steel, nickel and palladium, which are used in body panels, exhaust aftertreatment catalytic converters and electric vehicle batteries. Raw material costs accounted for about 10.5% of the average new car price in January, up from 5.9% in April 2020, according to Bloomberg.
And if that wasn’t enough, earlier this week, President Joe Biden banned imports of Russian oil, acknowledging that doing so would likely push gas prices even higher. Biden said he was looking to ease the pressure on car owners, noting that more oil would be released from emergency stockpiles to offset costs.
But there are other things people can do to ease the pain that doesn’t involve running from dealership to dealership in search of that elusive electric car. In the 1970s, at the height of the gas crisis, about 20 percent of Americans commuted by car to work. Today, that number is about 7 percent. More car sharing could be on the horizon.
The 1970s also saw an explosion in bicycle sales, both as a result of high gas prices and the introduction of the 10-speed derailleur. Bicycle sales, especially e-bike sales, have skyrocketed during the pandemic, fueled by lockdown orders and the push for a safe, socially distancing way of getting around.
A simple change in driving style can also relieve pain. Autotrader’s Krebs suggested slowing down and driving things down to fewer trips, among “the usual gas-saving tips.”
You can also just get a bus pass.