Tuesday, April 3, 2012

Will High Oil Prices Drive Hybrid and Electric Car Sales?

Logic would say that, during periods when oil and gasoline prices are high, people would seek more fuel efficient vehicles. Obama certainly believes this. In fact, he has predicted that there will be a million electric cars on the road by 2015. Unfortunately, the current facts don't necessarily support this theory.

There are about 600 million automobiles worldwide. Of that, 4.5 million (or about 3/4 of one percent) are hybrids with a sprinkling of electrics. This is despite high and going higher gasoline prices over the last decade. In the U.S. hybrid sales are still only about 3 percent of total auto sales. In Europe, where gasoline prices are double that of the U.S., hybrids only eke out 6% of total auto sales.

The problem is one of price. Hybrids and electrics are just too expensive for the average person. Even, the used ones. The cheapest hybrid is about $23,000 or the equivalent of about half the income of the average American. Sure, you spread that price over a 3 or 5 year loan but, still, it's a hefty chunk of change. Most people would rather buy a less expensive, but fairly fuel efficient, non-hybrid. In fact, when costs are compared over any period of time, hybrids always lose to highly fuel efficient conventional vehicles. Obviously, the people buying hybrids aren't very good at math.

So, you see, higher oil prices aren't necessarily going to drive hybrid sales or fulfill Obama's dream that there will be a million electric cars on the road by 2015. Let's not forget that oil hit a high of $140 a barrel in 2008 and hybrid sales stayed at roughly 3% of auto market. And, that $140/barrel was far higher than today's $100+ a barrel. Yet, people don't seem to be "stocking up" on hybrids. Conventional gas-powered vehicles are here to stay. And, they will maintain a dominant position for decades to come.

Lastly, I actually wrote this blog entry over 3 weeks ago; leaving it as a draft to be published later. But, just to today, this report on hybrids was released: Despite Gas Prices, Hybrid Sales Stall

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