Will Low Oil Prices Delay Electric’s Rollout?

Tesla's Supercharger Hero 2x

Photo courtesy of Tesla Motors

Will Low Oil Prices Delay Electric’s Rollout?
| published May 6, 2015 |

By Keith H. Roberts Thursday Review contributor

The tipping point may have arrived in the delicate market balance between traditional gas-sucking cars and trucks, and those high tech hybrids and electric cars now entering so many U.S. cities and towns.

But with oil and gas prices at a low not seen in more than five years, will consumers begin to make the full-scale migration to alternative fuel vehicles?

That question hangs in the balance, as some of the major players begin to push their efficient hybrids, smart cars, electric and battery powered cars, and even solar powered cars. Investors seem eager to buy into Tesla, but somewhat suspicious of placing large bets on Elio. Tesla has confounded the doubters, managing to reach the bridgehead to profitability with its Model S despite a long, uphill battle with a variety of stubborn problems. Elio, on the other hand, is seemingly getting closer to selling its 84 mile-per-gallon car, but only in limited numbers, and not first without roughly $230 million in cash to its assembly process rolling.

Elio needs investors—and lots of them—to make its dream of selling millions of three-wheeled, two-passenger cars a reality.  The catch is that Elio wants to sell to a country seemingly ready to talk-the-talk when it comes to reducing emissions, but not quite ready to walk-the-walk by turning its back on gas guzzlers. It gets complicated.

First, the major players like Ford, Chrysler, Toyota and Honda are still learning how to squeeze every drop of efficiency from internal combustion engines. That means that car and truck buyers, when faced with the fateful decision between some form of hybrid/electric/alt fuel car, versus the latest gasoline powered car that gets even better mileage than the same model did two years ago (and with dazzling new bells and whistles), well, electric is a tough sell. Why not just upgrade to the latest Honda, Toyota, of Chevy?

Secondly, gas prices have been in a steady state of decline since last summer, and experts say we may go into one full year of oil price deflation before things stabilize worldwide. This has injected spending in the economies of the U.S. and other countries, but those flat oil prices have also triggered a mini-energy recession, causing major slowdowns and shutdowns in the oil boom areas of the Dakotas and fracking regions across the Midwest and Plains States. Furthermore, lower oil prices have made it easier for people considering a new car to defer the decision to green to a later date. With oil less than $50 per barrel worldwide, it becomes for buyers easier to kick that can down the road.

The major shale oil operators in the U.S. and Canada have been engaged in a price war with several OPEC nations, most prominently Saudi Arabia, Kuwait and Oman—three countries pumping crude at unprecedented levels and flooding world markets. Saudi Arabia shows no sign that it intends to blink first. Additionally, Iraq, Venezuela, and Russia—all strapped for cash and facing varying forms of recession—are adding to the global oversupply. When Iranian oil begins to flow as trade sanctions begin to ease this summer, the problem of too much supply could get worse.  (On the other hand, if Iraqi troops lose the long fight for control of the massive oil refinery at Baiji, Iraqi supplies could briefly dry up).

And though there is strenuous debate on the subject, some analysts believe that Americans may be using their gasoline more frugally thanks to GPS systems, smart phones, and other forms of technology which streamline drive times, reduce waste and make getting from Point A to Point B more efficient. At least that’s the theory.

But the bottom line question remains: if gas prices remain low for the foreseeable future, will this new market reality stunt the growth of the electric car?

Clearly, Tesla—despite the relatively high price tag—has the traction it needs to move forward into profitability. The hope is that demand and supply will reach that harmonious point where mainstream buyers start taking the leap. Tesla’s relatively sticker price has been offset by many new high end buyers, drawn to the Tesla business model of a full-sized sedan easy to charge in the garage, and CEO Elon Musk’s goal of completing a massive network of charging stations from one end of the North American continent to the next. And not to be outflanked by the major players who offer the advantages found in the ever-popular SUV, Tesla plans to introduce its own sport utility vehicle in the fourth quarter of 2015. Tesla has also made major breakthroughs in its battery division, and a recent partnership with Panasonic to churn out lightweight batteries indicates that Musk has proven his ability to make money for his partners.

Elio, meanwhile has the larger challenge, despite the fact that its sticker price is so low on the front-end. At $6,500 per car, there is virtually no risk for many potential buyers, but the little car’s out-of-the-box weirdness—three wheels, limited interior space—may continue to instill consumer skepticism. Automotive historians also like to point out that no three-wheel car has ever made it successfully into the U.S. market since the late 1930s—meaning American drivers may have trouble with a triangular wheelbase. Elio’s ultra-efficient subcompact also suffers from the perception that it is little more than a glorified three-wheel-gas-powered bike with a skin. (Thursday Review’s previous article about the Elio, from last summer, prompted plenty of comments from readers, one of whom suggested that all the Elio needed was a sidecar to add more room). Plus, in some states the little Elio qualifies as a motorcycle, not a car—creating a strange brew of insurance rules and documentation complexities for potential buyers.

Further hampering the advance of Elio: delays getting a production line model with a real engine into testing on the open road. Elio is just now putting finishing touches on its engine, and it is not clear when ready-to-sell models will be hitting showrooms.

Meanwhile, electric competition comes from some of the traditional automakers. Chevy’s Bolt, slated for release to the public in less than two years, will come with a $30,000 sticker price, but offers 200 miles of driving on a full charge. Nissan’s Leaf, which is already a big seller, is expected to have a similar range by the time Nissan completes design changes sometime in 2016. Other companies—like Audi—also plan to introduce all-electric vehicles as well, but those cars may be another three years in the making.

Toyota has said it prefers to stick to its now popular hybrids, and plans to manufacture its all-electric Mirai only in limited, boutique numbers—at least at first. With a hefty price tag of more than $70,000, Toyota will essentially build the car based only on custom orders. Business analysts and auto observers suggest that Toyota is hedging its bets—waiting for Tesla, Nissan and Chevrolet to do the heavy-lifting in the marketplace before it commits further to what it fears could be a technological cul-de-sac.

In short, consumer analysts say that potential car buyers can—for the next two to four years—still expect to find better purchases from among the increasingly diverse range of hybrids, many of which provide vast improvements in fuel-efficiency while also measurably reducing emissions.

Related Thursday Review articles:

Tesla: A Case of Supply Versus Demand; Thursday Review staff; November 7, 2014.

Tesla’s Open Source Gamble; R. Alan Clanton; Thursday Review; June 15, 2014.