Electric Vehicle Falling oil prices due to COVID-19 could reduce EV demand, says research
Between late February and late March this year, oil prices dropped 44 percent, due to the COVID-19 spread. The falling oil prices could result in fewer people transitioning to electric vehicles, according to GlobalData research.
As the coronavirus threatens the world economy, it also jeopardizes the demand for oil. Over the last month, the price of crude oil has fallen by 44 percent. While one oil barrel cost $57.50 in late February, it went for just $26.70 on March 19—a decrease of no less than 53.6 percent.
Lower fuel prices mean less incentive to opt for EVs
From the buyer perspective, lower oil and the subsequent drop in fuel prices mean there's, at least temporary, less incentive to opt for a plug-in hybrid or battery-electric vehicles, despite electricity prices still being lower.
Mike Vousden, Automotive Analyst at GlobalData, said: "GlobalData's analysis suggests that low oil prices will lead to a longer waits for the reduced fuel costs offered by EVs to amortize their higher purchase prices. This could prove very problematic for the industry in a year that was supposed to mark the big shift to EVs to reduce fleet CO2 emissions in line with new tighter EU CO2 targets."
However, not all records point to that the EV demand worldwide is to decrease as the oil price drops. Fuel prices in Europe depend primarily on taxes. And as a result, the last month's fuel price crash has been less marked in Europe than elsewhere in the world.
Today, electric vehicles are typically more expensive than equivalent internal-combustion-engined (ICE) vehicles. Still, electric vehicles' lower running costs reduce that price differential over time and. In the long run, studies show that EVs cost less overall than their ICE counterparts. However, lower prices at the pumps, would, of course, mean that EVs make up their extra purchase cost later, or not at all. Lower fuel prices, on the other hand, see ICE cars remain cheaper than EVs for longer.
Mike Vousden also commented: "Much lower pump prices for gasoline and diesel have been ushered in by the COVID-19 crisis and a big hit to global oil demand. If pump prices are low in the long-term, this will throw into question the economic case for users switching to electric vehicles," continued.
"In the long run, this could see fewer motorists switching to EVs, putting the government's ambitious targets for electrification at risk and potentially bringing increased fines for the vehicle manufacturers not complying with EU fleet average CO2 targets."