Why $4 gas won’t spark an EV buying spree

By Chris Isidore, CNN

(CNN) — Yustine Chang and her husband only have half the concern about gas prices they did a week ago.

The soaring price of gas near their Southern California home wasn’t the only reason they replaced their eight-year-old Mercedes C-class sedan with their first electric vehicle, a Rivian R1 SUV.

But it made the decision easier. Especially since their other car, a three-year old Mercedes GLS SUV, is a “gas eater.”

“The last time we filled up and gas was over $6 a gallon, that made our decision to look for an EV car a lot quicker,” Chang said. California has the highest average gas price nationwide at $5.83 a gallon.

Chang and her husband aren’t the only car buyers considering buying an EV as gas prices rise.

Online car shoppers were 17% more likely to search for information about an EV in the week beginning March 2 than the week before, according to Edmunds.com, just as gas prices started to climb. Interest jumped another 8% in the weeks that followed.

But window shopping doesn’t guarantee sales, said Ivan Drury, the director of insights at Edmunds. And there’s no sign automakers are rushing to build more EVs than already planned.

“I think (gas prices) piques interest, and consumers should rightfully be looking around, especially if they’re already in the market for a new car,” Drury said. “But going out and buying an electric vehicle simply on what we’ve seen over the last two weeks wouldn’t be extremely rational.”

Part of the reason is the cost. The average US price for a gallon of gas is up more than a dollar over the past month. But higher prices at the pump alone may not be enough for buyers to make the jump from a gas vehicle to an EV.

US households use between 50 to 60 gallons of gas a month, said Tom Kloza, an independent oil analyst who advises Gulf Oil. If the national average gas price stays around $4 per gallon, households will end up spending about $240 each month. That’s about a third of the average cost of a new car payment.

Electric vehicles on average cost about $6,500 more than gasoline-powered cars, according to Cox Automotive. New car prices are already close to $50,000.

Electric cars do save their drivers money over time as they end up paying less for fuel and maintenance.

But Americans know buying a car is one of the biggest purchases they could make, save for buying a home. So, it would take a sustained increase in gas prices for them to change buying decisions, said Stephanie Valdez Streaty, director of industry insights at Cox.

“The near‑term impact is more likely to show up in household behavior — with fewer trips and cutbacks elsewhere,” she said. “To materially change buying behavior and drive a trend toward smaller, more efficient vehicles, consumers would need to believe gas prices will remain elevated for years, not just months.”

Automakers not shifting back to EVs

Automakers poured billions into EV offerings in recent years, sparked by growing demand from buyers, tougher environmental regulations and soaring valuations for EV makers. Many automakers spoke about transitioning to an all-electric future within the next decade.

Those plans were helped by the promise of support from the Biden administration, including a network of EV charging stations, low interest government loans to build EV factories and a $7,500 tax credit for most EV buyers.

But that support quickly evaporated under Trump. The administration not only ended the tax credit for buyers but also scaled back tougher mileage standards and removed financial penalties for automakers that violated emissions rules.

US EV purchases fell by about 30,000 vehicles last year, from 1.23 million to 1.2 million, driven by the end of the $7,500 tax credit for EV buyers. Edmund’s Drury predicts another 20% drop this year, the biggest on record.

As a result, most automakers have significantly scaled back their EV plans. Drury and Valdez Streaty said they aren’t going to re-accelerate, even with the rise in gas prices.

Tesla, the largest American EV maker, reported its biggest drop in global sales last year and is pivoting to robots and self-driving robotaxis. It will halt production of its most expensive models to make room in its plant to build those robots.

Stellantis, the company that makes cars under the Dodge, Ram and Jeep brands, said it is “focused on giving customers a variety of propulsion options.”

Ford, which said it would lose $19.5 billion as a result of its EV pullback over the past year, told CNN it’s not changing its existing electric strategy due to the recent spike in gas prices.

For example, the automaker stopped building its electric F-150 Lightning pickup in December. With a starting price at about $55,000, that’s about $17,500 more than the base model of the gasoline powered version.

CEO Jim Farley told investors last month that Ford will concentrate only on more affordable EV models going forward.

“The customer has spoken. That’s the punchline,” he said.

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