Lux Research: despite cheap oil, niche plug-in vehicle sales will be resilient; conventional hybrids to be hardest hit
The current plunge in oil prices will likely negatively affect plug-in and hybrid vehicle sales in the short term; automakers such as BMW are already warning of lower sales of plug-in vehicles given the market context. However, an analysis by Lux Research suggests that despite some decrease in sales, sales of plug-in vehicles will likely be resilient, and rebound as oil prices rise back to the prior higher levels over time.
In the likely case of only a gradual return to previous higher prices—which Lux calls the “cheap oil” scenario in its analysis—then electric vehicle (EV) sales will dip by 20% for a number of years, while plug-in hybrid (PHEV) sales will dip by about 14% during that same period, the research firm found. The forecast declines are relative to the other forecasted scenario, in which oil prices rebound much more quickly—the “stable oil” scenario.
|Anticipated price of oil and forecast plug-in sales. Source: Lux Research. Click to enlarge.
The reason for this partial but not dramatic drop is that the consumer base for EVs and PHEVs remains relatively insensitive to oil price: These early adopters are driven more by environmentalist concerns or technical differentiation rather than oil price.
|Lux on the price of oil
|Lux emphasizes that today’s low oil prices are not here to stay; the prices are partly the result of a war for market share between different oil suppliers, leading to a relatively unsustainable situation that will eventually correct itself.
|Eventually some oil producers will find they can no longer compete—i.e., oil prices will eventually creep back up.
To take an example, the Tesla buyer that can afford to pay almost $100,000 for an EV is not swayed too much by the economics of the gas pump. Not all EV buyers are rich, Lux notes, but many buyers of less expensive EVs such as the Nissan Leaf are early adopters driven more by environmental concerns and plug-in vehicle perks rather than gas prices.
Nonetheless, the loss of 14% to 20% in sales depending on drivetrain will be an unwanted surprise for makers of plug-in vehicles. In addition to these plug-in vehicles, Lux expects hybrid sales will be the hardest-hit, with volumes dropping by as much as 33%, since a significant portion of their buyers do look carefully at gas prices and payback period.
The situation will gradually correct itself as oil prices return to higher levels by the end of the decade, Lux suggests. That being said, a return to normal oil prices is not totally guaranteed by the end of the decade, adding an extra risk for automakers such as Tesla that hope to sell 500,000 EVs around that time—for which they will need a mass market tired of costly gas.Background. During the past half year, oil prices have plunged from $115/barrel in June 2014 to less than $50/barrel today. For car buyers, this plummeting oil index results is lower gasoline prices when refueling. In the US over that same period, gasoline prices have fallen from $3.7/gallon to about $2.1/gallon. Historically, inexpensive oil and gasoline has meant that more car buyers turn their focus away from fuel efficient vehicles; this Lux says, is supported by sales data of hybrids.
During the 2008 oil crash when US gasoline prices dropped by 58% in half a year, Toyota Prius sales in the US fell by 47%. More recently, when during the latter half of 2014 gas prices dropped by 31%, Toyota Prius sales fell by 22%.
|Historically, sales of hybrids such as the Prius have dropped during periods when fuel prices plunge. Source: Lux Research. Click to enlarge.
The data is admittedly noisy, influenced by shoppers’ preferences to buy on certain months, and affected by random external factors like Toyota Prius production slowdowns because of the 2011 Tōhoku earthquake and tsunami. Nonetheless, Lux says, the fact remains that consumers are influenced by gasoline prices when choosing what vehicle to buy.