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How does the price of oil affect EV sales?

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One of the elements influencing demand and adoption of electric cars (EVs) is the price of oil. Higher oil prices often raise the cost of gasoline and diesel, raising the running expenses of internal combustion engine (ICE) cars.

This might encourage people to convert to EVs, which have reduced fuel and maintenance expenses. Lower oil prices, on the other hand, may make EVs less appealing since the cost savings from driving an EV are less substantial when compared to driving an ICE car.

However, the link between oil prices and EV sales is not clear since other factors like legislative support, customer preferences, technological innovation, and cost reduction all have an impact on the EV industry.

According to certain research, oil costs, for example, have a greater influence on EV sales in nations with poorer policy support for EVs, such as the United States. Countries with more EV policy backing, such as China and Norway, have experienced significant EV sales even when oil prices were low.

Furthermore, some consumers may choose EVs for reasons other than cost savings, such as environmental consciousness, performance, or social standing.

As a result, the impact of oil prices on EV sales may vary depending on the context and time horizon. Rising oil costs can improve EV sales in the short term by making them more economically appealing when compared to ICE cars.

However, in the long run, the EV market may become less vulnerable to oil prices as EV costs fall owing to learning curves and economies of scale and as more people adopt EVs for non-economic reasons.

Furthermore, the worldwide trend toward decarbonization and electrification may lessen the transport sector’s reliance on oil in the future.

Comparison of oil prices to EV costs and their possible impacts on different countries:

  • There are multiple factors influencing oil prices and EV costs, such as supply and demand, policy support, technological innovation, and cost reduction. However, as straightforward as it may seem, it is not. Factors such as consumer preferences, the availability of models, and charging infrastructure are major factors affecting the EV market.
  • Oil prices are cyclical and fluctuating, depending on the balance between supply and demand. Higher oil prices can raise the running expenses of internal combustion engine (ICE) cars, creating an incentive for consumers to convert to EVs, which have cheaper fuel and maintenance costs. Lower oil prices, on the other hand, may lessen the attraction of EVs since the cost savings from driving an EV are less substantial when compared to driving an ICE car.
  • The cost of batteries, which accounts for around 30% of the entire cost of an EV, is the primary determinant of EV expenses. Battery costs have decreased dramatically over the last decade as a result of learning curves, economies of scale, and technological advancements. However, battery costs are also influenced by raw material prices such as lithium, cobalt, nickel, and so on, which can change based on supply and demand.
  • According to some forecasts, EVs will be less expensive to manufacture than ICE vehicles by 2027, making them more competitive and accessible to mass-market buyers. However, depending on the availability of models, subsidies, incentives, taxes, and laws, this may differ among locations and segments.
  • The comparison of oil pricing versus EV costs over the next decade will have varied effects on different nations, depending on their degree of development, policy support, consumer behavior, and energy security.

Some examples are:

  • China is the largest EV market and has considerable regulatory support for car electrification. China is also a significant oil importer, and it has air pollution and climate change issues. As a result, although lower oil prices may benefit China in the near run by lowering its import bill and increasing inflation pressure, lower EV costs may benefit China in the long term by boosting its energy security and environmental quality.
  • The United States is the second-largest market for EVs, with EV sales expected to increase in 2022 owing to increased oil costs and new models. The United States is also a significant producer and exporter of oil and gas, and it confronts geopolitical and climate change issues. As a result, the United States may confront a trade-off between lower oil prices that help its oil sector and lower EV costs that enhance its clean energy transition.
  • Europe is the third-biggest market for EVs and has strong regulatory support for car electrification. Europe is also a big importer of oil and gas, and it faces energy security and climate change issues. As a result, Europe may gain from both reduced oil prices, which cut its import bill, and lower EV costs, which boost its energy security and climate ambition.
  • India is a developing market for EVs, with limited regulatory assistance for car electrification. India is also a big importer of oil and gas, and it has economic and environmental concerns. As a result, while increasing oil prices raise India’s import bill and inflation pressure, lower EV costs cut its energy reliance and pollution levels.

Sources:- CleanTechnica, auto economictimes, nasdaq, iea, the guardian

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