Charge! Electric Cars Fueled by Higher Gas Prices
Business + Economy

Charge! Electric Cars Fueled by Higher Gas Prices


Turmoil in the Middle East, uncertainty about oil prices, and gasoline still flirting with the nerve-rattling level of $4 per gallon in some parts of the country are making consumers nervous. Even after prices slipped in response to concerns about reduced demand from the crisis in Japan, oil is now trading at about $100 a barrel. Prices are likely to stay high in the near term, or even rise further, given recovering economies in much of the world,  unrest in the Arab world, and the coming summer travel season.

We’ve been there before, only worse. In 2008, when oil peaked near $150 a barrel, car buyers stampeded away from big, gas-guzzling vehicles and overall auto sales collapsed. Just as Hummers were practically being given away, automakers responded with fleets of smaller hybrid vehicles, and the path to sustainable energy consumption was set.

The good news today is that the U.S. is better prepared to cope with an oil crisis with the advent of the electric car. All but written off in the 1990s, following GM’s decision to junk its EV1, dozens of highly efficient electric vehicles (EVs) are headed for U.S. roads this year and next.

“It’s not just improved car technology,” says Jack Hidary, Global EV Leader at Hertz, which is rolling out electric vehicles at rental sites in the U.S. and overseas. Beyond carmakers, other big players “see a roadmap of business models to make EVs a commercial success,” says Hidary, a technology entrepreneur who was a co-architect of the federal Cash for Clunkers program.

Property developers, parking lot operators, cities and even startups developing parking meters that double as power points are testing ways to include EV recharging as an allure, and a way to profit. Big retailers and restaurant chains are testing charge points as a way to attract customers, and to encourage them to linger — and spend — longer. McDonald’s, Wal-Mart and Walgreens have announced trials to install free charging devices.

Best Buy is partnering with Ford to install and service electric car chargers in household garages. Eager to boost adoption of the technology while benefitting from the lower operating costs of EVs, General Electric has committed to add 25,000 battery-powered vehicles to its corporate fleet.

“The 90s were like EV 1.0. We’re in EV 2.0 now,” adds Hidary. “EV 2.0 means the marriage of vehicle technology and information technology,” giving drivers constant access to data about recharging sites, vehicle status, power prices and related incentives.

Compared with GM’s early efforts with the EV1, today’s electric vehicles have batteries that are lighter, go farther and cost less. Scores of utilities, from PSE&G in California, to NRG in Texas, to Con Edison in New York are pumping millions of dollars into public charging networks and the “smart grid” infrastructure necessary to recharge vehicles at home. GE and Siemens are competing with lesser-known startups to supply the charging stations.

G.M. has earned praise for its Chevy Volt, which goes 35 miles per charge and switches to a gas engine when its batteries run down. Ford, Honda, Nissan, Renault and Toyota have followed suit, with plans to deliver all-electric or hybrid-electric models in the near future. They will join a market currently dominated by micro-brands such as Tesla, Th!nk and Fisker.

Government mandates have provided big incentives for vehicle innovation. In May 2009, the White House pushed through the biggest increase in gas mileage requirements in a generation. By 2016, the minimum average mileage for new cars, light trucks and SUVs sold in the U.S. has to hit 35.5 miles per gallon (mpg), up from just over 23 mpg at the time.

Obama extended or introduced tax credits for a variety of green car programs and charging networks, including tax credits of up to $3,400 for a new hybrid, and between $2,500 and $7,500 for plug-in electric cars — a big incentive for vehicles such as Chevy’s $40,000 Volt or Nissan’s $30,000 Leaf. EVs can be fueled from household plugs for dollars per month. Fear of the $100 fill-up is one reason consumer sentiment —though a moving target—is shifting towards greener options, says Erich Merkle, an industry analyst at Ford. In January 2011, sales of big SUVs had shrunk to 7.4 percent of total sales, down from 11.9 percent in 2007, the height of the last economic growth cycle. Sales of pickups and vans have also fallen, though not as sharply.

Small cars grew to 18.4 percent of sales from 15.8 percent, while crossover utility vehicles surged to 26.7 percent from 17.2 percent. Typically lighter and more efficient than SUVs, but offering similar capacity, CUVs have attracted many former SUV buyers, Merkle says.

The greener options are slowing the growth of oil consumption. In 2007, the average mileage of new cars and light trucks, including SUVs, was 22.8 miles per gallon. Last year, the average had climbed to 24.3 mpg, according to Standard & Poor’s, which reduces annual oil consumption by more than 10 million barrels.

“We expect gas prices to rise over time, even without a prolonged spike now,” Robert Schulz, a credit analyst who follows carmakers at Standard & Poor’s, wrote in a recent note on the impact of $4 per gallon gas. “Accordingly, automakers (and suppliers) are in a race of sorts to align their products with higher fuel prices and environmental standards.”

How much higher can oil prices go? BofA Merrill Lynch Global Research raised its prediction to $122 per barrel, on average, for the second quarter. Even though political unrest in the Middle East is driving oil market anxiety now, Francisco Blanch, the bank’s head of Global Commodities Research says good old-fashioned demand, “expanding at a breakneck pace,” is also pushing up prices. If there were a broad shutdown of production in the Middle East, even $200 per barrel oil is possible, he writes.

Related Links: 
With Gas Prices Rising, Electric Vehicle Owners Are Charged Up (L.A. Times) 
Will $4-a-Gallon Gas Ignite an Electric Vehicle Frenzy? (VentureBeat)
Can an Electric Car Save the American Dream (Salon)