Data analytics and consulting company GlobalData says lower oil prices as a result of the Covid-19 crisis could reduce electric vehicle (EV) demand and impair European Union (EU) efforts to significantly reduce average new vehicle carbon dioxide (CO2) emissions in the European car market.
“GlobalData’s analysis suggests that low oil prices will lead to a longer wait for the reduced fuel costs offered by EVs to amortise their higher purchase prices,” says automotive analyst Mike Vousden.
“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.”
EVs typically cost more than equivalent internal-combustion-engine (ICE) vehicles using petrol or diesel, but their lower running costs reduce that price differential over time and, in the longer term, end up costing less overall than their ICE counterparts.
However, the time taken to make up that price differential depends on the cost of fuel.
Higher prices at the pumps mean EVs make up their extra purchase cost sooner, while lower fuel prices see ICE cars remain cheaper than EVs for longer.
“Much lower pump prices for [petrol] and diesel have been ushered in by the Covid-19 crisis and a big hit to global oil demand,” says Vousden.
“If pump prices are low in the long term this will throw into question the economic case for users switching to EVs.
"In the long run, this could see fewer motorists switching to EVs, putting governments’ ambitious targets for electrification at risk and potentially bringing increased fines for vehicle manufacturers not complying with EU fleet average CO2 targets.”