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What will cheap gas do to electric cars?

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When GM introduced Detroit's first modern, mass-produced electric car — the doomed EV1 — the average cost of gasoline was $1.82 per gallon. That's not far off from what we're paying today. Of course, back then, no one was talking about fuel economy, and the cheap gas boosted sales of the gas-guzzling trucks and SUVs that dominated the era. GM's EV program was dead in the water, documented by the 2006 documentary, Who Killed the Electric Car.

Ironically, 2016 is the year that EVs are finally turning mainstream, just as oil is getting really, really cheap again.

This year, GM unveiled the production version of the sub-$40,000 Bolt at CES, and Tesla is expected to unveil the Model 3 in March. Nissan, Ford, and Volkswagen are making aggressive moves to expand the number of EVs in their fleets in the near future. Toyota has said it will virtually eliminate gasoline by 2050, using a combination of hydrogen, EVs, and hybrid vehicles.

"We all have short memories."

But will a collapsing oil market derail the progress?

It's still the early days for EVs, which account for a tiny fraction of total vehicle sales. Constantine Samaras, assistant professor in the department of civil and environmental engineering at Carnegie Mellon University, says that 116,597 battery electrics and plug-in hybrids were sold last year, a figure that dropped slightly from the 123,049 sold in 2014. Out of the 17.5 million cars sold in the US in the last 12 months, EVs made up only a small percentage.

Instead, the bulk of new vehicles sold in the US were lightweight pickup trucks, which tend to guzzle gas compared to passenger cars — and the availability of cheap gas played a role. "The big risk for the climate is that low gas prices induce people to buy bigger, less efficient SUVs, and light trucks. We all have short memories," he says, referencing the $4 gas Americans were dealing with just a few years ago. Even though consumers hang onto their vehicles for an average of 11.5 years, they tend to focus on the short-term savings.

At some fuel stations, there is a sense of giddiness about the situation, including one northern Michigan fuel station making headlines recently for selling gas at $.49 per gallon. But not everyone in the US is thrilled about cheap gas — the economies in gasoline-producing states like Alaska, Texas, North Dakota, Oklahoma, and Louisiana are especially hard hit. The slumping price of oil has also caused stock market turmoil in recent weeks. And for proponents of clean energy, low gas prices can stymie efforts to reduce carbon footprints.

Not only does cheap gas inspire customers to purchase less fuel-efficient vehicles, it also significantly increases the number of miles driven, boosting carbon emissions. Put simply, people drive more when gas is more affordable. "Everyone thought the US had hit peak driving in 2007. And we were all wrong. US vehicle miles traveled have been going up every month since March of 2014, passing the previous peak," Samaras says. In fact, the Federal Highway Transportation Department just reported that 2015 was probably a record year.

Cheap gas significantly increases the number of miles driven

More time on the road doesn't just threaten the environment — the roads themselves are at risk, too. "More people driving more miles in cars and light trucks will stress an already overburdened transportation infrastructure, which hasn't seen an increase in the federal gasoline tax since 1993. "Layered on top of all of that is the need to invest in climate resiliency for transportation infrastructure, and there is a perfect storm of more demands for infrastructure investment with less funding available."

Basically, cheap gas leads to cruddier roads.

But it's always hard not to get excited about saving money, and in the immediate future, consumers will continue to do just that. The US Energy Information Administration projects that gas prices will stay low in the short term — and some economists who study global oil markets believe this trend will persist in future cycles. "My personal opinion is that motor gasoline and diesel prices will remain flatter in the outlook, because there's going to be an overhang of crude oil, Iran coming on, and OPEC producers refusing to cut back on their output, and the fact that the Chinese are not importing nearly as much oil," says Michael Morris, industry economist for the Energy Information Administration. "That's likely to continue for the next several months."

gas prices-stock-jan 2016-ap-01*
(Star Max/IPx)

It's still early to say whether cheap gas will cause carmakers to reconsider investment levels in EVs and alternative fuels — but, like self-driving cars and ride-sharing, electrification is often viewed as a long-term strategy. "It's really not a change in [our plan] at all. We're a full line manufacturer and we think there's huge interest" in EVs, says Mary Barra, CEO of General Motors, which has the Chevy Bolt coming out later this year.

"At any other point in history, ultra-low gas prices would be all good news for the auto industry."

Across the industry, enormous resources are being poured into gas alternatives — and if prices stay low for a while, some automakers might opt to shift way from EVs, or lobby for changes in emissions regulations in the interest of making a profit. "At any other point in history, ultra-low gas prices would be all good news for the auto industry," says Michelle Krebs, a senior analyst for AutoTrader. "However, auto companies are being required by law and at great expense to design, develop, and build alternative fuel vehicles like electric vehicles and plug-in hybrids, vehicles out of favor with consumers with ultra-low gas prices being one of the reasons," she says.

For now, the companies leading the EV charge are sticking to their plans. "Low fuel prices continue to have an impact on EV demand among buyers who are solely focused on the price of gas," says Andrew Speaker, Nissan's director of electric vehicle sales and marketing. "We believe that EV sales will continue to rise over time due to increasing emission regulations and other reasons for purchase of EVs such as lower operating costs, reducing dependence on foreign energy sources, environmental concerns, and a great driving experience."

And if the industry stays on its current trajectory toward driverless, electric cabs, the price of gasoline may someday not matter. "We are lucky that we're entering an age where automation, electrification, and information technology are converging in the transportation sector," Samaras says. "A long period of low gas prices might slow down this transition, but it is unlikely to stop it." Imagine where GM would be today if it hadn't killed the electric car.


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