Motoring trends 2015: Will lower fuel prices kill hybrids and electric vehicles?

The Toyota Prius

MOTORISTS have breathed a sigh of relief this Christmas season. Not because of any respite from traffic, which has been worse than ever, but because fuel prices have gone down. It’s unusual that fuel prices have decreased during winter season, as demand usually goes up due to the need to heat homes and buildings.

The Economist cites four factors for the drop in oil price: low demand due to weak economic activity, increased efficiency and a switch to other fuels. Second, the market is more calm about geopolitical risk. Political turmoil in Iraq and Libya, both big oil producers, have not affected their output. Third, America has begun producing its own oil, and importing less. Lastly, the Saudis have decided not to cut their production in order to keep their market share. Thus the price has fallen from $115 per barrel just six months ago to $70. At the pump we have seen the price fall at least 21 percent this year.

Will the new cheap oil change consumer behavior when it comes to driving and the choice of vehicle?

First of all, cheap is relative. Gasoline prices below P40 per liter may seem cheap now, but it’s still expensive compared to the single-digit prices we had circa 1996. The oft-cited dollar-per-gallon gasoline price in America will likely not be seen again.

Fueling up a car, even with the reduced prices, is still expensive. Consumers are likely to breathe a sigh of relief, not change their behavior and go back to buying trucks like the Ford Expedition.

The trend towards small cars will continue, as consumers appreciate their efficiency both at the fuel pump and at the garage or parking space. The high level of convenience features and safety equipment of even subcompact cars will give buyers less reason to pine for larger automobiles.

As diesel fuel effectively enjoys a subsidy in the Philippines, it will continue to be the fuel of choice for larger vehicles. No automaker will want to be caught without a diesel engine for its pickups and SUVs.

Hybrids and electric vehicles seem to be the ones with the most to lose in a cheap-oil scenario. Electric carmaker Tesla has seen its share price plummet by 15 percent in the wake of cheaper oil. Saving fuel may have been a good justification for purchasing or taking out a lease on a Tesla. Using the fuel savings calculator on the Tesla website, what used to be $4,200 in theoretical fuel savings is now $2,600. Toyota has also seen sales of its Prius hybrid decrease this year.

Still economical

Nissan boss Carlos Ghosn declares that even with falling fuel prices, electric vehicles are still more economical. He cites figures that peg operations of the electric Nissan Leaf at 3.5 US cents per mile (P2.50 per kilometer equivalent) compared with 11.9 cents per mile for a subcompact gasoline car (P8.51 per kilometer). “Going green means saving green,” says Ghosn.

And it’s not just about the fuel savings. Those purchasing hybrids and electrics profess concern for the environment as one of the reasons for their choice of vehicle. Image and self-satisfaction can’t be discounted either. One of the proponents of the air-cleaning paint along EDSA has quite deliberately chosen a hybrid for her daily vehicle. It’s part of her commitment to cleaner air, she explains. It’s certainly not just savings she’s after, as the hybrids she has chosen come from the Lexus stable.

As for driving, cheaper fuel will encourage motorists to use their cars more, particularly with the decrepit and sometimes unsafe state of public transport in Metro Manila. This will lead to heavier traffic and record levels of pollution in the city.

This is where lower oil prices can help. Cheaper oil may help clean up the air, as cleaner fuels, previously too expensive, become more affordable. With the improved fuel, automakers can release vehicles with cleaner emissions. This would be an opportune time for our own Department of Environment and Natural Resources to push for cleaner fuel standards.

The automotive industry will continue its relentless push towards greater efficiency, and the oil industry should follow do their part by making available cleaner fuel. Then we’d all breathe a little easier.