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Is the Decline in Oil Prices Really a Threat to the Hybrid Car Industry?

Coinciding with the dramatic decrease in oil prices in the later part of 2014, various media reports have revisited the consumer’s economic benefit from owning a hybrid automobile versus a fuel dependent one.

save-moneyA recent article in Bloomberg Businessweek compared the price of driving three cars that are comparable in size—a hybrid car (Toyota Prius), a gasoline-powered car (Chevy Cruze), and an electric car (Nissan Leaf). The comparison shows that over time (a period of 30 years) the total expense to operate and drive the hybrid and gasoline powered vehicles were basically the same. According to the article, the electric car was far more cost efficient to own and operate than either the hybrid or gasoline automobiles.

The article admits its own shortcomings in comparing the cost-savings of these three vehicles. These include assuming oil prices remain stable and as low as they currently are over a thirty-year period, and the failure to include the initial cost of a residential charging station an electric vehicle owner may incur. But a primary issue with this article is its reluctance to address the non-monetary value consumers place on reducing their environmental impact by purchasing electric cars.

The recent Detroit auto show, as reported in a Reuters article, gave the industry a platform to discuss the implications of falling gas prices on consumer vehicle preferences. Low gas prices have driven increases in demand for less fuel-efficient vehicles such as heavy trucks, SUVs, and luxury cars of the high-performance variant. Rather than rejoicing a return of interest to gas-hungry cars, the industry is focused on developing and selling electric and hybrid cars. This is due to the U.S.’s requirement that all vehicles sold in 2025 average 54.5 miles per gallon or greater (potentially subject to adjustment based on real-time shifts in the data models). The future policy regulations require automakers to increase research and development spending on vehicles with increased fuel efficiency, while the current marketplace suggests that a waning in consumer interest in fuel-inefficient vehicles is unlikely to occur anytime soon.

obama-cafe-standards-0711-deBoth consumers and manufacturers should continue to assess the non-monetary benefits that electric and fuel-efficient cars bring. Beyond oil-independence and a reduced impact on the environment, the prevalence of these vehicles in the marketplace may induce other benefits such as an increasingly more accessible price for consumers.

Submitted by:

Nicholas Farrae
Senior Analyst, Economics and Gaming

 

The views, interpretations, or strategies expressed are those of the authors, and do not necessarily reflect the position of TMG Consulting. This site is meant for educational purposes only and does not constitute professional advice. TMG Consulting makes no representation as to accuracy, completeness, or suitability of any information on this site and will not be liable for damages arising from its display or use.


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