Everyone wants to complain about rising fuel prices but nobody wants to consider alternatives like plug-in hybrids or full electric vehicles — especially truck and SUV consumers. A recent Fuel Price Impact Study by automotive consulting firm AutoPacific all but confirms this.
“In January, our nationwide sample reported paying a median price of $3.32/gallon,” said Ed Kim, president and chief analyst for AutoPacific. “An overwhelming 65% of them expect that they will be paying more a year from now, and the median price they expect to pay is $3.79, or 46 cents more per gallon than they paid in January.”
But will the rise in fuel prices cause a decrease in internal combustion engine SUVs and trucks and a push toward electrification? If what AutoPacific found is true, the answer to that question is no. But let’s take a closer look at what the Fuel Price Impact Study found.
This was the all-important question we asked Kim, and he said the survey reveals a very clear answer.
While more than half of the respondents said higher fuel prices would not cause them to change the type of vehicle they drive, those who said higher fuel prices would cause a change indicated fuel prices would have to reach at least $1.12 per gallon more than they paid in January.
“In summary, 53% won’t change the type of vehicle they drive regardless of fuel prices, and of the 23% who say fuel prices would make them change, fuel prices would have to get to a median of $4.44/gallon,” Kim said.
It’s no secret people love their trucks and SUVs. These vehicles occupy the top tier of the best-selling lists year after year. And likewise, these are some of the most profitable vehicles for auto manufacturers.
Improvement in fuel-economy technology and engineering has made it possible for more consumers to stay in these vehicles longer, despite rising fuel prices.
AutoPacific conducted a similar Fuel Price Impact Study in 2012, and the sample median fuel economy was 24 MPG. However, at that time there were far more cars (rather than trucks and SUVs) on the road than there are now. The 2022 study is now skewed toward more SUVs and trucks, and yet the median fuel economy remained at 24 MPG.
So trucks and SUVs grew in popularity while cars became less common, yet the fuel economy average remained.
It’s easy to think that higher gas prices mean more people will seek out EVs. And certainly as automotive manufacturers begin making EVs more common and readily available the higher fuel prices might mean now is the time for consumers to take the EV plunge.
“While demand for EVs is certainly growing, there is still a long way to go for mainstream acceptance, and there isn’t yet an overwhelming natural demand for electric vehicles,” Kim said. “This is a case of regulatory push rather than consumer pull.”
As automakers such as Ford and GM claim to have huge demand for their upcoming electric trucks, even if all those orders converted, they’d still be marginal when compared to the number of units sold for gasoline versions of the Ford F-150 or Chevy Silverado. And the auto manufacturers aren’t fully established in their facilities to produce EVs en mass the way they are for internal combustion engine (ICE) pickup trucks.
Trucks and SUVs are high-margin vehicles accounting for big profits for manufacturers. So will EV versions of SUVs and trucks also be cash cows? Probably not.
“EVs represent a high-cost and low-margin proposition compared to the most profitable ICE vehicles,” Kim said.
He was pretty blunt about what automakers have to do in order to make EVs more profitable, and basically, they have to think globally and rely on overseas EV adapters and global success to make the numbers work.
“The automakers need to control their costs and maximize the return on investment in electrification, which from an automaker point of view is an absolute necessity due to regulatory demand particularly in China and the EU. In order to make those programs work, the automakers need global volume and as the U.S. is no longer the largest or most important automotive market anymore,” Kim said. “Demands in markets like China guide automakers’ strategies more than ever today.”
The transition from ICE to EV will be the biggest challenge. Artificial timelines won’t work, as the U.S. consumer will dictate the pace, rather than some arbitrary date given by a CEO.
“It’s not economically feasible for most automakers to keep investing in both ICE and fully electrified powertrain technologies,” Kim said. “This is why automakers competing in the U.S. are still pushing hard on electrification despite modest (but growing) consumer demand for them. So, it’s not so much that automakers are fooling themselves regarding electrification, but it is more about automakers needing the U.S. market to get on board in order to make global EV programs pencil from a business point of view.”
What I learned from this survey is that automakers would be very wise to pay close to attention the American consumer and offer them vehicles they want, rather than force vehicles they’re less interested in upon them. A slow transition from ICE to EV is what this country needs. Even with rising fuel prices, you can’t just snap your fingers, set a random date and be like the Soup Nazi and shout “No gas vehicles for you!”
The American consumer is savvier than that and won’t fall for it. Truck and SUV buyers are even more skeptical and unsure. Both Kim and AutoPacific revealed something very telling in the information they provided. The line stated earlier warrants being repeated: “This is a case of regulatory push rather than consumer pull.”
Well said. Will the auto manufacturers be pushed or pulled?