Finance Finance News A petrol price slump will slow electric vehicles

A petrol price slump will slow electric vehicles

EV charging station subsidy
Unlike overseas, Australia's charging stations are few and far between. Photo: Getty
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Petrol prices jump around a bit, but most motorists will have noticed them creeping higher in the past 18 months, with average prices moving from $1.10 a litre in 2016 to around $1.30 today.

A large part of the price rise is due to supply cuts agreed to in November 2016 by the Organisation of Petroleum Exporting Countries cartel (OPEC), and by non-OPEC member Russia – though analysts are now predicting that deal could soon fall apart.

The market power of the 15 nations that make up OPEC was unthreatened, until recently, by anything other than wars or events such as the global financial crisis.

But that has changed in recent years.

Great strides in fuel efficiency and changes in consumption patterns in nations such as China have caused demand slumps, which obviously brings the price of crude oil down.

To that can be added new extraction techniques, such as for shale oil reserves, that have opened up vast oil fields in non-OPEC states, especially the US.

These new sources have ramped up production more quickly than most analysts had expected, which is why OPEC’s pricing power is increasingly under threat.

OPEC is also starting to sweat over the prospect that Russia will call time on the 2016 agreement to cut production. If it does, influential analyst Rystad Energy says prices could dive.

That would be good news for stretched Australian household budgets, but no reason to rush out and buy a petrol-guzzling V8.

The price of crude oil makes up only 42 per cent of the Australian retail price of a litre of petrol – costs of distribution, running retail outlets, paying taxes and excise or refining would not change – so even a large fall to $US45 a barrel would only shave around 15 to 20 cents a litre off the bowser price.

Nonetheless, static or falling petrol prices look set to continue working against one of the big energy trends of 2018 – namely the rollout of electric vehicles, or plug-in hybrid electric vehicles.

Electric Shock

Battery-driven cars have so far made little impact on the Australian car market.

At the end of 2016 market penetration was just 0.1 per cent of the national fleet, compared with 1.4 per cent in China, 1.5 per cent in France, 6.4 per cent in the Netherlands and a whopping 29 per cent in Norway.

So why aren’t they catching on?

The big difference in Australia is the lack of government subsidies, meaning that motorists face a higher ‘cost of ownership’ if they buy something like a Renault Zoe (costing from $42,500), BMW i3 ($78,000) or soon to be imported Tesla Model 3 (from $50,000).

Those ‘sticker-shock’ prices put many people off straight away, though depending on your driving habits the lower-priced vehicles – soon to include the Hyundai Ioniq family hatch at $35,000-$40,000 – can already beat the ‘cost of ownership’ figures for a petrol or diesel vehicle.

That’s because charging a vehicle from your home 240v power supply, or via a dedicated charging station, is much cheaper than buying petrol or diesel.

While every driver’s calculations will be different, one recent study compared the Volvo V40 T4 (diesel), a Toyota Prius (hybrid) and a BMW i3 (electric), and found that ‘fuel’ costs over a five-year period were 27 per cent, 16 per cent and 3 per cent of the ‘cost of ownership’ respectively.

Applied to, say, a $35,000 Hyundai Ioniq, it’s not hard to see how over the life of the vehicle it will be a lot cheaper than a petrol car – remembering that the internal combustion engine is a vastly more complicated machine than an electric motor and needs a lot more servicing.

But given the oil market dynamics described above, it’s hard to see many consumers getting serious about switching to battery-powered vehicles – especially in the absence of government subsidies to hurry the revolution along.

So far only the Greens have called for a form of subsidy scheme. Their policy is for the federal government to exempt EVs from import tariffs, GST, and to refund stamp duties and the first three years’ registration fees.

That, they say, would effectively lower the purchase price of an new EV by 20 per cent. And as an additional sweetener, they are calling for a $150 million fund to be set aside to help build fast-charging stations around capital cities.

That’s exactly what’s needed to start playing catch-up with nations which have already seen the benefit of the EV revolution – and doubly so if petrol prices do end up sliding lower in the years ahead.

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