The interplay between gasoline prices, electric vehicle purchases, and economic sentiment is what’s on my mind this morning. People seem to be feeling better about the economy overall, which is good for car sales, though it appears to at least partially be attributable to lower gas prices. Does that make sense?
It’s going to be one of those Morning Dumps where I’m going to try to lump some news together, and we’ll see if it produces one coherent idea of how the world works by the end of this. No promises that it will. I’ll start with some data about economic sentiment and the price of gas.
We’ll then shift to Toyota and GM. They’re two of the world’s largest automakers, and they both made different bets when it came to the timing of electrification. Now Toyota is shifting its timeline and GM is defending its position. You’d rather be Toyota now, but will that change? As the Guardians found out last night, it’s not over until you get at least 27 outs.
And, finally, Lucid is one of the EV manufacturers that saw huge sales increases. But at what cost?
Gas Prices Down, Vibes Up
I was listening to the Cox Automotive/Manheim Q3 update presentation in the car yesterday, as one does, and something struck me as interesting. You can see the presentation here if you’re not interested in listening to the velvet-tongued Cox economist Jonathan Smoke rap statistics about the current economic conditions weighing down car sales.
Here’s what caught my attention enough to pull over and pull up the chart:
You don’t need a degree in Statistics to understand that the two things appear to be negatively correlated to some degree. The degree in Statistics, however, might cause you to ask questions about whether or not these are actually correlated or maybe just cofactors. Any readers out there so inclined are invited to do a linear regression between gas price and Morning Consult Index to determine “r” so they can tell the rest of us.
I’ll just say that this makes more than a little bit of sense to me, as gasoline is one of the commodities we most often interact with, and the one that typically has the most variability (although eggs are giving gas a run for its money). This correlation is interesting because lower gas prices are not necessarily a good sign. High gas prices can be an indicator of economic growth or they can be a drag on economic growth. Low gas prices can be a sign of low economic activity that has depressed demand or they can be a sign of increased production. A paper from Georgia Tech on the relationship between GDP and gas prices basically determined that there is some interplay, but it’s not likely causal because there are too many other factors:
Through our research, we are able to conclude that there is a positive relationship between gas price and GDP per capita. Economically, this means that countries with higher gas prices, on average, also have a higher GDP. However, we do not believe this is a casual relationship. Rather, we are able to conclude, based on the available literature and our ability to reject our original hypothesis, that countries with higher GDP per capitas also have infrastructure that keeps gas prices high, such as government subsidies or taxes. This relationship appears to be stronger than the adverse effect that lower consumption would have on GDP per capita.
Shrug emoji.
It doesn’t really matter, because how you feel about the economy is extremely important to how well the economy operates, as people who feel good about the future tend to spend more money, therefore theoretically making the economy perform better.
Why are gas prices down right now? OPEC has tried to limit oil production to keep costs high, and it basically hasn’t worked because America has become an enormous producer of petroleum products. It’s funny that President Biden has essentially embraced ‘Drill, Baby Drill’ and been enormously successful at increasing America’s energy independence but can’t brag about it because environmentalists will get mad. Plus, with all the hybrid and electric vehicle sales, as well as general efficiency gains across ICE-powered vehicles, America has also probably reached peak gasoline consumption already. That doesn’t hurt.
Does politics play into this? Yeah, of course it does. In its Q3 wrap-up, CarGurus points out that the election may be keeping people out of dealerships.
Does a presidential election impact vehicle sales? CarGurus analyzed vehicle sales from 2002 onward, after December seasonality settled into its current trend, and excluded select years where sales were abnormally impacted: 2005 (GM’s employee pricing for all), 2008-2009 (Great Recession), and 2020-2021 (COVID). When comparing the seasonality of non-presidential years to presidential years, sales progress normally through July. However, presidential election years feature a decline in sales demand in August, October, and November. The slight overperformance in September for election year sales appears due to the depressive impact on sales in the surrounding months.
If gas prices stay low and the election actually ends in November (no promises) then I do think we might see a boom in car purchases, assuming nothing else strange happens.
Toyota Delaying More EVs In The United States
The decision to focus on hybrids in the short term has led to huge profit growth for Toyota, though even Toyota assumes that electrification will become more widespread in the United States. The expectation was that this changeover would be happening now. It’s not, or at least it’s not happening fast enough to match all the production plans that automakers like Toyota have made.
According to a recent report by Bloomberg, plans for an electric three-row SUV that the automaker was planning to build in Kentucky are being delayed:
The Japanese carmaker initially targeted late next year to begin output of a three-row, battery-powered SUV at an assembly plant in Georgetown, Kentucky, but a company spokesman said Wednesday that has slipped by a few months into the following year.
Toyota is still committed to making the as-yet-unnamed SUV in Kentucky from early 2026 and another unspecified all-electric SUV at a factory in Princeton, Indiana, starting later that year, he said.
This makes sense since, as CarGurus put it in the report linked above, it’s hybrids that are having the year that everyone thought EVs would have.
GM Tries To Make Investors Feel Better About EVs
General Motors has a lot of electric cars for sale and continues to push in that direction. At the same time, GM is conspicuously short on the hybrids that are driving sales growth this year. After years of hyping GM’s lead in electric cars, it sounds like CEO Mary Barra will reportedly take a less enthusiastic tone in her Q3 call with investors:
The slower-than-anticipated EV transition has caused many automakers to adjust plans, including GM and cross-town rival Ford, and GM’s messaging on Tuesday is expected to focus less on aggressive growth and more on stability.
That will contrast with years past as GM set ambitious targets to rival Tesla, including in 2021 when Barra said GM would double revenue to about $280 billion by 2030.
While EV demand has lagged since Barra set that lofty goal, executives are expected to assure investors that profits on battery-powered models are closer than they think and the introduction of eight refreshed ICE models between now and the end of 2025 leaves room for improvement of profit margins.
This was the year that GM’s electric vehicles were supposed to be profitable, but I’ve got a sense that it might not be this quarter.
Lucid Sales Up 91%
American electric automaker Lucid has stubbornly held on as rivals like Fisker have failed and VinFast have faltered. It probably doesn’t hurt that the Lucid Air is a better electric luxury sedan than just about anything else you can buy. All of that excellence came at a price that was too high for most, and the Lucid struggled early on to find customers.
Sales have been up for three quarters, with the company reporting deliveries of 2,781 vehicles, up 91% from Q3 of last year. Production also increased, though buy only 16%.
How did Lucid pull this off? As Automotive News explains:
Factory incentives on the large Air sedan increased 28 percent in the third quarter from the same period a year earlier to $19,403 per vehicle, according to Motor Intelligence. The Air has a starting price of $71,400 with shipping.
A key competitor vehicle, the Mercedes-Benz EQS sedan, had similar third-quarter incentives at $21,990 per vehicle, according to Motor Intelligence. The EQS starts at $105,550 with shipping.
Some of the incentive money comes indirectly through EV leasing, which allows finance companies to claim the $7,500 federal EV tax credit and pass some or all of it on to consumers. But automakers and their finance arms are not obligated to do so.
It’s probably worth mentioning that Lucid earned $201 million dollars in Q1 for a net loss of $790 million. There but for the grace of the Saudi Public Investment Fund…
What I’m Listening To While Writing TMD
Our old colleague Rob has a great podcast over at The Ringer about ’90s music called “60 Songs that Explain The ’90s.” That podcast turned into 120 songs and now it’s about the ’00s. Confused? Don’t be. The first song in this new, aughts edition (sorry, not sorry) is “Mr. Brightside,” which has been described as “Don’t Stop Believing” for Millennials. IDK, I kind of prefer the original video.
The Big Question
Do gas prices impact your mood?
Top photo: depositphotos.com
Wait? You guys are getting lower gas prices? Not here in San Jose. The station closest to me is $5.09 for 87.
I suppose it does impact my mood in an immediate sense. But I definitely do not form opinions about the economy at large based on how much I pay at a given time.
I don’t pay attention to gas prices because both cars take premium, and I drive them—combined—only around 3-4000 miles per year.
But I well remember scraping change to put fuel in the tank to get to work, so I sort of note the prices different places I travel for work
Do gas prices impact your mood?
No. I will decide whether to drive less or drive more granny-like if prices rise based on cold logic. I do the same with eggs and every other frequent purchase.
Unfortunately, they do drive (hah!) other people’s moods, and some people (politicians and sociopaths) exploit this to their advantage.
I don’t care much about gas prices. With one EV used for a long commute and one paid off 20 mpg ICE vehicle used for a shorter commute, it doesn’t matter a whole lot. My old car took premium, which thanks to warehouse clubs was equivalent to regular at any other gas station.
We really like the EV. Being able to drive around the area for a few bucks per charge is amazing. Plus the quiet, the instant torque and the black hole-esque space efficiency.
This is pretty unusual, as gas prices tend to increase during an election year when a Democrat is in the WH, but drop when the GOP controls the WH.
No, I have not done any research. Big Oil does have a rooting interest, though. Perhaps they are turning on Trump?
The only gas prices that affect my mood are is the price I pay for my wife’s gas. OOF.
This is the economic conundrum of EVs. More EVs will lower demand for gasoline making gasoline cheeper, making the cost case to own an EV lower. Economics 101 I am afraid. At some point NOONE will want gas and they couldn’t be given away or the gas to fuel them. So an EV’s will need to be BETTER than a gas car in other ways to make up for the dropping cost of gas cars.
Some said it would be longevity – less moving parts, lower cost of ownership, etc. But so many cars are computers on wheels and will be outdated by lack of software updates before the body becomes unsafe to drive. We have another problem with EVs. Fast technology progress is also a problem. EVs only 4 years ago are technically deficient compared to today’s battery tech. Speed of tech progress will get worse before it gets better as well. Until EVs can charge in near zero time and go longer distances and be cheep to repair/maintain or have dramatically different benfits. The newcomer technology (EVs) will always have a hard fight until the old tech (gas) is gone. The EV will need to OUTPERFORM the gas car is someway to make the final switch happen.
This all discounts any improvement for climate change. No-one seems to be able or allowed to put a cost/value on saving the world. So, it isn’t done and doesn’t move consumer demand. I believe this is the OUTPERFORM capability but there is no monetary value to this benchmark.
I think the real issue with EVs is that when their electronics break, the car is bricked. Most ICE vehicles can limp to service. My ICE car’s fan belt broke, which means no alternator and worse, no water pump. Luckily, my repair guy is downhill and I half-coasted (cuz it’s a manual, duh) half-drove the 5 miles.
EVs not only have to outperform (which they do, short-term and when they work), but have to be dependable. For longer trips, a PHEV will do.
Oh, and not catch on fire.
EV’s catch on fire far less often than gas cars. When they do it’s a much bigger deal thanks to all the lithium.
Same thing with breaking down. They break drivetrain stuff less often but it’s a bigger deal when it does.
I am talking about line in the sand never cross kind of issues. I hear that this is your’s but I don’t expect it to be common and there are easy non-specific to EVs ways to solve that. Maybe Toyota will make a better limp mode for EVs that can be implemented rather than the current on or off that cars have at the moment.
There are other low tech solutions. For example, my insurance pays for break down trips to the garage – up to a point. So, I don’t see that as an issue and the market can easily adjust if that is truly an issue. My point is there are just as many people who live up hill to the garage as down hill.
EV tech isn’t the problem in your example.
I guess above a certain point it would. I spend a lot of money on gas because of my commute, but small bumps don’t really have a huge effect when you step back. And my commuter takes regular gas and gets decent enough fuel economy. I track per tank and usually get around 35mpg. If I really hypermile it on the highway I can crack 40.
Either way I could afford it being more expensive than it is now, but that doesn’t mean I don’t want it to be cheaper! There was a brief time below $3 a gallon in my area over the last few weeks which is meaningless really but felt nice.
I wish for gas prices to go up for two reasons:
1. Climate change is real and the only way to change our energy habits is for fossil fuel prices to reflect their externalities.
2. When gas is expensive, people make more appropriate vehicle choices. Fewer huge SUVs and pickups makes my travel safer and more pleasant.
When oil prices go up, there become more drilling sites where oil can be profitably extracted. This means that more oil comes out of the ground with higher prices.
True, but it’s not linear because large investment decisions are made conservatively.
The new production sites and methods are almost always limited more by the chance that prices will fall again than they are spurred on by the chance that prices will continue rising.
“Do gas prices impact your mood?”
Nope. And that’s because the cost of gasoline don’t affect me much since I drive a very fuel efficient vehicle that averages 2.83L/100km or about 83mpg using US gallons so far.
Or in dollar terms, I’m averaging CAD$64/month.
Even if fuel prices doubled overnight, it wouldn’t have much of an impact on my monthly budget.
And the fact that lower fuel prices results in a big improvement in the average happiness of Americans leads me to think that way too many Americans are slaves to their oversized and overpowered gas guzzling vehicles.
Sidenote: We should now let the MAGA crowd know that when it comes to lower gas prices, “Biden did that”… LOL
I think things will get better after the election because those who support whoever wins will feel that the economy is going to be better and have more confidence. The thinking goes; “When (insert name of candidate you support) wins the the election in November, the economy will get better because we don’t have to worry about how (insert the name of the candidate you don’t support) would screw up the country if they had won.”
It’s true, (insert name of the candidate I don’t support) has a pretty awful plan for the economy. Especially the bit about (thing I don’t agree with). That would be awful. I can’t wait for four years of (insert name of candidate I support)!
Of course gas prices affect my mood. I’m an Autopian. The cheaper the gas the more I can drive for fun!
Wouldn’t a perpetual string of natural disasters flooding and torching cars lead to a sales bump?
Not until insurance sends the check.