forecasting1With gas prices hovering just above $2 a gallon, there is less excitement and curiosity about electric vehicles (EV) as there has been in the past.  In fact, 2015 was the worst year for EV sales; total EV sale were down 5 percent in 2015 compared to 2014, with only 116,099 vehicles sold compared to 122,438.  But, there may still be hope for the EV market as 2016 is shaping up to be a banner year, with 93,197 vehicles sold through August, compared to 72,270 YTD August 2015 .

What forces drive EV sales?  Without question gasoline prices influence EV sales, with the possible exception of one particular EV model.  Presumably, consumers are not purchasing a $90,000 Tesla Model S with the goal of saving money on their annual gasoline bill.  The U.S. average price for a gallon of Regular gasoline has not been above $3.00 since October 2014 and has not been above $3.50 since July of that year.

With monthly data available on both EV sales and gas prices, it is possible to calculate a correlation between the two.  Analyzing data from January 2012 to August 2016, I found a correlation coefficient of -0.46, which is not as strong as one might want for forecasting purposes, but it is a relationship none the less.

So the question is: Do EVs make economical sense right now with gas prices as low as they are?  The answer depends on which models you compare.  Generally, there does not appear to be much incentive to trade in the gas-guzzler for an EV.  EVs are almost always more expensive than their gas counterparts, but upfront costs can be recouped with lower annual operating costs.

I attempted to compare 2 similar vehicles: the VW Golf and VW e-Golf.  For this comparison, I assumed 15,000 annual miles driven, gas price of $2.25 a gallon, and electricity rate of $0.15 kWh.  Based on these assumptions, it will cost $653/year to drive 15,000 miles in the e-Golf and $1,164 in the gas powered Golf (based on published vehicle efficiency ratings, www.fueleconomy.gov).  The e-Golf is significantly cheaper to operate, but this comes at a cost; the average e-Golf retails for $32,295 compared to $22,960 for the traditional gas powered model.  Even after factoring in a federal tax credit of $7,500, the e-Golf is still $1,800 more.  If you were to finance both vehicles over 5 years, at 3 percent, add in electric costs for the e-Golf and gasoline for the Golf, both vehicles would cost roughly the same to operate.  The story changes if gas prices increase; at $3.00/gallon, the e-Golf would save you almost $2,000 over the 5-year period.

Although the EV market is still in its infancy in most areas, EVs may in a few years have the impact that solar does today and that is why tracking the EV market is important to the electricity industry, as evidenced from Itron’s most recent survey showing more and more utilities incorporating EVs into their forecasts.

 

1“Monthly Plug-in Sales Scorecard”, Inside EVs. http://insideevs.com/monthly-plug-in-sales-scorecard/.

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Michael Russo
Forecast Analyst - Itron
Michael Russo is an energy analyst with Itron’s Forecasting Division. Russo is responsible for statistical modeling, data analysis, implementing forecasting software systems and providing client support. Russo has worked with clients to develop forecast models for both short-term and long-term sales, energy and demand forecasts for the electric utility industry as well as the natural gas industry. Russo received his B.A. in Economics from the University of Massachusetts and is currently pursuing a Master’s Degree in International Economics at Suffolk University.