Will Higher Gas Prices Really Boost EV Sales?

The theory isn’t new. When gas prices surge, the transition to electric vehicles should accelerate. Whether that theory will translate into action during the current surge in gas prices, however, is still up in the air.

The logic seems straightforward. If gas becomes expensive enough, drivers will naturally look for alternatives. Electric vehicles (EVs), which cost significantly less per mile to operate, offer a clear solution. But the relationship between oil prices and EV adoption isn’t quite that simple.

The latest spike in fuel prices, driven by renewed tensions in the Middle East, has once again piqued investor interest. Will this moment in time finally push EV adoption into its next growth phase?

The answer is more nuanced than some headlines suggest.

The devil is in the details

For most people, the decision to purchase an electric vehicle isn’t driven by fuel prices alone. Several other factors play a significant role.

Average gas prices

Data source: AAA.

First, EVs typically have higher upfront costs than comparable gasoline vehicles, even though their operating costs are lower over time.

Second, charging infrastructure remains uneven. While urban areas increasingly offer robust charging networks, rural regions and smaller cities still present challenges for EV owners.

Third, the number of models available in the United States remains relatively limited compared with traditional internal combustion vehicles.

Taken together, these factors mean that higher gasoline prices may influence consumer thinking, but they do not automatically translate into immediate EV purchases.

That said, if gas prices continue to climb and remain elevated throughout the year, we may see increased interest in EV ownership. Certainly, we saw some evidence of this following Russia’s invasion of Ukraine in February 2022.

Image source: Getty Images.

In Q2, 2021, EVs accounted for 2.7% of new vehicle sales in the U.S. In Q2, 2022, that number jumped to 5.6%. To be sure, the $7,500 federal tax credit was still in place then, but we also know that between February and March 2022, search traffic on CarMax for EVs more than doubled, as did EV test drives, suggesting that consumers actively started exploring EV purchases when prices rose.

Of course, it’s still too early to tell how long this war will last, and more importantly, how long gas prices will stay elevated. But if the theory that EV acceptance accelerates during prolonged times of high gas prices is true, then it’s worth noting some of the automakers that would likely benefit from that shift. These include primarily automakers with established EV platforms, such as U.S.-based Tesla (TSLA 0.35%), **Rivian **(RIVN 2.68%), and Ford Motor Company (F 2.82%).

On the other side of the world, Chinese manufacturers have benefited from strong government support, large domestic demand, and control over critical battery materials. Companies such as BYD Company (BYDDY 0.73%), **Nio **(NIO +4.96%), and **XPeng **(XPEV +0.88%) have expanded rapidly in recent years and are increasingly exporting vehicles to Europe and other global markets.

Perhaps more importantly, Chinese companies have developed highly integrated supply chains, particularly in battery manufacturing. That integration allows them to produce EVs at lower costs than many Western competitors.

If global EV adoption accelerates outside of the U.S. as oil prices increase, Chinese manufacturers will likely remain major beneficiaries, even if the U.S. market grows more slowly.

The whole story

Ultimately, the key question is not simply whether gasoline prices will rise. The question is whether those higher prices will persist long enough to meaningfully change consumers’ car-purchasing behavior.

Short-term fuel spikes may grab headlines, but sustained trends tend to drive technological transitions. Electric vehicles are already gaining market share globally, though sales have recently slowed. Higher gasoline prices may accelerate EV sales at the margins, but they are unlikely to be the sole driver.

In the end, electrification is being propelled by a combination of factors: advances in battery technology, government policy, falling manufacturing costs, and evolving consumer preferences.

Indeed, high gas prices are part of that story. Just not the entire story.