Who Killed The Electric Car This Time?
Toyota has announced that they are halting production of a plant in Blue Springs, Mississippi, which was slated to begin churning out Prius automobiles by 2010. On the surface, the move seems like yet another sign of a weakened US economy, and a reminder that foreign car companies are not immune to it.
However, if I were of a conspiratorial mind, I might suspect that there were other forces at work. Over the past year or two, as oil prices climbed steadily upward, peaking somewhere around $146 a barrel, gasoline prices followed suit. At one point, a gallon of “the cheap stuff” topped $4.00. At that point, the “green revolution” got into full swing. Green was the new black. Everyone and their brother wanted compact fluorescent light bulbs, recycled shopping bags, and –most notably– a hybrid car. Suddenly, it seemed that every car company had plans for hybrid vehicles. Even the lumbering dinosaur known as GM developed a plug-in electric car. And that, of course, was the whole problem.
The producers of oil know one thing: how to make a lot of money. Exxon has had record profits several times over the past couple of years (by which I mean greater profits than any company has ever had, not just record for them.) They also know another thing: the electric car is their worst nightmare. Imagine, if you will, a nation of commuters humming along in cars that don’t require a drop of gasoline, that don’t take five quarts of oil every three months. Suddenly it’s not so hard to imagine the green revolution keeping a few oil executives up at night.
As the price of gasoline passed $4, demand went down. That was to be expected. In fact, according to the Energy Information Administration, (as reported by Reuters,)
U.S. oil demand is expected to grow only 1 million barrels per day, or 0.2 percent, over the next two decades, as higher vehicle fuel standards and increased use of renewable fuels stifle petroleum consumption.
According to a different Reuters article:
The weak U.S. economy will slash America’s oil demand this year by 1.1 million barrels per day.
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For 2009, total U.S. oil demand was projected to drop by an additional 250,000 bpd.
So we can see that demand is down and thus understand the drop in the price of crude as well as what we in the US are paying at the pump. But that may not be the whole story. From the second Reuters article:
Global oil demand was expected to increase by only 100,000 bpd this year and remain virtually flat next year, the EIA said.
Between 2007 and 2009, oil consumption in non-industrialized countries, especially China, Latin America and the Middle East, was projected to rise by 2.3 million bpd, which will be offset by a 2.2 million bpd decline in demand in industrialized nations.
Global demand is holding steady. The amount of oil needed by the world is not decreasing. Yet, we’ve seen the price of crude plummet from a high over $140 per barrel to under $40 (as reported by Bloomberg.) Gas prices have dropped over 50% to under $2 per gallon.
The result of this drop in price is that people are using more gas. As people start to feel ok about buying more gas, their interest in alternative-fuel and hybrid vehicles declines. Stated simply:
When gas prices decline, consumers simply buy more trucks.
Trucks, of course, are huge money-makers for the auto industry. Back in May, Reuters reported:
April auto sales slump as truck sales plunge
U.S. auto sales fell to their lowest annual rate in more than 15 years in April as weak consumer confidence and rising gas prices hit the industry’s most profitable vehicles hardest.
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Of equal concern to automakers, buyers defected from high-margin trucks and SUVs to cheaper and more fuel-efficient cars more rapidly than expected due to the high gas prices. The trend threatened to crimp profits due to reduced sales volume.
Toyota, which reported a fifth consecutive month of sales declines, experienced a sharp drop for SUVs and pickup trucks, like the FJ Cruiser and the Tundra, which more than offset gains for small cars like the Yaris and the Prius hybrid.
It’s possible, of course, that the recent drop in oil prices is merely the result of market forces acting to correct yet another bubble created by speculators. It could be that the mysterious yin-yang of supply and demand is working to restore order to our oil-driven world. That certainly seems plausible. However, after watching the documentary Who Killed The Electric Car, in which the auto industry and the oil industry (along with a few other suspects) worked to remove a viable electric car from the market, I’m not overly inclined to trust the official story.