The Gas Car Death Spiral

Editor’s note: A little more than a month ago, I wrote an article about 500 million gallons of gasoline being displaced by electric vehicles in 2020. In response, friend and longtime reader Remco van der Horst sent along an email that teased out some superb points about what that means more broadly for the auto industry. I said I would publish his comments as a standalone article … and am finally getting to it. Enjoy! This is a great piece! —Zach


Of course, it’s still a small portion of the overall fuel sales, but there is a very important aspect that will make you smile: these displaced sales immediately hit the profits of the relevant companies. Most costs of installations, personnel, etc. are fixed, so higher sales result in higher profits (after deduction of variable costs). It also works the other way around, however: lower sales displace some variable costs but mostly go to the detriment of profits because the fixed costs cannot be reduced as fast. That is why companies go bankrupt even though demand only dropped marginally: they tilted from profit into loss, making banks demand their money back, which sets a whole cascade in motion.

Taking this into account, ask yourself: why are fuel prices so high now even though demand is lower than pre-corona? Simple: supply is being squeezed, allowing for higher prices in order to keep generating profits. If they don’t, the banks will start coming down on them and shareholders will bail out due to a lack of dividends.

The cool thing however, is that this is a short-term fix: the higher fuel prices make EVs even more attractive, thereby lessening demand for fossil fuels even more, etc. Great death spiral! Shell figured this out, that’s why they are now diving into electric charging, making horrific margins just like Fastned on their power sales.

So really, every extra EV has impact!

Addendum: What I described, happened with coal where a small drop in revenue/sales, pushed some (like Peabody coal) into bankruptcy.

Also, here’s a quick piece explaining this further.


 

Appreciate CleanTechnica’s originality? Consider becoming a CleanTechnica Member, Supporter, Technician, or Ambassador — or a patron on Patreon.


 


 


Advertisement



 


Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.

The Gas Car Death Spiral News

Source link

The Gas Car Death Spiral Resources

Green Technology