$5 Gas And Tesla Windfall

$5 gas has become a more frequent part of the American conversation about what it will cost to drive a car in the US if the war in the Middle East escalates or lasts more than a few weeks. Some calculations put the difference between gas at $2.95 a gallon (where it was recently nationwide) and gas at $5 at as much as $2,000 a year. Others put it closer to $3,000. The median after-tax income in the US is $65,000, so gas prices are a challenge for many people, particularly when they reach 4% of their annual budgets.

Evidence shows that interest in EVs moved higher with the price of gas. Tesla (NASDAQ: TSLA | TSLA Price Prediction) owns 50% of the US EV market—nice math for Elon Musk.

Gas prices might not be as big an issue if Americans did not feel pinched by inflation. President Trump says inflation is dead. Poll after poll shows people do not see it that way. People likely view their expenses based on what they see as reality, not on what they are told.

$5 gas seems impossible because gas prices have dropped slowly and steadily for two years, to under $3 per gallon of regular nationwide. However, the Russian invasion of Ukraine shows how fast a jump can happen. Crude oil prices topped $100 in early 2022. Gas prices hit $5 in June of the same year. The issue is not just the increase, but how fast it happened, based on a single military conflict.

Almost certainly, a war in the Middle East has a greater effect on oil prices than one in Ukraine. The threat that the Strait of Hormuz could be shut for weeks means that the 20% of the world’s crude oil, which is moved by ship, could be off the market for weeks or longer.

One of the primary reasons people consider EVs is high gas prices. Car Edge explains how high gas prices could change American car-buying habits. “Electric vehicle sales are sliding in America, and higher gas prices may be the demand catalyst the market needs to survive,” its experts wrote.

“Sliding” is a good word for what is happening. EV sales last year fell, in part because of the end of the $7,500 tax credit. Tesla sales dropped. Several legacy car companies left the market entirely. If gas stays at $5, they may have left too soon.

The National Interest recently reported, “More than half of recent EV buyers cited gas price savings as the chief reason for their purchase, and nearly 85 percent of current EV owners admitted that they would buy an EV again for their next vehicle purchase.”

The evidence on when people would switch to EVs to save money is slim. What is not in question is that Tesla has 50% of the US car market. While nothing else has helped turn its sales around over the last year, the cost of operating a car could be the catalyst it needs.