BREAKINGVIEWS-Oil shock will speed electric cars’ comeback

By Katrina Hamlin

HONG KONG, April 8 (Reuters Breakingviews) - Energy crises tend to change driving habits. The oil shock of 1973 encouraged car owners to replace their gas guzzlers with smaller, fuel-efficient engines. This time, the experience of extreme supply shortages and higher petrol prices is prompting consumers and policymakers to reconsider the appeal of electric vehicles. Even if oil prices retreat, big makers of battery-powered cars like China's BYD 002594.SZ stand to benefit.

Whether or not the ceasefire announced by the U.S. and Iran on Tuesday marks an end to the war — and a swift return to cheaper energy — the conflict will not be quickly forgotten. The International Energy Agency (IEA) has already called it “the largest supply disruption in history”. By effectively blocking the Strait of Hormuz, Iran strangled a route through which about a fifth of the world’s crude oil trade passed last year. Many countries had alarmingly small oil reserves: Australia's stockpile was enough to last for just 49 days, per IEA figures. By April, 28 countries had introduced emergency measures to conserve supplies, according to the agency.

Drivers have already proved they are sensitive to the relative cost of combustion engines and battery power. In the past decade, sales of pure electric and hybrid vehicles grew faster in years when oil prices rose, data from the IEA and LSEG shows. This was the case even when plug-in cars were still more expensive than gasoline-powered models. But electric cars have also improved since oil last topped $100 per barrel after Russia’s invasion of Ukraine in early 2022. Batteries cost half as much as they did then, UBS notes. As a result, the recent oil spike has made electric options a better value in markets including China and Europe. In the United Kingdom, for example, the total cost of owning a battery-powered Renault 5 Techno+ over four years is 19,073 pounds for drivers charging at home, well below the 26,407-pound cost of owning a Volkswagen Tiguan Match diesel model, HSBC estimates.

Buyers are already running the numbers. BYD showrooms across Southeast Asia are bustling; one dealer in Manila told Reuters he had seen a month’s worth of orders in two weeks in March. In Australia, where diesel prices increased by more than a third, loans for electric vehicles have doubled, per National Australia Bank. Registrations of Teslas TSLA.O tripled in France in March, while monthly sales of battery electric vehicles in the UK hit a record.

Other factors are reinforcing the trend. To start, infrastructure for electric vehicles is improving. The world has twice as many chargers compared with 2022, according to the IEA. Fast-charging systems like BYD's, which the Chinese company claims add 2 km of range for every second of charging, help ease drivers' angst about running out of power. Longer-lasting batteries help too.

Meanwhile, consumers around the world enjoy greater choice as made-in-China electric vehicles zoom into global markets. BYD and Geely Automobile 0175.HK accounted for nearly a quarter of all battery-powered cars sold in the last three months of 2025, per Counterpoint. As sales slow at home, they are redoubling their export efforts. After BYD reported earnings fell by a fifth last year, boss Wang Chuanfu said overseas sales will still rise to “another level” in 2026. Geely is aiming to ramp up overseas deliveries by as much as 80% in 2026, CEO Gan Jiayue said in March. The $33 billion company's Hong Kong-listed shares are up almost 50% since the Iran war started.

International rivals are less prepared for an EV comeback. Carmakers including Ford Motor F.N, General Motors GM.N, Stellantis STLAM.MI and Honda have written off electric-car related investments worth a combined $70 billion after demand stuttered in the United States. Even then, these companies have kept battery models in their portfolios, while prioritising cost-cutting. Ford CEO Jim Farley has committed to a project to produce an electric vehicle costing $30,000.

While electric cars in the world's largest economy are still more expensive than petrol alternatives on a cost-of-ownership basis, the gap between sticker prices narrowed to $6,500 in the first quarter, the slimmest ever, according to Cox Automotive. In Europe, average prices are also falling thanks to cheaper models like the Citroën ë-C3.

Policy is another catalyst for changing driving habits. The Arab oil embargo of 1973 inspired U.S. fuel economy standards. More recently, an oil price spike in 2008 encouraged Chinese policymakers to back electric cars, according to Anders Hove of the Oxford Institute for Energy Studies. By 2024, China had 30 million new energy vehicles on the road, saving some 430,000 barrels of oil a day, according to a study from the Centre for Economic Policy Research.

The recent reminder that oil supplies are volatile and potentially unreliable will encourage more governments to prioritise electrification. Cambodia has already reduced import taxes for EV-related products, while Chile has introduced a credit system for electric taxis.

Electric-car makers will not enjoy an entirely smooth ride, though. The Middle East conflict will push up logistics and production expenses for factories already operating on skinny margins. In China the cost of aluminium, copper, lithium and memory chips needed to make a single electric vehicle is up by 44%, adding roughly $1,000 to carmakers' expenses, UBS reckons. Gasoline vehicles are less exposed to these inputs.

Higher energy prices are another potential headache for makers of electric cars. They fuel inflation, subdue purchasing power, and undermine overall auto sales, as well as eroding the relative advantage of owning an EV. However, the European Union — the world's second largest EV market and a key export growth driver for China — is less sensitive to fluctuations in gas prices than it was following Russia's invasion of Ukraine. Electricity bills in the region have risen by 10% or more in some countries as of mid-March, but are extremely unlikely to hit highs seen in 2022, when some nations' wholesale prices quadrupled or quintupled, HSBC reckons.

If the Iran war ends and oil prices subside, drivers around the world will face less petrol price anxiety and the battery boom will likely lose some of its force. However, history suggests the memory of scarcity will linger, giving electric cars a lasting boost.

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