Update On Iran War’s Impact On Global Auto Sales

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A couple of months ago, I wrote this article on the new war in Iran’s impact on global auto sales, and today I’m writing this to update those observations.

Iran War Update

Little has changed in the last two months. We appear to be at a stalemate. The US doesn’t want to admit defeat by leaving, nor do they have any viable military options. They could blow up a lot of things in Iran, but that is unlikely to cause them to surrender and Iran seems to have an ability to cause a lot of damage to our allies (both Israel and the Gulf states). They appear to have the ability to control the Strait of Hormuz for as long as they want and have the ability to close the Bab El-Mandeb Strait with the help of their friends in Yemen if things escalate. The three options I see are (paraphrased from Jeffrey Sachs’ comments in the video above):

1. Trump escalates the war, which he and I agree will cause the price of oil to go up significantly as oil production facilities of several countries are likely impacted for the next few years.
2. Stalemate continues. I think oil prices will rise somewhat, but analysts that see $200 a barrel oil and $10 a gallon gasoline underestimate people’s ability to reduce their quantity of oil demanded by carpooling, taking their smaller car, or taking public transportation in the short term and buying a electric car in the longer term.
3. Trump pulls out of Iran, declaring victory (a lie, but he is a good liar). This should allow oil and gas to gradually return to slightly higher prices (because of some war damage) than they were before the war.

In all three scenarios, the world sees the tremendous value of accelerating its transition to solar, wind, and batteries (even if imported) and from gas and diesel vehicles to electric vehicles. Unfortunately, the first scenario and to a lesser extent the second are much better for the clean energy transition, but worse for the world’s stability. So, even though it is the worst for the transition, I would favor us pulling out of Iran. I still have confidence the tremendous innovation in clean technology will drive the world to adopt it, even without the high oil prices caused by this war. On the other hand, if Trump takes either of the first two options, this is at least a silver lining to his folly.

China & The Rest Of The World

China has tremendous capacity to build cars of all types (gas, hybrid, battery electric). Most would say overcapacity, but if they are able to export those affordable efficient cars of all types, they can use this crisis to increase their market share. According to a recent CleanTechnica report on China auto sales, the country has hit a record 63% of vehicle sales being New Energy Vehicles (NEV) — which is mostly BEVs, but also some plug-in hybrids. This came even as EV sales were down, as gas car sales suffered a greater decline. The 26% rise in the cost of gasoline has to be a big part of that shift to NEV, but credit should also be given to continued price reductions and increases in charging speeds in the available vehicles.

China is doing a great job at finding foreign markets (basically everywhere but the US) for its vehicles, both gas and NEV. This doesn’t force people in those countries to buy an electric or hybrid vehicle, but it gives them good electric and hybrid choices and they will figure it out over the next few years without incentives nor subsidies. It punishes the Japanese, German, Korean, and US manufacturers that have been slow to electrify. Korean manufactures have done a better job of electrifying than the other three, but still not quite as well as China.

United States

Gas prices in the US are up 40.6% since the start of the war. If consumers in the United States had the ability to buy affordable electric cars from China, I’m convinced our EV share would be far higher than the 6% in the first quarter that it apparently was. (And, according the this report, things didn’t get better in April.) The problem, of course, is that most major manufacturers (with the notable exceptions of Tesla and Kia/Hyundai) have reduced their EV offerings since the US EV tax credit and fuel economy mandates were repealed. This has left most dealers with only hybrids to sell to customers looking to reduce their fuel bills, which explains the 33% jump in May hybrid sales over last year.

The biggest surprise that I saw when looking at the recent US EV sales charts was that the Toyota BZ was the third best selling EV in the US in the first quarter, even edging out Chevrolet with its Equinox EV and Hyundai with the IONIQ 5! I guess Toyota decided now was the time to lower the price, increase the power and range, add the NACS port, and increase availability. Maybe Toyota is starting to realize it needs to have a decent EV in this new environment, but it is odd this all came out after all the laws changed.

I am surprised that the new Nissan LEAF that won so many awards isn’t selling better. I checked some listings at local dealers and there are plenty available, and they were even offering discounts up to $5,000 on them. I do think the brand is a little tarnished from all of the very low lease offers last year while the tax credit was still available. I see you can get a low-mileage (under 20,000 miles) 2024 LEAF for $15,000 to $20,000, and although it doesn’t have all the features of the new LEAF, that is a great price for a nearly new car! I know a guy who talked four friends and relatives in one day into leasing a new LEAF in Colorado for $19 a month. Many people could use an extra car at that price! I asked him a year later if those four were happy with their deal. All were except one. One of the people is putting a lot of miles on the car and will get a big fee for going over the allotted mileage when they turn the car in. You can’t blame Nissan for that.

The new Chevrolet Bolt may also generate an increase in EV sales. I’m hopeful it will be a big enough success that GM will change its mind about discontinuing the car. Unfortunately, I checked local listings and, like the new LEAF, availability was good and dealers are offering discounts up to $5,000.

If you want to take advantage of my Tesla referral link to get 3 months Full Self Driving, here’s the link: https://ts.la/paul92237 — but if another owner helped you more, please use their link instead of mine. 

Disclosure: I am a shareholder in Tesla [TSLA] and XPeng [XPEV]. But I offer no investment advice of any sort here.