Will Trump’s Iran war jumpstart the EV revolution?

Every once in a while, the global economy gives us one of those moments where everything seems to collide at once.

Geopolitics, markets, technology, the car in your driveway, all suddenly part of the same story.

And right now, we're in one of those moments.

The energy shock from the Iran War has policymakers around the world rethinking ways to cut their dependence on oil and gas.

Consumers too.

So with pump prices jumping, could this be an inflection point for sales of electric vehicles and hybrids?

Or are the trade and rigidity hurdles simply too big, especially in the United States?

Let's try and find out.

I'm Carmo Kremens and this is Reuters' Econ World.

Every week we go deep on the economic principles and ideas driving the biggest news around the world.

On this week's show, energy shocks and automobiles.

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Prices drive behavior. We all know it.

If the price of something jumps, we'll look to use less of it or find an alternative.

Some things are easier to substitute than others.

Oil? That's a tricky one.

If you're an airline, you're kind of stuck running your planes on jet fuel.

But if you're a driver, looking for your next car, you do have a choice.

There's a whole world of electric vehicles and hybrids out there.

Much of them source from China, where the EV industry is moving at what feels like warp speed.

In the United States, it's a different story.

Joe Biden spent years trying to accelerate an EV transition, but President Trump spent the last year unwinding much of it, prompting many automakers in the US to dial back their EV ambitions.

So could they be caught flat-footed if the Iran oil shock persists?

And what sort of price pressure will it take to get US motorists to go electric?

To try and answer some of these questions, I spoke to my colleague Mike Collias.

So the great thing about Reuters, not to blow our own trumpet, but humor me, is that we often have great in-house experts to talk us through the big issues and themes of the day.

And when it comes to the current energy crisis and the auto industry, we really are in a sweet spot.

Because our US auto's editor, Michael Collias, has literally written the book on the electric vehicle revolution.

It's actually called inevitable inside the messy, unstoppable transition to EVs.

Mike, welcome to the show.

Thank you so much for having me on.

So I've got to ask you, have you put your money where your mouth is, so to speak, and have you gone electric with your own car?

I have a hybrid, which doesn't really count.

Sores like sort of counts, but I am in the market for an electric car.

We need to replace a car in the family fleet.

And so, yeah, I'm fairly certain that the next one's going to be like, there's a lot of good deals on electric cars in the US right now.

We can get into some of the reasons for that.

Let's start off, though, first, perhaps with a history lesson.

Because there is precedent, isn't there, for, you know, previous energy crises affecting the global car industry and the US car industry in particular.

And I'm thinking, of course, about the 1970s oil price shocks.

That was transformational, wasn't it, for the US car industry?

Yeah, that is really where you saw, you know, there were lines for gasoline in the US.

It was the prices shot up well beyond anything today from an inflation to dust at standpoint.

And so, in terms of the market, it was really interesting.

You had, at the time, the Japanese automakers, Toyota, Honda, Nissan had come into this, come into the US market.

And we're already starting to mix, you know, get some traction.

But when oil prices shot up, you know, they specialized in small, fuel-efficient, affordable models.

And, you know, there was a recession.

And so, that just appealed to the budget consumer, which was a huge part of the car buying market at the time, bigger than today.

And so, it really had lasting effects.

I mean, structural lasting effects on the US car market up until then.

The Detroit III of General Motors Ford and Chrysler just dominated the US auto industry more than half of market share.

Now, like, over the years, and the Koreans kind of came in a Hyundai and Kia, and really established a strong market in presence for those smaller fuel-efficient cars that Detroit for the longest time just couldn't really compete on.

It takes some time, but some of these oil shocks can have lasting and meaningful imprints on a car market in a given region.

I mean, back in the 1970s, it was, so there was obviously the demands, which like consumers were looking for more, you know, fuel-efficient cars.

Because the price shock was so dramatic, I think the price at Quadrupled.

But the regulatory environment helped as well, didn't it? I mean, the government was pushing the legislation towards more fuel-efficiency.

Yeah, for sure. I mean, we've had sort of a dual regulatory regime of fuel economy, fuel-efficiency rules on one hand and tailpipe emissions and those kind of work in tandem with each other.

And they've ratcheted up over the years and over the decades, like you see in Europe and other regions.

And so that really, for a long time, compelled the companies to try harder on their gas and diesel engine products and to say, okay, you know, by next year we're going to have to average whatever 22 miles a gallon.

That was all dictated by regulations.

We've seen a huge change in that over the last year with the Trump administration rolling back in a big way, a lot of those regulations at the same time taking away incentives for electric cars.

Those moves have really changed the way I think the automakers are going to approach this US market, which is very different than the rest of the world.

It's almost like there's no reason for the companies right now to try very hard on selling electrics. They're losing money on them.

Meanwhile, the most profitable stuff, there's no sort of limit on what they can do because a lot of the environmental rules have been rolled back.

And so it's really almost overnight changed the approach to the market here in the US for the American automakers.

But could history repeat itself in the sense of we are now facing another energy crisis.

In fact, I think the International Energy Agency described this as the biggest supply shock the oil market has ever seen.

And we have a player waiting in the wings in the guise of China, which has done hugely well at making electric vehicles.

So could we see a transformation brought about by this energy shock?

Yeah, in a way, this is really poorly timed because this was already a big concern of traditional automakers in general, right?

The rise of the Chinese electric car market, half of that market is now electric or plug in hybrids.

You're exporting those all over the world because there's an excess supply of them in China.

And so now you've got, you know, certainly in Europe, there's major pressure on the car companies there with these Chinese imports coming in in the US.

More protected, there's a ban on Chinese software.

And so that's kind of a quasi-ban keeping Chinese cars out. There's also big tariffs.

So I think on the one hand, if you're the CEO of General Motors or Ford, you can feel good about the fact that you're not facing that competition.

And you're most important market.

The cause of those trade barriers.

That's right. It's a protected market right now.

But a lot of people think that that's not going to last.

And just like how Honda and Nissan and Toyota came into this market 50 years ago and really disrupted things,

I think a lot of people see that as the potential in the US.

It's hard to envision right now because there's kind of bipartisan agreement that we're not going to let Chinese automakers in

because it's going to have impact on jobs and communities in the US.

But there's a lot of noise, right?

Canada is letting Chinese EVs in at very low tariffs.

President Trump himself has said if the BYD or some big Chinese automaker wants to come in and build a factory here and employ Americans, you know, let them in.

And so, you know, you've got the car companies now lobbying the government in the US to, you know, let's make sure we keep the Chinese EV makers out.

So it's a huge threat at a time where affordability is already a huge problem in the American car market.

So there's a lot of smoke and I think that the CEOs here are worried that that's a really strong possibility that we could see a sort of a repeat of the Japanese automakers who came in half a century ago.

That's interesting. Trump's comments about, you know, BYD potentially welcoming them in if they'd build a factory in the US because that's quite a sea change.

Isn't it from his previous thinking about sort of building almost a wall around the US auto industry?

I think it speaks to, well, I think his policy can shift very quickly and he's quite unpredictable.

I think that's fair to say, but I think it speaks to his number one or probably one of his top priorities,

which is American jobs and investment in American factories.

And so I think what he's saying there, maybe it's a little saber-addling to the US companies, to, you know, onshore more, build more cars and parts factories here.

But he's essentially saying, I want jobs and I want jobs in the heartland and in red states and in battleground states.

I think there's enough bipartisan support to where even if he pressed that issue, I think it would, it would be tough.

But I think it's gotten a lot of attention in the industry because that would open up a huge competitive clash with Chinese EVs.

And a lot of consumers here are interested in those cars because they hear about them and they, you know, they see online how cheap they are and how.

How cool the tech is, right?

And so it's one of the biggest issues right now in the industry for sure.

Electric vehicles are hardly a new technology.

In fact, in the early days of the automobile, there was a heated competition between producers of gas-powered, steam-powered and electricity-powered cars.

We know which model ultimately won that competition, but approximately what percentage of American cars were electric in the year 1900?

Was it A, 10%, B, 38%, or C, 60%.

We'll have the answer for you at the end of the show.

Up next, the psychology behind car purchases and why Europe is ripe for a shift to EVs.

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I mean, you mentioned BYD.

They've overtaken Tesla as the world's biggest manufacturer of EVs.

And I'm speaking to you from Dublin, from Europe.

You see BYD, you see the brand, you see them on the streets.

For people who haven't listened to our podcast because it's definitely a topic we've got into before.

It's so fascinating.

Why has China become the dominant player in this space?

Yeah, I mean, I think China, the government leaders made a decision more than two decades ago to really bet on EVs.

It's a relatively young car industry there.

It only in the 80s and 90s, it really opened itself up to outside investment.

And the way they did that was, they said, okay Volkswagen, you can come in.

But you need to partner with one of our Chinese companies and we're going to run a JV.

And you guys are going to sell, build and sell cars together.

And that, that was the case for many decades, still is the case.

But along the way, the Chinese also had their own brands and they would try to compete in the market.

And they just really couldn't compete in internal combustion technology.

I mean, it's a, you know, it's been refined over 100 years.

It's a really sophisticated, you know, hundreds of moving parts in an engine and a transmission and huge supply chains.

And so an electric vehicle is actually a simpler machine to put together.

And so I think the Chinese realized that.

And they, for various reasons, they wanted independence from foreign oil.

They had a big environmental problem back in the early 2000s.

And they wanted to compete against all these big companies that had come in.

And so those, for those reasons, they kind of put together this plan.

Like we're going to leap ahead and we're going to bet on electric cars.

And this was in the early 2000s.

They put in place huge incentives for consumers to buy electrics, huge incentives for the companies to build them.

It was really kind of a bet.

The same bet that Elon Musk was making a half world away around that same time that, you know, we think that we can do this.

And that bets turned out to be pretty pressure, I think.

You know, we spoke about the 1970s oil shock.

What's happening now, as far as the US consumers concerned, it's not a severe, right?

It's not actually a supply shock because, of course, since the 1970s, the US has become, has gone from being an importer of oil and gas to being an exporter.

So back in the 70s, we saw big lines of people queuing up to fill their car gas stations.

Now it's really more about the price, right?

And the price itself, while it's gone up, I think it's what, over $3.70 a gallon, the price leap isn't a severe as was experienced in the 1970s, right?

So it's, in terms of crises, it's perhaps more digestible.

Yeah, I think that's right.

It's been a sharp move.

I mean, one of the sharpest we've seen, but off a pretty low base.

And so I think Americans have gotten pretty complacent with low gasoline prices.

You don't generally see a big shift in consumer behavior off a short period of time, even if it is a big, a sharp increase like we've seen.

I think it's gone up close to 30% in the US just in a couple of weeks.

That's, that's a big move.

Car purchase is a really big decision.

It's one of the top couple of things that people buy in their life, depending on whether or not they own a home.

And so, you don't, you don't, some people are in the market for months or even years of like research and then what they want, figuring out the right time to buy.

You generally don't, you know, move on a dime and just because some things in the news for a week or two, shift your, shift your habit.

But in what you're shopping for, but, but you do see when it hits those, there's like psychological milestones, right?

Tell us about that. What's the, what's the psychological level? What gets people sort of, you know, fingers tingling?

I mean, history shows and, you know, a lot of the industry experts we've talked to said like big round numbers will, we'll do it.

And it just like becomes up in people's conversations.

Did you see gas just passed $4?

I think this time around because of inflation, $4 isn't as scary as I think five.

I think five in sort of the heartland because Midwest, a lot of places in the US are a lot cheaper than others.

So like in the Northeast or in California, I think California is already seeing flirting with $6 a gallon gas.

So it's kind of different regionally.

But I do think that those, those round numbers tend to get people's attention.

And so you can see pretty significant and rapid shifts in shopping patterns as you, as you pass through those.

What are you seeing? I mean, in terms of your teams, the reporters from consumers, are you seeing any sign of a shift in behavior, either in the US or overseas?

Yeah, so it's, so it's tricky right now because it's so, it's only been a few weeks.

And so we're not going to see it in the sales numbers. So what we've done is we've, we've asked online shopping sites, what they're seeing in terms of traffic.

We've talked to dealers, both traditional new car dealers as well as use cars.

And it's a mixed bag. I think there, there definitely is. It has gotten people's attention. So on the online sites, the ones in the US have said, you know, we're not seeing a real significant shift at all.

A little bit different in Europe. I think we've seen some of that in Europe where the sites are saying we're seeing a pretty big increase in the number of people looking at hybrids or looking at EVs.

Traditional dealers here are kind of so far in the US, nothing to see here.

But we talked to a few, we went out to talk to a few used car dealers who specialize in EVs.

And they've seen some of their best weekends ever just these last few weekends.

So I think, and again, I think a lot of that is probably more the consumer. I don't know if it's someone who was about to buy a gas car and now switching to EVs.

I think it's maybe people like myself who were already considering an EV purchase or in the market.

And now we're kind of, you know, accelerating things because they're worried about prices going up.

So I think it's early days, but there's anecdotal evidence that it is, some people's radar.

And it's likely to start to shift what people are looking at.

I mean, I suppose in Europe as well, it's a different regulatory environment, isn't it?

And also in terms of the sort of incentives that are offered to consumers, right?

That's right. I mean, the sort of dismantling of the regulatory regime around fuel efficiency.

And we haven't seen any of that in Europe.

There's been a little bit of backing off and there was a 2035 ban on internal combustion and the regulators in the EU backed off that.

But it's still relative to the US, very stringent.

The car companies have to meet these regulations.

And there's no way to do it without electric cars.

So that market, whereas the US is maybe six or seven percent of sales.

New car sales are electric today. Europe is over 20 percent.

China's over, it's nearly a half, right?

Yeah, roughly half in China. And that just kind of shows you if you can get the price right

and the infrastructure, there's tons of charging stations in China.

You can really see a market tip quickly.

China's kind of the only one that has the heft to put in like that kind of infrastructure

and sort of that weight of the government behind that kind of transition.

But we are seeing, you know, there was a low in Europe and we're seeing it re-accelerate in terms of EV adoption.

I think a lot of its financial incentives that the government's offer, I mean money talks.

And as soon as you take that away, like we've seen in the US, a huge drop.

In EV interest in purchases.

Yeah.

Talk to us about the prices though, right?

I mean, we talked about how China has managed to make EVs much more affordable.

What's like the average price of an EV in China, say, versus the US versus Europe?

I mean, China, I think, you know, a big chunk of the EV market is under $30,000 US.

For a new car.

Whereas, yeah, for a brand new, like, nice EV with long range and nice features on it.

You've got a lot of cheaper, less than $15,000.

You can get a car.

It won't have as much on it.

But it's a huge difference.

And when they export those to Europe, they're not selling at those prices.

They're selling at higher prices.

But, you know, Europe would be sort of the next step down in terms of you can get a lot of affordable budget.

Electric cars in Europe now.

And I think that's why Europe's a little more ripe for a move to EVs.

If gas prices were to stay high and move higher from here, because you've got a lot of affordable models.

And it stands to reason that people who are worried about, you know, their monthly payments on, you know, at the pump are going to be interested in, you know, a more affordable budget EV.

I mean, if you're making a decision based on your cost of operating the car, you're probably going to be more interested in an affordable, less expensive model.

And there's a lot of those in Europe now.

There's not many in the US.

You know, there's not many below $40,000 in the US.

But, you know, in general, there's a lot more choice across the board, no matter what region you're in.

Then the last oil shock, I think was 2022 when Russia invaded Ukraine.

Yeah.

Back then, there really wasn't a whole lot on the market that wasn't Tesla, right?

And that was expensive.

Tesla, that was like a prestige brand or that was a small subset of the population could afford to buy that.

That's right.

And that was back when, you know, there was a ton of enthusiasm and like all the companies were gearing up and we're going to have this model and get on our waiting list.

But there wasn't like in 2022, that was the first half of 2022.

There wasn't a whole lot available and that's changed.

And so that is a big difference between the last sort of big increase we've seen in oil prices.

And today is there's a lot to choose from on the market and the consumer.

And it's not just EVs, it's all different flavors of hybrids.

And we can talk about hybrids, but that's become a much bigger story in this whole transition.

I think it's a lot of companies thought they could just skip over, go straight to electric cars and the consumer would follow.

And we've seen that that's certainly not the case, especially in the US, but also to a certain extent in Europe.

Hybrids are going to play a big role in the transition.

And I think that's why you've seen all these different types and, you know, inversions of hybrid cars that you can choose from now.

Yeah, to talk to us about that, what happened with the hybrids that they suddenly made a comeback?

I thought they were like, yeah, yesterday's news, but it's like they've sort of had a revival.

What happened?

Yeah, well, I think that I think you saw the consumer didn't...

There's a term in the car business, like the dogs aren't eating the dog food and we saw little...

Wow, they gave you their customer very high.

You know, they thought that they put out in the market what people were going to want.

Yeah.

I think to a certain extent, they saw the success of Tesla and thought, we want to do that.

You know, look at Tesla's stock.

This is where the growth is.

We're going to go straight to EVs.

And hybrids can be kind of a messy complicated thing for automakers because it's like, you still have the gas engine,

but now you've got to figure out the electrification.

It can be like a complex engineering task, so it can get those systems to work together.

And so a lot of companies didn't want to mess with that and thought that there was going to be a much bigger appetite for electrics than there was.

And so, you know, a company like Toyota sort of famously did not jump in line with everybody else on the EV transition.

They certainly had electric models and they were spending money on it.

But they said, we think there's a big role for hybrids and there's going to be for a long time.

And people want this sort of bridge technology before they get a comfortable buying a car where they don't have a backup engine.

And so that we've seen that play out in the market and that's why now you're seeing some of the companies that wanted to skip over that part or now going back and figuring out what they're going to do on the hybrid front.

I suppose it makes sense because I mean, there was always that issue wasn't there of what is it range anxiety that you you'd set out on a journey on your EV and you know, the battery would run out.

I suppose hybrid, like I say, it's a bridge technology. It kind of gives you that layer of comfort that that's not going to happen.

That's right. Yeah. I think people, you know, there was a lot of interest early on in EVs and you had a lot of earlier adopters.

And if you can figure out how to fit it into your daily life, there's plenty of people that that make EVs work really well.

If you have a nice garage, you can put it install a charger and charge overnight and you don't have to go out to like road trips are kind of the killer.

Right. If you have to go out of town for stuff, it becomes more complicated. It's not that you can't do it, but you've got to kind of plan ahead.

And when you stop, it's maybe 45 minutes to an hour instead of a five minutes stop to fill your tank. So a lot of people just started to put, you know,

put the dots together and realize like this isn't just it's not going to work for me. And the charging infrastructure is a big part of it.

The price of the cars still haven't come down to like a parody level with gas engine cars because the batteries are still really expensive.

And so those are those continue to be the barriers to adoption.

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Like how is the industry feeling right now when I say the industry I suppose I'm talking about the legacy car makers right then the non like not the Tesla is not the Chinese EV makers.

Just about where they're at because I think at the end of last year certainly things weren't looking great for the US EV industry.

There was obviously there was the end of the EV tax credit you know the Trump administration got got rid of that.

There was changes to the emissions standards. We've seen sales drops kind of like an EV winter and some automakers were taking big write downs on their EV businesses.

Is that potentially a little bit premature given where pump prices are at given this big energy shock that we're going through.

Yeah, I don't think I'd want to be the CEO of a car company especially in the US trying to figure out which way the wind is blowing on a given day.

I mean there was you know they were like.

Paging their growth strategies to this.

This technology right at five six seven years ago.

And they invested a ton in EVs and now for the reasons what we've already talked about.

It hasn't panned out in the volumes the sales volumes that they had expected.

And so you have seen these write downs a lot of them have to do with a factory that had been tooled up to build EVs that they're going to have to do something else in and that's going to cost money.

They're going to have to back out of some supplier contracts because they told the supplier okay we're going to build 500,000 in these and now it's only 50,000.

None of the companies have walked away from EVs and they will their top executives all say we still think that that's the end game.

But it's just going to take a lot longer it's painful because they lose a lot of money on these cars.

And so if you know if if you asked general motors would you rather sell a Cadillac escalator a Chevy Tahoe.

You know the big gas guzzling SUVs that they make you know 30 or 40% margins on that's what they would want to do instead of an EV that they lose money on.

But they know that they have to grow that business somehow to compete back to our point on the Chinese eventually they're going to have to compete with them.

So it's a really tricky thing because the thing that's making you money now is the thing that over time your acknowledging is going to shrink and the thing that is you're losing a ton of money on is what you're you kind of need to spend more time and investment in because it is going to grow over time.

And so I think that they probably view this gas price spike is a bad thing in the short time in the short term.

But I think they feel good about the fact that they have at least something to offer the consumers based on what they've already invested in you know models that are a lot better than the EVs of the past.

I mean these are you know they put a lot of content and features on these things and the people that buy them really like them.

It's just they can't get the cost out yet.

What would it take to get the kind of the profit margin on an EV car up to or even close to maybe can never be comparable to what automakers earn on their traditional gas gasoline vehicles.

Well I think there's there's certainly a path to profitability that the industry sees or else they wouldn't you know have have made as big a move as they had into electrics it's all the cost of the battery.

And unfortunately you know you hear about battery breakthroughs and you know some new chemistry or some new form factor that's going to solve the solve the problem but it doesn't really seem that that doesn't really seem to happen it's just an incremental grind to get the cost of the battery down.

And so two or three years from now that those costs are going to be lower than they are today but you know how much lower and how much of that advancement in battery chemistries and the way you snap these things together.

Is there going to be I mean that's really going to dictate how profitable these things can be and right now almost every company's losing money on electric cars because of that cost of the battery and that goes back to why China has such an advantage because they've got.

The supply chains the raw materials there the processing of the minerals that you need 80 plus percent of that is done in China and there's just a lot of built in inherent advantages that China has to leverage their dominance and electric cars and that's really what has all the executives and other parts of the world concerned.

In fairness in your book the title you do say that the transition will be messy if not inevitable that seems to be the case right I mean is it it's being born out with current current events.

The messy part yeah and and the inevitability like is it what will yeah talk to us about that it doesn't feel right it doesn't feel inevitable in the US right now but I think if you look around the world like we've talked about and you look at what's gone on in China I mean China's has hit the tipping point I think you're.

Starting to see that in Europe and it's not just a question of regulations and and it financial incentives for people to buy them I think if you talk to EV owners in general people like the cars and go back to them yeah they don't return to the petrol right they sort of stick with you.

You wouldn't have to find look through reddit very long to find someone who bought an EV and hates it and want you know can't believe how long it's going to take to charge and I was in cold weather and it didn't charge well and so I'm giving this thing back.

That does happen but generally the loyalty rates to EVs are higher than just you know people who buy internal combustion engine cars yeah people tend to love them there's a lot to like about them they're quick they're quiet you feel like you're.

Sort of driving the future and and yes the people there are plenty of people said I would never go back to.

You know I think one of a columnist at one point wrote that it would be like going back to whale oil lamps after driving EV which I thought was a great great line so yeah people people tend to love them.

Do you think we'll look back 10 years from now and say this was a turning point for the industry.

It's really hard to say because we don't know how long this complex going to last and I'm not a geopolitical reporter but it does seem like more so than a week or two weeks ago it does seem like this thing has legs and it could have lasting effects on the price of oil.

And hence gasoline prices and so I do think because you have the options now for people to move toward green cars.

I think you are going to see that over time accelerate more quickly than we have in past oil shocks and so we could look back at this as a tipping point in terms of Europe's adoption of of electric cars or or the thing that finally got more people in the United States.

Interested in them when right now there's kind of been a sort of political divide on on EV's it just kind of became part of the culture wars here and I think how you get past that is maybe when when gas prices are up a buck or two for more they were you've seen the guy next door.

Pulling it out of his driveway in a Tesla or you know a key EV 6 or something and the more you see him around the more you see family members or friends driving and I think that like some of that starts to fall away.

Like thank you so much for joining us on the show.

Thank you for having me it was a great discussion and enjoyed it.

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A big thank you to Mike for joining us on the show you can catch all of our great auto coverage on Reuters dot com and the Reuters app.

Now for that quiz I asked you what percentage of American cars were electric in the year 1900 was it A 10% B 38% or C 60% and the answer is B 38%.

Today there's not a single country on earth with such a high percentage of EVs on the road according to the international energy agency.

Norway comes close with EVs counting for and 30%.

But that number should rise last year 96% of all new cars sold in Norway were EVs driven by tax incentives and charges on petrol and diesel cars.

This is Reuters econ world.

Every week we go deep on the economic principles and ideas driving the biggest news around the world.

If you want to tell us what you thought of this week's show, drop us a line in the comment section of your favorite podcast platform or reach out to me on LinkedIn.

This episode was produced by Ethan Plotkin.

Sound design, music composition and engineering was by Josh Summer.

Our executive producer is Lila Decretzer.

Remember for all your daily news check out Reuters World News on the Reuters app or ever listen to your podcasts.