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Falling Prices

Stephen White
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I have been driving an electric car for over 4 years. At the beginning my friends scoffed about ‘range anxiety’ and their disbelief that anyone who drove long distances, as I do, would accept the risk of running out of power in the middle of nowhere – or even worse in the middle of the M1. My smug retort was to point out the difference between the price they paid for fuel and the price I paid for electricity.

I was definitely an outlier but in those 4 years we have all become much more aware of climate change, we have learned much more about the noxious fumes emitted by diesel engines, and the range of electric vehicles has significantly increased. As a result many more people were looking to replace their ICE (internal combustion engine) vehicles with electric equivalents. The high price of fuel, and an expectation that prices will keep on rising has also helped. Until lockdown.

The bottom fell out of the oil market. Not just for fuel, because planes, trains and automobiles weren’t being used, but for industrial oil as well because much of the manufacturing base closed down. At one point oil producers stopped selling oil and started to give it away because they had run out of storage space.

Which brings me to the headline in today’s papers – ‘Inflation Dragged to Four-Year Low’. Amongst all the dire economic indicators the good news is that the UK inflation rate for May fell to just 0.5%, compared with a target of not more than 2%. This was mainly as a result of a steep fall in the price of fuel, which is now fairly easily available at supermarket petrol stations for less than £1 per litre. (interestingly the biggest offsetting factor was a rise in the price of cakes, sweets and blueberries as lockdown Britain turned to snacking as a hobby).

In uncertain times we can no longer rely on our ‘normal’ expectations. Previously predictable fuel price increases made electric cars more and more attractive. But at £1 per litre or less the value equation between ICE and electric cars changes, particularly if the trend continues downwards. Our feeling of wellbeing in buying a zero-emission vehicle to help with climate change dissipates when we learn that noxious gas emissions have fallen hugely (an estimated drop of 31% in the UK in April) because of reduced economic activity. On that basis one more petrol car will make no difference. The Government recognises all of this and there is now speculation about a revision upwards of the subsidy for electric vehicles, perhaps to as much as £6000 per vehicle. In the meantime car sales of any sort have tanked and are expected to stay low as buyers re-evaluate their decisions and in the main decide to wait.

These issues reveal the conundrum negotiators face in times of hyper-uncertainty. When the data is confused and the future is unpredictable the easy option is to stop doing deals. Exactly the reverse of what we need to kickstart the economy. Our advice is to be realistic, positive and a little bit brave. Do deals which are time-limited so that if the trends change you are not locked in for too long. Think about how you can present your concerns and doubts to your negotiating partner in a positive and persuasive way. And trade their opinion of the future with yours; for example if you buy an electric car before the Autumn Budget agree with the dealer that if the subsidy increases you will share the pain of missing out (he gets the deal now, but agrees to pay you half of the subsidy increase if there is one in the autumn)    

And my view of electric cars? It’s the future, whatever happens to the price of fuel. Once you drive one, you’ll never go back. Try it and see!

Stephen White
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