Rising Fuel Costs and the Electric Vehicle Shift: What Australian Drivers Need to Grasp
Conflict in the Middle East is already impacting global crude oil prices, and Australian motorists are feeling the pinch at the bowser. Economists predict Unleaded 91 could jump by around 40 cents a litre in the coming weeks, adding to the cost-of-living crisis. But could this be the tipping point for more Australians to switch to electric vehicles (EVs)?
The Price Pain at the Pump
A 30 per cent increase in crude oil prices could add approximately $30 to the cost of filling a standard 50-litre petrol tank in Sydney. This surge is driven by disruptions to shipping in the crucial Strait of Hormuz and the risk of damage to Middle Eastern energy infrastructure. Australia imports roughly 90% of its liquid fuel, leaving it vulnerable to these global price shocks. The ACCC is monitoring petrol market behaviour to prevent price gouging, but cannot insulate consumers from market increases.
When Do EVs Grow the Cheaper Option?
EVs typically have a higher upfront cost than petrol or diesel cars, but lower running costs. The total cost of ownership – including purchase price, fuel/electricity, servicing, insurance, and depreciation – is key. Recent modelling reveals that after about five years, an EV owner can start saving money due to lower fuel costs.
The impact of rising petrol prices on this timeline is significant. Using a Sydney average of $2.08 per litre as a baseline, a 20 per cent increase to $2.50/L knocks a year off the time it takes for an EV to become more economical. A further increase to $2.90/L shaves off another year. Each 40 cent rise in petrol prices adds roughly $4,000 to the cost of running a typical petrol car over a decade.
Do Rising Prices Actually Drive EV Uptake?
Research suggests the answer is yes. A study published last month, matching fuel prices with EV and combustion vehicle registrations in Denmark, Finland, Norway and Sweden, found that a 1 per cent increase in petrol prices correlated with a 0.85 per cent increase in EV sales. If petrol prices were to rise 20 per cent, EV uptake could potentially surge an additional 17 per cent.
Australia saw EV sales increase by 38 per cent year-on-year in 2025, suggesting a growing trend. Similar research in China found that a 0.21/L increase in petrol price was associated with a 4.67 per cent increase in EV sales.
What About the Australian Context?
Experts believe the findings from these studies are applicable to Australia, though with some caveats. Car buyers in China are influenced by superior charging infrastructure and government policies promoting EVs. Still, higher petrol prices are still likely to encourage EV adoption here. The studies also indicate that when petrol prices rise, buyers tend to favour smaller, more affordable EVs that maximize running cost savings.
Interestingly, rising electricity prices haven’t significantly impacted EV sales, potentially because retail electricity prices aren’t as widely publicized as petrol prices.
Heavy Vehicles and the EV Transition
The impact of fuel prices may be even more pronounced for commercial vehicles. Modelling suggests that for a semi-trailer travelling 90,000km per year, an EV alternative is currently more expensive to run than a diesel equivalent. However, if diesel prices climb to $2.11/L, the electric truck becomes cost-competitive. At $2.41/L, the diesel truck would cost $13,000 more to operate over a year.
How Long Before We Witness a Shift?
Experts suggest a sustained period of high fuel prices – at least six months – is needed to have a measurable impact on EV uptake. This is because many car buyers will delay their decision to see if prices stabilize.
Although the current conflict in the Middle East is expected to be relatively short-lived, the risk of escalation remains.
FAQ
Q: How much could petrol prices rise?
A: Economists warn prices could increase by around 40 cents a litre in the coming weeks.
Q: Does Australia have enough fuel reserves?
A: Australia maintains a strategic reserve of petroleum products, but currently has around 50 days of net import cover, well below the recommended 90 days.
Q: What is the total cost of ownership?
A: This includes the purchase price, fuel/electricity, servicing, insurance, and depreciation of a vehicle.
Q: Will rising electricity prices affect EV sales?
A: Studies suggest not significantly, potentially because electricity price fluctuations are less visible to consumers than petrol prices.
Pro Tip: Consider your annual mileage and driving habits when evaluating the cost benefits of switching to an EV.
Did you know? Australia’s oil refineries have dwindled from 12 to just two, both of which rely on government support.
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