Will surging diesel fuel prices drive an exodus to electric?
T60 electric ute. Source: LDV
Australians who splurged on diesel-guzzling SUVs and cars this year are in for a rude shock with diesel prices set to surge again, but commercial transport operators appear to have learned their lesson from the last 12 months of fuel cost increases.
City delivery vans and light trucks make up two-thirds of new diesel vehicle sales in Australia and this is where change is happening, with year-on-year sales for the year to end-September shrinking by almost 2 per cent, according to data from the Federal Chamber of Automotive Industries’ September report.
“What I think you will see, if diesel gets people’s attention, is more work being done around light commercial vehicles,” says Grattan Institute director of energy Tony Wood.
“They don’t do that many kilometres and they don’t do long distances. They do short trips from a centre depot and they’re almost ideally suited to EV. We do know that the availability of small commercial EVs are starting to become interesting.”
He says leasing of light commercial EVs is small, but growing.
Sales of light commercial vehicles has flatlined in the last 12 months, reflecting the lack of available EVs on the market. But sales of electric SUVs have surged by 350 per cent, from 2,319 models in September 2021 to 10,421 today.
Improving battery technologies, modest driving ranges, and the relatively large efficiency penalty of diesel trucks in congested, urban traffic, will make battery electric trucks the cheapest light commercial option in the 2020s, said BloombergNEF’s Electric Vehicle Outlook report, released in June.
Diesel prices double in two years
Diesel prices have doubled in Australia over the last two years, according to the Australian Institute of Petrolemm’s latest weekly report.
Image: AIP
Average capital city pump prices were well over $2.25 by the end of last week, according to bowser tracker MotorMouth.
And yet Australia still has some of the cheapest diesel in the OECD, ranking 29th of 34 countries in the March quarter, thanks in large part to low taxes on the fuel.
Image: AIP
But with only two refineries left in Australia and most diesel imported, foreign price spikes will bite.
Europe is struggling to obtain enough of the fuel thanks to strikes at French refineries and a ban on imports from Russia, leading to the lowest stocks since 2004, and diesel prices now attracting healthy premiums, according to Bloomberg data.
Chinese refineries have dialled back production of diesel and the US has the lowest seasonal inventories since weekly records began in 1982. In Singapore, a key indicator of Australian prices, stocks are the lowest in 15 years, according to Reuters data.
A well-timed rise in prices
“We’re importing more and more refined [fuel] products which are also more expensive as well. [And with fewer refineries] our levers to insulate the price have gone. We are completely beholden to the international market,” says Richie Merzian, The Australia Institute’s director of climate and energy program.
“This [rise in diesel prices] is well timed with the release of the federal government’s national EV discussion paper.”
The same drivers of high diesel prices are also behind scarce battery raw materials but the immediate price pressure at the bowser is still pushing people towards EVs, says BNEF.
“EV manufacturers are contemplating a market for battery raw materials that is very tight for the years ahead,” said BNEF’s Electric Vehicle Outlook report, released in June.
“Some of the factors that are driving high battery raw material costs – war, inflation, trade friction – are also pushing the price of gasoline and diesel to record highs, which in turn is driving more consumer interest in EVs.”
No options = new innovation
Rising diesel prices come at a time when the government is considering raising fuel efficiency standards for internal combustion vehicles.
The policy is expected to stop Australia from continuing to be a dumping ground for cheap, polluting vehicles that can’t be sold in other countries with higher standards, and boost demand for electric vehicles.
“Other OECD countries are trying to move away from diesel whereas in Australia, we highly incentivise them through incentives for utes. So we are exposed to an over reliance on diesel and now we’re in the position where if you do want to move [to an EV], we’re going to be late to the party,” Merzian says.
The lack of incentives to import EVs to Australia, and fuel standards that make petrol and diesel vehicles more competitive in price versus a clean alternative, are why carmakers haven’t brought more into the country, said Paul Sansom, the head of VW Group in Australia, at the EV Summit in August.
But with EV supply chains unlikely to be ironed out until 2023, few light commercial EVs available in Australia to date and no utes, innovation is beginning at home to meet demand.
Roev hopes to start commercial production of converting petrol and diesel utes – currently just Hiluxes but with ambitions to expand to others – to electric in the next five to seven months.
The company is targeting fleet managers.
“You are seeing this innovation come through now,” Merzian says.
“You are seeing these corporate decisions come through, such as Shell buying into the Australian Renewable Energy Hub in the Pilbara, one of the biggest renewable and green hydrogen projects in the world.
“This is the last hurrah for big oil. This is their last chance to squeeze out their last windfall.”
