One reason why the impact of higher fuel prices may be muted compared to the past is the increased fuel efficiency of US vehicles, in no small part due to the higher share of electric and hybrid vehicles in the US fleet. It can be big.
Figure 1: Fuel consumption per vehicle mile, gallons/mile (blue ratio, left), and combined electric vehicle/electric vehicle fleet (red ratio, right). Fuel consumption is adjusted periodically by the author using X-13 in the logs. The HEV/EV share is calculated sequentially from annual data. Source: EIA, BTS, FHA, Argonne National Laboratory, and author’s calculations.
As of the end of 2024, Germany’s EV fleet share is estimated at 6.4% If the US had such a share, what would fuel consumption look like?
A quick and dirty regression of log fuel consumption on vehicle miles traveled (vmt), EV share (EURATIO) and the time trend (TIME), in the period 2004-2023 (data available) produces:
evilfuel = 1.34 + 0.98vmt – 1.17EURATIO – 0.005TIME
Adj-R2 = 0.87, SER = 0.017, DW = 1.26, and courage denotes significance at the 5% level using HAC robust standard errors.
A one percent increase in EVRATIO increases fuel consumption by 1.17 percent. Therefore, increasing the US share of the German share would mean reducing fuel consumption by about 4.4 percent. Since gasoline consumption was 267 million gallons in February, the reduction implied by having a higher share of HEV/EVs would be about 11.8 million gallons, or $42 million in March. and $48 million in April. It will be $53.1 million in May, if gasoline prices average $4.50/gallon.
Unfortunately, policy under the Trump administration has worked in the opposite direction. The tax credits for EVs expire in September 2025, under the provisions of the OBBBA. The effect on the allocation of to sell clear:
Source: EIA (2026).
In this sense, this OBBBA provision (like many others) represents a missed opportunity to strengthen the US economy against the shock of austerity.
Reply to Bruce Hall’s 2022 data on the source of EV batteries:
Or, from Reuters, this year:
HONG KONG, Jan 2 (Reuters Breakingviews) – By 2026, US battery supply will exceed demand, ending dependence on imports. Former President Joe Biden’s policies are set for change, and his successor Donald Trump may take over. But the real winners are Korea’s LG Energy Solution (373220.KS), opens a new tab, Samsung SDI (006400.KS), opens a new tab and SK On, which will be better able to take on China.
America’s demand for lithium-ion batteries, which are used to power cars and store energy, has been growing rapidly, but the domestic supply has failed to keep up with the pace: as a result, just to keep up, the country has imported, opening a new tab for batteries and parts of more than 100 billion from 2021, according to S&P Global, almost half of which comes from China. The growing reliance on the People’s Republic – the amount of lithium-ion battery exports has grown 15 times in the decade to 2024, according to data from the International Trade Center – worried policymakers.
