Demand for electric cars and oil prices: A wavelet approach

Abstract

ABSTRACT The paper explores the worldwide co-movement between the demand for electric cars and oil prices from January 3rd, 2020, to March 6th, 2023, utilizing wavelet methodology. The main finding shows a strong link between electric car demand and oil prices when oil prices are highly volatile in the short term. When oil prices suddenly drop, people’s preference for electric cars decreases in the very short term. However, in the short term, the demand for electric cars is influenced by how much oil prices change and the anticipation of future trends, causing a shift between traditional and electric cars. These results hold true even when considering factors like geopolitical risks, pandemics, the health of the car industry, and the cost of metals used in car batteries. The findings have crucial implications in the socio-economic environment, being very useful to both policy-makers and car market actors. In this light, on the one hand, the outputs can offer support in shaping policies able to reduce fossil fuel dependency and address climate change. On the other hand, this insight aids in correcting the market dynamics across automotive and energy sectors under oil price volatility. Furthermore, these dynamics can affect economic indicators like inflation, trade balances, unemployment, and GDP growth. Not least, transitioning to electric cars can mitigate emissions reduction, improve air quality, diversify energy sources, and enhance energy security.