I grew up in Houston, which means I’ve always got an eye on energy markets. Energy, like oxygen, is something everyone needs but rarely thinks about until the lack of it becomes an emergency. We’re in such an emergency, and for some, there’s a potential cure within easy reach. A cure that few people are taking.
If Friday’s Morning Dump was all about how the car industry doesn’t need another crisis, today’s is about the silver lining. It’s not much of a silver lining for everyone, but I think it might bode well for a few automakers. They could use a break. As could Canada, especially as we look forward to a likely contentious meeting to either reconfirm or break the USMCA.
Renault was one of the automakers that was mostly immune to the downturn in Chinese sales for European cars. Why? It was focused on Europe. Now that might not be going so well. Hell, even the Pope isn’t driving around in a European car these days.
This Could Be The First Energy Crisis Where Someone Will Have Abundant And Cheap Electric Cars
When it comes to energy, there’s one economist that I look to more than any other. Phillip Verlerger, out of Denver, had a piece out on Thursday in Energy Intelligence, called “When Energy Disruptions Strike.” There’s a nice big chart that looks at all the disruptions to the market, five of which include Iran directly.
Verleger concludes that the complexity of the market might hit LNG and Diesel extra hard:
Distillate markets today are also particularly sensitive to supply changes, with the global market for the product already tight and the Iranian attacks forcing refineries to shut down, causing further tightening.
This will prompt hoarding behavior, which, historically has been the activity that drives prices sharply higher when supplies are disrupted. Every firm that holds inventory or has supplies on the way will want to reevaluate the likelihood of easily obtaining additional supplies — or at a reasonable price. The rule in these situations is simple: buy more, sell less.
Moreover, data centers in critical US areas, especially the Mid-Atlantic, will also likely enter the market to replenish stocks used during the January cold spell. Price does not seem to be a barrier for these buyers. One should not be surprised if cash distillate prices rise by $1 per gallon relative to distillate futures in addition to any crude price increases over the next four weeks as data centers try to coax stocks away from refiners. On a cash basis in New York Harbor, distillate could jump from around $2.70 per gallon to $4 due to hoarding.
As if you needed another reason to be wary of data centers.
Looking back on the more recent market events, what’s interesting is that there weren’t necessarily a large number of longer-range, affordable EVs on the market. The Ukraine War had a small impact, initially, although the effects were more strongly felt in Europe and centered around cutting off the flow of Russian gas.
This time, it’s the war in Iran, and crude prices are already way up, as the Associated Press reports, with Brent crude getting close to $119.50 per barrel before retreating closer to $100. WTI has been around $103 after also nearly hitting $120. By comparison, WTI was at around $60 a month ago.
Estimates vary, but this could mean a national average of $4 per gallon by summer if something doesn’t change. That assumes this isn’t quickly resolved. If it isn’t, and prices go up, will this finally mean that people will want EVs? That’s my question, because so far this year EV sales are down, representing about 5-6% of the total market, compared to as much as 12% at various points last year.
Energy prices were stable last year, so it was the potential loss of the EV tax credit that drove the surge in sales. What about this year? Will gas prices actually get people into the market? So far, carmakers don’t think so, as discounting has been heavy. While it depends on the model, Automotive News has seen incentives that eclipse last year’s tax credit deals:
Mohawk Chevrolet in Ballston Spa, N.Y., has added a nearly $6,000 dealer discount on top of customer cash on a 2026 Chevy Equinox EV RS, bringing the advertised price to roughly $33,000, or about the starting price of an entry-level model.
Andy Guelcher, dealer principal, said incentives are needed both to generate demand where it is low and keep older models from sitting too long on the lot.
“Right now, it’s necessary,” Guelcher said. “How long it will be necessary, I don’t know.”
American Honda is offering a $10,000 sales credit this month — down from $11,000 in February — on the 2025 Prologue EV to spur sales of a model the automaker said “is in very limited inventory.” It also has a smaller credit on 2026 models.
While EV inventory remains high at this moment (168 days), automakers have largely cut production, so this might be a blip in time.
If you were somehow still in the market and didn’t take advantage of the tax credit, that Equinox referenced above is still for sale. It’s possible that you might live in a market where it makes sense to save on gas by spending on electrons. At the same time, as Verleger points out, natural gas might get hit hard, which could then drive up electricity prices.
It’s very hard to predict human behavior in this case because it’s hard to predict market forces. I do think that there is a period of time where there’s enough aging stock of EVs sitting around that you might make a deal.
What’s going to be interesting is if there’s a prolonged period of higher energy prices. Automakers aren’t as incentivized to make electric cars in the United States because they’re not trying to hit average fuel economy targets. All that old stock of 2025 models? It’s going to dwindle eventually. While some automakers are cancelling plans and cutting back, GM might be in a great position with the new Bolt. Maybe Nissan with the now-better Leaf?
EVs are cheap because there are still a lot of them left over from an increase in production in 2024 and 2025 combined with low gas prices. By this summer, there might be fewer affordable EVs and higher energy prices. Are dealers going to be putting $6,000 in cash on the hood of an Equinox if gas prices are $5 a gallon in New York? I doubt it.
Instead Of One Agreement, USMCA Will Probably Be Two Different Ones
As previously mentioned here, the North American automotive industry is highly interconnected. This is a feature, not a bug, and it’s a feature of both NAFTA and, later, the United States-Mexico-Canada Agreement (USMCA). The USMCA came from President Trump’s first term, and he described it as “the largest, fairest, most balanced, and modern trade agreement ever achieved” at the time. So much for that!
Canada’s government and the government of the United States are a bit at odds right now, and Canada is looking for partners who make up for geographic proximity with, say, a lack of meetings with Canadian separatists in Alberta.
A report this weekend in The Washington Post via The Detroit News shows that the USMCA might just become a deal with Canada and a deal with Mexico. Why?
Jamieson Greer, Trump’s chief trade negotiator, who will be leading the USMCA review, recently told CBC that Canada should accept “some level of high tariff” on Canadian exports to the U.S. while opening its market to U.S. dairy products.
“Reshoring didn’t happen fast enough,” he added, when asked to describe U.S. complaints about USMCA.
A reworked deal that resulted in higher tariffs on U.S.-Canada trade would upend auto industry supply chains that often send parts across North American borders up to eight times before they are installed in a vehicle.
Fun times.
Renault Is Going To Cut
Renault has had good moments lately, but being reliant on Europe doesn’t seem quite as helpful if the European market is going to get kicked in the shins again by a global energy crisis. The mood at Renault right now is cut-cut-cut.
As Renault SA’s former procurement head, Francois Provost was used to keeping a tight grip on the purse strings. Now as chief executive officer, he’s trying to convince investors that the automaker must become more like its lower-cost Chinese rivals.
A renewed focus on slashing expenses is expected to be part of a plan Provost will lay out Tuesday at a strategy day near Paris. The CEO has been looking to use more technology from Chinese partner Geely to lower development costs. But efficiency gains alone may not be enough to fix Renault’s worsening sales performance, which has contributed to a 20% slump in the share price this year.
“Provost is a cost-cutter,” and his decisions and comments on strategy so far haven’t been convincing, said Pierre-Olivier Essig, an analyst at AIR Capital. “No forward vision is what worries us the most.”
There’s no way for a French company to get its labor costs down to Chinese levels, right?
Da Pope Gets An Explorer Hybrid
There’s an American Pontiff. Even better, Da Pope is from Chicago, which is the funniest city in America for the head of the Catholic church to be from for some reason. The head of Ford is also famously Catholic, and so the company delivered a custom Ford Explorer to Pope Leo XIV in Vatican City:
The Explorer was customized with a 3.3L V6 hybrid powertrain and 10-speed hybrid transmission, as well as an antenna that’s compatible with the European broadcast radio system. Vanity license plates read “DA POPE” and “LEO XIV.”
On the inside, design details boast Chicago-to-Vatican pride.
The Farleys personally delivered the car during a private audience at the Vatican on Feb. 28.
“He noticed and appreciated all the personal touches,” Farley said of the Pontiff’s reaction. “We even took a quick drive, and I can confirm the Holy Father enjoys driving a sporty ride.”
That’s fun!
Also, I think this is the only civilian-spec Explorer hybrid for MY 2026.
What I’m Listening To While Writing TMD
Feels like a good morning for “It’s A Hit” by Rilo Kiley.
The Big Question
How expensive do you think gas will be on July 4th, 2026?
Top photo: Chevrolet
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