Iran war boosts EV appeal as oil volatility reshapes auto outlook

Investing.com -- Bank of America said the ongoing conflict involving Iran is emerging as a key risk for the global automotive sector, with rising oil prices likely to accelerate the shift toward electric vehicles while posing longer-term demand risks.

The brokerage said uncertainty around the conflict remains high, with scenarios ranging from a near-term ceasefire to prolonged disruption through the second half of 2026. In more severe cases, including sustained disruption to the Strait of Hormuz and regional energy infrastructure, Brent crude could rise as high as $160–240 per barrel.

Higher fuel costs are already strengthening the case for battery electric vehicles, or BEVs, by widening the total cost advantage over internal combustion engine cars. BofA said petrol vehicle owners face significantly higher running cost inflation compared with EV users, making electrification more economically attractive.

In Europe, the bank estimates a five-year total cost advantage of about €2,500 to €8,500 for an electric model such as the Volkswagen ID.3 compared with a petrol Volkswagen Golf, depending on subsidies.

The shift echoes past periods of high fuel prices, when demand favored more efficient vehicles. BofA said electric vehicle leaders such as Tesla Inc and Chinese manufacturers are best positioned, followed by fuel-efficient automakers including Renault SA, BMW AG and Toyota Motor Corp.

The financial impact on automakers is limited in the near term, as most companies have hedged energy and raw material costs and supply chains remain intact. Exposure to the Middle East market is also small, accounting for less than 1% of global volumes, though luxury brands such as Ferrari NV and Lamborghini have paused shipments.

BofA warned that a prolonged conflict could drive sustained cost inflation and weaken consumer demand globally once current hedges expire, making oil volatility a defining risk for the sector.