Electric Vehicles:End of oil companies?
What meaning does the growing popularity and mass adoption of electric vehicles (EV) bring? For environmentalists and advocates of renewable energy, it means victory for Mother Earth and an end to dependence on oil. For the oil markets, it spells gloom and doom. Sales of electric cars, whether all-electric or hybrid plug-in, are increasing. Auto manufacturers are now adding electric units to their product line, even launching new and improved models. More units are taking over the streets in US and Europe. Though electric vehicles have yet to make an impact in developing countries, the green side is already celebrating. However, one industry sector is not happy, and observers understand why.
Oil players digging their own grave
Business media is rife with news, commentaries, and forecasts from industry observers who prophesy the downfall of the oil markets in the age of electric cars. Oil prices have tanked two years ago. Members of the Organization of Petroleum Exporting Countries (OPEC) are producing too much oil, but the market is not creating the demand. They caused their own downfall by producing more than what the global market demanded.
Two million barrels a day oil players have produced. That is more than the global market demand. Little do they know that electric cars could decrease demand for their product by the same two million barrels a day in the next decade. By 2040, it would be 13 million barrels per day. Refusing to read the writings on the wall, OPEC expects to increase production to 4.5 million barrels per day in 2016 and 4.7 million in 2017. Oil players have already committed suicide.
Oil players downplay EV surge with own forecasts
As the only industry being negatively affected by electric vehicles, oil companies are quick to dismiss news of their impending doom. There will be more demand for their products, they boldly claimed, because electric cars, no matter how widely popular and well received, will not create a serious impact on the oil industry. Fuel-powered cars have become fuel-efficient, and global demand will not change over the next few years.
In their World Oil Outlook report, OPEC expects global demand will increase by 18 million barrels a day to 110 million by 2040, and in the same time, oil will make up 78% of the world’s energy and vehicles will consume 17% more oil. The same report sees an increase in the total number of vehicles worldwide over the next 25 years, from 1 billion to 2.5 billion, with 400 million in China alone. 94% of vehicles will still run on fuel. OPEC considers hybrid plug-in electric vehicles as fuel-powered, and they will capture a market share of 14% by 2040. All-electric vehicles will just get 1% share of global sales, the report added.
Moreover, there is even good to the recent slump in oil prices because it means the operating costs of fuel-powered vehicles have went down too. Cheap oil will outweigh the impact of electric vehicles which are still expensive, a fact that Tesla’s Elon Musk cannot help but admit. OPEC is even undaunted by the slump in battery prices, believing it will not make much difference due to increasing oil demand in the future which they predicted.
Electric vehicles are no threat to oil players because such units capture only less than 1% market share. There is not even a surge in demand for electric units since the debut of the Nissan Leaf, the world’s first most affordable electric car. There is also the expensive price tags on most units and the issues of defective batteries and limited range, so where is the threat to the oil industry? Where is the competition to fuel-powered cars, their primary benefactor?
Stakeholders shaping up the EV game
But oil players have lot to worry about as virtually all major auto manufacturers are getting into the game and are throwing vast resources into their own electric car venture. Even tech giants Google and Apple have formed their own teams to design the next hot electric car.
One of Detroit’s Big 3 car makers has followed suit with its own range of electric vehicles, set for launch by 2020. Ford will invest $4.5 billion in all-electric and hybrid plug-in units. Volkswagen will unveil its new electric car model that is said to be affordable and longer-range. Toyota, the world’s biggest car maker, has yet to invest in electric mobility, but it has decided to stop producing diesel and petrol-powered cars by 2050 and shift to hydrogen fuels. Of course, OPEC is not happy with Toyota’s decision.
Advancements in battery technology will impact the future of both electric vehicles and oil players. Defective batteries will just undo the former and bring more business to the latter. OPEC is confident that improved batteries will not put them out of business. There will be not enough charging stations for electric cars and even refueling stations for vehicles that run on alternative fuels. Moreover, electric vehicles will demand more electricity which in turn will require more power generation plants, which is powered by carbon-emitting coal. More power generation plants are required to fuel the growing number of electric vehicles. Without it, there will be risks of power overloads and blackouts.
OPEC are certainly oblivious that stakeholders in the EV field are working on battery upgrades. A team of chemists from Cambridge have developed a cost-efficient and power-efficient lithium-ion battery that is able to keep a car running on a single charge from London to Edinburgh. The US Department of Energy is funding a battery project by universities and national laboratories. Even Japan, South Korea, and China are running their own battery projects.
Moreover, the world is heading towards cleaner power grids. Utility companies are sourcing significant portion of their electricity from solar and wind, other than coal, oil, and natural gas. Reinforcing the power grids with renewable energy will result in cheaper charging rates and affordable battery packs for electric vehicles.
OPEC is betting its future on China, where the biggest demand for their product will come from. However, the electric vehicle market is beginning to grow, and some Chinese manufacturers are already receiving good traction for their quality electric models. Electric is the direction the country is heading as it grapples with bad air quality. To lower carbon emission, authorities are rationing permits for fuel-powered cars and are favoring electric cars.
The age of electric vehicles approaching
Should sales sustain its 2015 global growth rate of 60%, electric cars will not only cut down oil demand, but also top overall sales, becoming as more affordable as their internal combustion engine counterparts in the next six years, even without government subsidies. Goldman Sachs predicted that electric vehicles will command 22% share of the global market into 2020s and sales will reach 25 million units a year. Bloomberg estimated 35% market share by 2040. In Norway alone, electric units have already captured 16% of the market. In the US, 39 million all-electric and hybrid plug-in units will be on the road by 2030. Such a fleet of this size would lower oil consumption by 17 billion gallons a year.
Sales will grow alongside innovations in battery technology. A better battery will mean a better electric vehicle. Scientists and engineers are working double time to make batteries safer and more efficient. Current battery of choice for most electric units is lithium-ion, but they are also playing around with other battery options such as solid state, aluminum-ion, metal-air, and lithium-sulfur. Batteries will not only become better, but also cheaper. Battery costs fell by 35% in 2015 and will fall by 60% over the next five years, Goldman Sachs also predicted. The age of electric vehicles is fast approaching, and the oil players are not liking it.