Can Electric Vehicles Really Crash the Oil Industry?


OPEC says not a chance but, what else can they say? Some economists say the anemic global economy will beat the EVs to it. But there is an interesting, if not compelling, argument that the exceptional increase in EV sales that we are currently experiencing could in fact have a serious impact on fossil fuel demand by as soon as 2023.

Bloomberg New Energy Finance took a look at what they think is a probable sales curve for electric vehicles and believes that EVs conservatively could reduce the consumption of oil by at least 2 million barrels per day by as early as 2028, sooner if more aggressive sales projections are used. A reduction in demand of that scale could trigger the next oil crisis a la 2014.

A Serious Game Changer? It’s Happened Before.

Despite all the press electric vehicles get they are still just a speck of sand when compared to the global automobile market. h They are in fact a novelty and that’s what OPEC and major oil companies are hoping they remain.

However, last year sales of electric cars were up over 60% compared to 2014. Advances in battery technology continue to drive down the price of EVs (the price of automotive batteries fell 35% in 2015) and in a few years an electric vehicle will be comparably priced to a similar model gas powered car.

Similar model is a key factor to the EV’s future. EVs will not be confined to subcompacts but will power vehicles (including heavy duty trucks) across all segments. The Tesla Model S is a prime example of how consumers will react when they perceive superior value and performance in a vehicle, even a luxury vehicle, regardless of the engine type.

Is a 60% increase in sales year over year sustainable? Probably not. But as prices come down there will be a time when the new technology is desirable over the existing alternative.

For example:

  • Consider how fast the smart phone made cell phones almost obsolete.
  • When color TVs reached a comparable price of black and white sets, black and white consumer sets almost completely disappeared.
  • When Henry Ford introduced the first mass produced (and affordable) automobile he put the horses out to pasture permanently.

More relevant examples include solar panels which are growing at 50% per year and the LED light bulb which is all but putting incandescent lighting out of business with a sales increase rate of 114% year over year.

The Bloomberg group is confident that the electric vehicle will lure consumers on the same footing as gas powered cars and then become the prominent source of power making gas powered vehicles seem more exotic. The question is when will that happen and they see the steep climb in acceptance beginning in 2030, after it has crashed the oil industry.

Another sign that Bloomberg is not alone in their analysis is the billions being poured into EV research and development by nearly every car manufacturer in the world. Tesla, Chevrolet and Nissan plan to bring to market long range electric cars priced under $30,000 within the next two years.

Of course in the U.S. market there is another very strong motivation for manufacturers to come up with viable electric cars and that’s getting the government partly out of their business. The significant improvements in mileage that we have seen in the past few years is motivated as much by government regulations than by a desire to deliver a more efficient engine for the customer. Electric cars won’t have to deal with that.

The OPEC Argument

OPEC has two arguments for their prediction that electric vehicles will never exceed 1% of total automobiles. The first argument is that they believe the price for EVs will never be competitive with gas powered cars and that the infrastructure needed for fueling away from home will take decades to attract sufficient investors to make long distance travel feasible.

Apparently they haven’t talked to a Tesla representative.

The second argument sounds more credible and that is the growth in the number of automobiles on the road will largely come from developing economies, specifically India and China whose consumers are ultra-price sensitive. Many of these economies have little or no regulation regarding emissions and they aren’t likely to draft any in the immediate future. Free of those restraints, domestically produced cars can be manufactured significantly cheaper than cars made in the Western world.

Big oil feels the same way. ConocoPhillips Chief Executive Officer Ryan Lance says electric vehicles won’t have a material impact on the oil industry for another 50 years.

We wonder if buggy whip manufacturers felt the same way about horseless carriages.


So What Could Trip Up the Age of EVs?

Some people are concerned about the supply of raw materials required to make a battery and are concerned that the automotive industry would just be trading reliance for one nonrenewable fuel source for another finite material that could create scarcity and drive prices up. Bloomberg’s analysis says that’s really not a problem.

Their analysis shows through 2030, battery packs will require less than 1 percent of known reserves of lithium, nickel, manganese, copper, and 4 percent of the world’s cobalt. Bloomberg predicts that after 2030 battery chemistry will shift to other elements in the continuing quest to make batteries smaller, lighter and cheaper.

If EVs grow as predicted they will be using 10 percent of all the electricity produced in 2015. Where is it going to come from? This is an area that needs more study. Optimistically we will continue to grow the grid using clean sources like wind and solar. Those systems however, require batteries to store the energy they create and discharge the energy when required.

The growth of EVs and the continuing research in battery chemistry can’t help but have a positive impact on battery usage across all industries making distribution of clean electricity more efficient.

So is the EV going to crash the oil industry? The only sure thing is if it does happen it won’t get any better for OPEC and the others. Each year there will be more EVs replacing gas guzzlers and someone is going to be left holding the barrel.