It is fast becoming a norm to read news about the potential extinction of the internal combustion engine cars, as electric vehicles replace the traditional petroleum powered cars and trucks. The general belief is that it is a matter of time before EVs reduce the demand for gas-powered vehicles, thereby forcing down the global oil price.
EVs may eventually trigger a shift away from an oil-powered economy as global automakers start working on building pure EVs and EV-gas hybrids. Basic economics teaches us that the price of a commodity tends to fall as its demand declines; hence, a drop in the number of gas-powered vehicles on the roads could lead to a proportionate drop in the demand for oil. In this piece, I will attempt to provide an objective analysis into the kind of threat that EV’s can pose to the global crude oil market.
Here are some interesting electric vehicles growth forecasts
Speculations on EVs growth is everywhere. According to the reports of a study by Morningstar, EVs would be 10% of the total vehicle sales by the year 2025 compared to the negligible 1% sales recorded in 2015.
Energy Information Administration, a Washington based organization, predicted that the total sales of EVs, both light trucks and cars would hit an amazing 1.4 million by 2025. In addition, Morgan Stanley went a bit further by predicting that 1 billion EVs (both card and light trucks) would be on sale by 2050. In fact, by 2050 an overwhelming 70% of European cars would most likely be electric.
In addition, Bloomberg in one of its news reports asserted that “…adoption of emission-free vehicles will happen more quickly than previously estimated because the cost of building cars is falling so fast”. The shift is expected to push cars with internal combustion engines to a third of the world auto fleet by 2040, thereby reducing global oil demand by 8 million barrels per day.
According to the report by Bloomberg, EVs will be as cheap as gasoline vehicles. People will prefer EVS to gas-guzzlers if they have the same sticker price because EVs theoretically have lesser maintenance costs than cars with internal combustion engines. An increase in EVs will push up the global number of electric vehicles to 550 million.
The above statistics sound like a threat to the oil industry, but an objective analysis of the data in relation to other data suggests that black oil may not be quitting the stage anytime soon, even though EVs has come to play a part on the scene.
EVs sales not yet a threat anytime soon
I would like to set the records straight by starting with the number of vehicles in the world. According to Automotive News, in 2016, over 18.4 million cars and trucks were sold in the US alone. Alliance Bernstein puts the total number of cars on the road globally at 1.1 billion, while trucks numbered about 377 million. The number is expected to climb to an all-time volume of 1.5 billion for cars and 507 million for trucks by 2025. The number will jump to 2 billion and about 790 million for cars and trucks respectively by 2040, according to the report.
The main reason EVs won’t be a threat to the crude oil industry anytime soon is that the sales of EVs will continue to trail the sales of gas-guzzlers for the next couple of decades. We can observe that the sales figures for cars and trucks doubling by 2050, but EV sales will only increase by 10% by 2040. If we go by the Morningstar report, there will be only 8.8 million EVs sold in 2025 out of the total 88 million global vehicles sales, this equation does not consider transport trucks, for which electrification is not quite a realistic solution based currently available EV technology.