Oil vs Electricity. How Will Electric Cars Change the Oil Market?
On this issue, experts can be divided into two groups: optimists and pessimists.
The first ones are confident that the era of electric cars will begin in ten years and the oil prices will fall down to $10 per barrel.
The second group thinks that electric cars cannot affect the oil market for the next 50 years. Where is the truth? Most likely, it is where it often lies – in the middle.
Not all forecasts are created equal
The Volkswagen Group is planning to increase the share of electric vehicles sold up to 25% by 2025, while Renault-Nissan-Mitsubishi – up to 30% by 2022. These plans were announced by the Japanese Toyota as well.
If these three giants arrive at their aims, then the market will be literally flooded with electric cars in 10 years. Which are also going to be price-wise according to the last year study by Bloomberg New Energy Finance (BNEF).
The authors connect the trend for cheaper cars with the decrease in prices for batteries.
В 2016 году их стоимость снизилась на 35% и, по мнению аналитиков, продолжит снижаться дальше. По прогнозу авторов BNEF, цена электрических авто сравняется со стоимостью обычных уже через шесть лет.
In 2016, their value dropped by 35% and the analysts think it will continue to decline. According to BNEF, the price for an electric car will align with the fuel car as early as in six years. At the same time, the OPEC (Organization of the Petroleum Exporting Countries) provides entirely different numbers. According to OPEC, the share of electric vehicle sales by 2040 will only amount to 1% of the global economy. This forecast is supported by Ryan Lance, CEO of the major North American oil company – ConocoPhillips. He believes that electric cars will not have a significant effect on the economy in the next 50 years.
Of course, the reluctance of oil producers to believe in the early arrival of the green transport era is understandable: it is a sign of their business demise. On the other hand, they are not entirely wrong in their assessment either.
New energy brings new challenges
Moving to the new type of transport is quite a complicated and formidable task. It requires changes to the traditional infrastructure and, in a sense, a change in the attitude of people.
People should get used to driving in a new way. It comes easier in the Western countries, where the idea of ecological transport has been developing for a long time and electric vehicles are no longer uncommon. Local governments have contributed to this in no small measure. They see transitioning to electric cars as a good way to deal with the environmental pollution and that is why they encourage their people to purchase pursuing this trend by giving them grants and cutting taxes.
However, it applies only to dynamically developing states, which is not the case in less developed countries of Africa and South-East Asia. Most of them have virtually no legislation and infrastructure to use electric vehicles.
As a result, and since the oil prices are falling, the demand for fuel cars in such countries will increase on the contrary. That has already been confirmed by the recent study of the International Energy Agency.
Moreover, a transition to the new type of transport will require plenty of electricity. Apart from the nuclear sources, the coal, oil, and fuel oil are used for this purpose now.
Coal is the cheapest of these. However, if we assume that electric cars flooded the market and oil price has fallen as a result, then it becomes the most efficient commodity to generate electricity.
Finally, there is a problem with the electric batteries. First, their production is still imperfect. We are promised that there will be ultralight batteries in the future based on graphene/MXenes capable of retaining the charge for a long time. But when they appear on the market is unknown.
So far, we have to settle for bulkier batteries that significantly increase the vehicle weight and are unable to sustain the engine running for several hours without charging.
Secondly, there is a problem with the worn-out battery disposal. They cannot be simply thrown away as they contain toxic substances. A well-designed and safe processing system for these batteries is needed, but it has not been invented just yet. Still, scientists work hard on this.
So, will the oil market collapse or not?
For now, it is difficult to answer this question clearly. On one hand, the rapid blooming of electric vehicles is anticipated in many developed countries already. And it will definitely come.
But new cars will hardly flood the market quickly and immediately. It is more likely to be a gradual transition, which means the demand for oil will not disappear overnight.
Perhaps, the most dangerous situation is that many governments accelerate the transition to new types of transport.
The USA and Europe toughen up the laws primarily related to environmental protection, which forces car manufacturers to increase their share of electric vehicles sold even though the technology itself is not fully “polished”. The Chairman of Toyota, Takeshi Uchiyamada has commented on this more than once.
He thinks that we need at least two or three technological breakthroughs for the electric cars to match the conventional vehicles in every aspect.
The business should not idle by as well
Even though the electric car market is struggling, it will continue developing and significantly affecting other economy areas such as non-ferrous metals market. The latter will grow in price substantially because they (nickel, cobalt, and copper to be precise) are widely used when producing batteries for electric cars.
Let’s not forget that many countries give special discounts to the purchasers of electric cars. Soon, these can also be introduced in Ukraine – the relevant bill is already registered in the Verkhovna Rada.
Yet again, ecological transport is a mainstream. It attracts consumer’s attention simply by ensuring the environmental safety. Thus, it is now very profitable to develop services associated with electric cars. For example, there are “green” taxi services in Ukraine now. They transport clients exclusively by electric cars.
Creation of charging stations is also on the front burner now: they are few in Ukraine and their number is insufficient even for that small number of electric cars already driving the roads. However, companies developing charging stations for electric cars are also few in Ukraine so far. In other words, the niche is free and it makes sense to fight for it given its potential.
This post is also available in: Russian
Artem KovbelPartner, Head of Financial Investigations