2020, The Beginning Of The End For Oil?

Renault electric car

There comes a time for all great technologies when something better is born and it no longer makes sense. It has already happened with smartphones in recent years, with color televisions in the 70s or even with gasoline cars in the early 20th century. Predicting these changes over time is difficult, but when they do, the whole world changes.

How the electric car market could present itself from 2020.

The price of batteries for these cars has fallen by 35% last year and everything indicates that this trend continues in 2016. Already today, we have efficient electric car models on the market that can meet the transportation needs of a much of the population, and in many cases, they are already reasonably priced. If we add to this that this trend in prices and production costs continues to fall, everything indicates that electric vehicles (EV) could be as affordable as gasoline cars in the next six years according to the BNEF.

According to these predictions, in the year 2040 EVs will cost an average of $22,000 (in today’s dollars), and as you can see in the graph below, 35% of new cars will be powered by electricity:

Rise of electric cars

These forecasts are not being very taken into account by the oil markets, as has happened in many other crises in different sectors. Wrongly, OPEC maintains the thesis that electric vehicles (EVs) will make up only 1% of all cars in 2040. In that sense, Ryan Lance, the CEO of ConocoPhillips said that electric cars would not have any impact in the next 50 years, and that they probably never will.

However, there is a number of data that we know that indicate otherwise: in the coming years, both Tesla, Chevrolet and Nissan are investing billions in the creation of new models of electric cars to be able to sell them in a price range of $30,000. If we are able to meet that goal, we can say that by 2020, there will probably be many models of electric vehicles that are even cheaper than gasoline. The goal would be to match the success of the Tesla Model S with lower-end models.

tesla model s loading

One factor to keep in mind is to look closely at the progression of EV sales, which have grown by 60% last year worldwide. To compare these data, we can see how solar panels are growing an average of 50% per year, or the sale of LED bulbs have increased around 140% each year (worldwide).

However, it is fair to say that a growth of 60% per year cannot be supported for long, so this data cannot be taken as a reference for long-term forecasts. For this reason, the BNEF ( Bloomberg New Energy Finance ) adopts a more methodical approach in its analysis, and taking as a critical point to end an oil crisis the impact of 2 million barrels a day less sold due to EVs, it is believes the next oil crisis could start in 2028.

electric cars can cause oil crisis

 

In contrast, we see that the oil industry has very little interest in electric cars, which in a way is not understood because the data is worrying for its sector.

The Cost of EV batteries.

Today, batteries represent a third of the total cost of building an electric car. For EVs to achieve widespread adoption, one of four things must happen:

  1. That the governments of the countries offer incentives to lower their costs.
  2. That manufacturers momentarily agree to lower profit margins.
  3. That customers are willing to pay more to have an electric car.
  4. Let the cost of batteries go down.

The first three points are already happening in many countries, also the cost of batteries is going in the right direction and electricity will be increasingly clean. The BNEF estimates that starting in 2030, the materials in the manufacture of batteries will likely change, which translates into lighter, smaller, and above all, cheaper batteries.

Why is the oil sector skeptical?

Despite all these data, the oil market still has reasons to cling to. Electric car manufacturers still have a fairly high cost to manufacture their units and there are not enough fast charging stations to convince potential buyers that they want a vehicle to travel long distances.

Also, the increased demand for oil in developing countries could offset the impact of electric cars.

However, on the other hand we have the BNEF data. This body believes that the rise of autonomous car services such as Uber and Lyft would cause a greater number of vehicles that drive more than 35,000 km a year on the roads. The more kilometers driven, the more profitable it is to have an electric car, so if these services are as successful as expected, it could boost the market share of electric vehicles to 50 percent of all new cars by 2040.

One thing seems certain: the demand for oil in many countries will be less and less. Every year we will see more electric cars on the roads and less demand for oil. Therefore, someone will lose an important piece of the pie if nothing changes.

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