Here’s How Electric Cars Will Cause the Next Oil Crisis
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With all good technologies, there comes a time when buying the
alternative no longer makes sense. Think smartphones in the past decade,
color TVs in the 1970s, or even gasoline cars in the early 20th
century. Predicting the timing of these shifts is difficult, but when it
happens, the whole world changes.
It’s looking like the 2020s will be the decade of the electric car.
Battery
prices fell 35 percent last year and are on a trajectory to make
unsubsidized electric vehicles as affordable as their gasoline
counterparts in the next six years, according to a new analysis of the
electric-vehicle market by Bloomberg New Energy Finance (BNEF). That
will be the start of a real mass-market liftoff for electric cars.
By
2040, long-range electric cars will cost less than $22,000 (in today’s
dollars), according to the projections. Thirty-five percent of new cars
worldwide will have a plug.
This isn’t something oil markets are planning for, and
it’s easy to see why. Plug-in cars make up just one-tenth of 1 percent
of the global car market today. They’re a rarity on the streets of most
countries and still cost significantly more than similar gasoline
burners. OPEC maintains that electric vehicles (EVs) will make up just 1
percent of cars in 2040. Last year ConocoPhillips Chief Executive
Officer Ryan Lance told me EVs won’t have a material impact for another
50 years—probably not in his lifetime.
But here’s what we know:
In the next few years, Tesla, Chevy, and Nissan plan to start selling
long-range electric cars in the $30,000 range. Other carmakers and tech
companies are investing billions on dozens of new models. By 2020, some
of these will cost less and perform better than their gasoline
counterparts. The aim would be to match the success of Tesla’s Model S,
which now outsells its competitors in the large luxury class in the
U.S. The question then is how much oil demand will these cars displace?
And when will the reduced demand be enough to tip the scales and cause
the next oil crisis?
First we need an estimate for how quickly sales will grow.
Last
year EV sales grew by about 60 percent worldwide. That’s an interesting
number, because it’s also roughly the annual growth rate that Tesla
forecasts for sales through 2020, and it’s the same growth rate that
helped the Ford Model T
cruise past the horse and buggy in the 1910s. For comparison, solar
panels are following a similar curve at around 50 percent growth each
year, while LED light-bulb sales are soaring by about 140 percent each
year.
Yesterday, on the first episode of Bloomberg’s new animated series Sooner Than You Think,
we calculated the effect of continued 60 percent growth. We found that
electric vehicles could displace oil demand of 2 million barrels a day
as early as 2023. That would create a glut of oil equivalent to what
triggered the 2014 oil crisis.
Compound annual growth rates as
high as 60 percent can’t hold up for long, so it’s a very aggressive
forecast. BNEF takes a more methodical approach in its analysis today,
breaking down electric vehicles to their component costs to forecast
when prices will drop enough to lure the average car buyer. Using BNEF’s
model, we’ll cross the oil-crash benchmark of 2 million barrels a few
years later—in 2028.
Predictions like these are tricky at best. The best one
can hope for is to be more accurate than conventional wisdom, which in
the oil industry is for little interest in electric cars going forward.
“If you look at reports like what OPEC puts out, what Exxon puts
out, they put adoption at like 2 percent,” said Salim Morsy, BNEF
analyst and author of today’s EV report. “Whether the end number by 2040
is 25 percent or 50 percent, it frankly doesn’t matter as much as
making the binary call that there will be mass adoption.”
BNEF’s
analysis focuses on the total cost of ownership of electric vehicles,
including things like maintenance, gasoline costs, and—most
important—the cost of batteries.
Batteries account for a third of
the cost of building an electric car. For EVs to achieve widespread
adoption, one of four things must happen:
1. Governments must offer incentives to lower the costs. 2. Manufacturers must accept extremely low profit margins. 3. Customers must be willing to pay more to drive electric. 4. The cost of batteries must come down.
The
first three things are happening now in the early-adopter days of
electric vehicles, but they can’t be sustained. Fortunately, the cost of
batteries is headed in the right direction.
There’s another side to this EV equation: Where will all
this electricity come from? By 2040, electric cars will draw 1,900
terawatt-hours of electricity, according to BNEF. That’s equivalent to
10 percent of humanity’s electricity produced last year.
The good news is electricity is getting cleaner. Since 2013,
the world has been adding more electricity-generating capacity from
wind and solar than from coal, natural gas, and oil combined. Electric
cars will reduce the cost of battery storage and help store intermittent
sun and wind power. In the move toward a cleaner grid, electric
vehicles and renewable power create a mutually beneficial circle of
demand.
And what about all the lithium and other finite
materials used in the batteries? BNEF analyzed those markets as well,
and found they’re just not an issue. Through 2030, battery packs will
require less than 1 percent of the known reserves of lithium, nickel,
manganese, and copper. They’ll require 4 percent of the world’s cobalt.
After 2030, new battery chemistries will probably shift to other source
materials, making packs lighter, smaller, and cheaper.
Despite all this, there’s still reason for oil markets to
be skeptical. Manufacturers need to actually follow through on bringing
down the price of electric cars, and there aren’t yet enough
fast-charging stations for convenient long-distance travel. Many new
drivers in China and India will continue to choose gasoline and diesel.
Rising oil demand from developing countries could outweigh the impact of
electric cars, especially if crude prices fall to $20 a barrel and stay
there.
The other unknown that BNEF considers is the rise of
autonomous cars and ride-sharing services like Uber and Lyft, which
would all put more cars on the road that drive more than 20,000 miles a
year. The more miles a car drives, the more economical battery packs
become. If these new services are successful, they could boost
electric-vehicle market share to 50 percent of new cars by 2040,
according to BNEF.
One thing is certain: Whenever the oil crash
comes, it will be only the beginning. Every year that follows will bring
more electric cars to the road, and less demand for oil. Someone will
be left holding the barrel.
Source: http://www.bloomberg.com/features/2016-ev-oil-crisis/
