From the last few decades, the automotive industry has been witnessing significant growth in the sale of all types of vehicles including passenger cars, commercial vehicles, and two-wheelers. This is majorly attributed to the growing population, increasing disposable income, expanding the presence of vehicle manufacturers, rising demand from youth population globally. However, this growth in the demand and sale of the vehicles is putting pressure on the oil industry to produce more oil in order to fill the demand and supply gap.
As per the study published by Stanford University, everyday, 60 million barrels of oil are consumed for transportation, and over 95 million are consumed globally. This tremendous consumption of oil is resulting in the production of a huge amount of carbon dioxide, which is getting released into earth’s atmosphere further. It has been proved that carbon dioxide is one of the major greenhouse gases responsible for increasing global warming because it traps solar radiation near the earth surface. To fight this, many governments and vehicle manufacturers across the globe are coming up with a range of solutions— the electric car is one of them. Tesla, one of the leading electric vehicles producers, has received over 400,000 pre-orders for it’s upcoming moderately priced model M3. Thus, rising demand for electric vehicles have already started threatening the oil industry, but how legitimate is it?
Declining prices of electric vehicles
Day by day, prices of electric vehicles are becoming more affordable at an exponential rate due to declining prices of battery packs used in the car. The battery pack is the major factors that determine the overall prices of the car as they store electric energy and power the vehicles. Recent technological advancements had reduced battery prices and provided a faster-charging option with extra mileage in a single charge. However, present complexity of battery system would result in the shift of the market from traditional OEMs to emerging technological players. It poses an opportunity for existing suppliers to improve upon the existing capabilities of EV battery technology. The surge in the investment and production of electric vehicles has boosted the growth of lithium-ion battery market to USD 40 billion by 2025 and China is expected to dominate the same.
Electric Vehicle Growth and Projections
Various governments across the globe are taking initiatives to increase its adoption. For instance, the U.K government has announced to invest USD 161 million in development of R&D infrastructure for electric vehicle battery production. Department of Energy has been allotted with USD 2 billion to accelerate the development and manufacturing activities of their next generation batteries and EVs. Similarly, the European Commission and governmental organizations in Europe and Japan’s Ministry of Economy. Moreover, the Chinese government has already been supporting companies like BYD and Chunlan to improve battery technology through strong subsidy support for research and manufacturing of EV vehicles.
EVs are likely to witness strong growth in the coming years as a result of increasing efforts from governments and their favorable policies including exemption from road tax and entry into the bus lane. Currently, EV accounted for 0.2% of all passenger light-duty vehicles in circulation. This is number is likely to hold 70% global car sale and 50% of all cars on the road. Several car manufacturers including Volvo, GM, Ford, Volkswagen, and Honda are requested to sell more number of electric vehicles in the coming years, and Volvo is eyeing to produce exclusively electric cars in the next few years.
Electric vehicles have become popular among the consumers, but its price is still acting a barrier despite rapid improvements in battery pack technology. Government subsidy and favorable policies are some of the drivers of EVs. China offers 60% subsidy to electric vehicles, but soon it is going to end in 2020. However, it is visible that the sale of these vehicles mostly depends on government regulation and policies. Additionally, with the rapidly advancing technology, the fuel efficiency of traditional fuel vehicles has improved and is likely to improve more in the coming years, which is expected to maintain fuel prices at a steady level. Thus, consumers are more likely to opt for internal combustion engine vehicles, and it will not give a choice for consumers to switch to electric vehicles.
Impacts of Electric vehicles on Oil Industry
Electric vehicle market is witnessing significant growth and is likely to double by 2050. However, it won’t make such legitimate impact on the current market for the traditional fuel vehicles as well as it is also not likely to affect the market in the coming years because oil-based vehicles are projected to witness rapid innovation and technological developments to improve the fuel efficiency. Therefore, with the improved fuel efficiency, more consumers are expected to choose the internal combustion engine vehicles. Additionally, the oil producer will get enough time in 2050 to become more efficient and reliable. Thus, it can be concluded that for at least 30–40 years industry is not going witness significant impact.