James here, editor of Exponential Energy Fortunes. Boaz is away today and has asked me to fill in. So today, we turn our attention to the future of oil markets… and how the rapid rollout of electric vehicles is depriving oil of future growth.
You might have seen the documentary.
Titled Who Killed the Electric Car?, the film, released almost 13 years ago to the day, detailed the aborted attempt by the auto industry to develop an electric vehicle as an eco-friendly, gas-free alternative to internal combustion engine cars.
Despite receiving favourable reviews, the documentary didn’t do great shakes at the box office, though it did cause quite a stir.
That’s because it posited that there was a conspiracy between oil companies, automakers and the government to kill the electric car in the late 90s and early noughties.
(For those who still want to see the film, look away now, as there will be spoilers.)
Back in 1996, you see, General Motors (GM), then the world’s biggest automaker, debuted its first electric car, dubbed the EV1. It was available in just two states, Arizona and California, and for lease-only. During its years in production, from 1996 to 1999, a total of around 2,500 EV1s were made.
But while customer reaction to the EV1 was positive, GM, citing the high cost of producing and maintaining the vehicles, ended up crushing all its electric cars, regardless of protesting customers who even offered to buy the remaining EV1s with junk titles at lease buyout prices.
The film also details the California Air Resources Board’s reversal of the electric car mandate after relentless pressure and suits from automobile manufacturers and continual pressure from the oil industry.
The oil companies mounted a huge and expensive fightback against electric cars, claiming, among other things, that the environmental benefits of electric cars were bogus, and that only rich people could afford them.
According to the documentary, the oil industry, through its major lobby group the Western States Petroleum Association, financed campaigns to kill utility efforts to build public car charging stations, while Mobil and other oil companies are also shown to be advertising directly against electric cars in national publications.
You might say they were right to be concerned.
Because, spearheaded by Tesla, electric vehicles have had quite the renaissance over the last decade or so, so much so that they may have already killed the future prospects of the internal combustion engine (ICE) vehicles and with it the oil market.
That’s no exaggeration or hyperbole.
According to a recent article in the Financial Times, while sales of EVs are surging, sales of internal combustion engine vehicles may already be past their peak in major markets.
Although 2018 [combustion engine car sales] are likely to be slightly higher than a year before — Moody’s is projecting growth of 0.2% to 95.5m — demand has been shrinking since the summer in the three biggest markets, namely China, the EU and the US.
Even if overall car sales pick up slightly in 2019 or 2020, electric cars are predicted to grow fast enough to shrink the portion of combustion engines sold, according to the article.
The shift in the Chinese automobile market has been staggering, in particular.
Heading into the middle of 2018, sales of ICE vehicles were still growing, despite the global slowdown in total vehicle sales. But then ICE sales broke down entirely – so much so, for the first time in decades, China’s total vehicle sales actually fell, despite rapid growth in the country’s EV sales.
Quite simply, ICE growth in China is over.
As journalist Gregor Macdonald, author of a new book called Oil Fall, writes, although the global community has yet to fully absorb this, the oil market spotted the change immediately.
“The 2018 oil crash was nearly entirely about a revision to future oil growth,” he tweeted on Sunday.
“The internal combustion engine has protected the global oil franchise for nearly a century now. Take away that protection, and oil, long accustomed to world dependency, will be imperiled. Now comes the EV drivetrain, superior in every way. And consumers want those advantages.”
Let’s not forget that it takes 70% less energy to move an EV a mile down the road. And with wind and solar now so cheap across Europe and China, the good times for oil are well and truly over.
According to Bloomberg New Energy Finance, electric vehicle sales will top 11 million units by 2025 and 30 million by 2030. By 2040, EV sales will hit 60 million, or about 55% of the global market for light-duty vehicles. Cumulatively, about 559 million EVs will be on the roads in 2040, or about a third of the entire global fleet.
Those cars are expected to displace 7.3 million barrels of crude oil per day by 2040.
The oil majors are obviously worried. And they have every right to be. That’s because electric vehicles and the rapid growth of renewables threaten their very existence. It’s an existential threat that could eventually send them out of business if they don’t diversify.
We all know what happened to coal companies in recent years as renewables and cheap gas decimated thermal coal demand. Market caps shrivelled and a whole host of coal companies filed for bankruptcy protection in the US.
Many think the same thing could eventually happen with oil companies. Undoubtedly, the world is going to continue to need a lot of oil in the years ahead but some oil companies’ business models will have to change in response to the changing dynamics.
For electric vehicles, you might say revenge is sweet.
Until next time,
Southbank Investment Research
PS Yesterday I published my latest recommendation for Exponential Energy Fortunes. It’s a red-hot play in the EV and battery sector. It’s set for triple-digit growth over the next years. You can get access to the report here.
PPS I’ve only really touched the surface here on what we can expect from electric vehicles in the future. My publisher Nick O’Connor has gone a lot further. He has written a whole book on it, in fact. So if this is an area you’re interested in – and if you’ve read this far then I’m guessing you are – claim your copy of Nick’s book now.