What used to be a close mutual dependence between cars and gasoline—and their respective suppliers—may be coming to an end, as the two sectors chart different responses to the emergence of alternative fuel vehicles, particularly electric cars and trucks.
“Many carmakers are predicting a significant shift to electric vehicles in the next decade,” Reuters reports, driven by “advances in battery technology and the growth of autonomous driving and ride-sharing.” In direct contrast, “some oil executives take a different view, predicting electricity will play only a bit part in transport out to 2040 at least.”
If the oil sector finds itself “on the wrong side of the argument, it could come at a cost to an industry where new projects often cost billions of dollars to build and need decades of at least moderate crude prices to pay off,” the news agency adds.
Transportation consumes more than half of all oil produced. And forecasts by two industry giants—ExxonMobil Corp. and BP Plc.—predict that fewer than one car in 10 will be electric, or even partly electric hybrids, by 2035. “Our central view is [that] the penetration of electric vehicles and electricity more generally is likely to be pretty limited over the next 20 years,” BP Chief Economist Spencer Dale said earlier this year.
“Carmakers don’t produce comparable long-term outlooks for vehicle production,” Reuters notes, “but their nearer term predictions for vehicle rollouts envisage a much faster take-up of EVs. Mercedes Benz predicted in September that EVs [would] make up between 15 and 25% of sales by 2025. BMW AG has said it could do the same. Ford CEO Mark Fields said in April that by 2020, 40% of models would be electrified.”
And that’s a fundamental shift for the auto sector. “For over 100 years, the internal combustion engine has been a basic design assumption for our industry,” one Ford vice president told analysts in September. “This shift to electrification is game-changing.”
Carmakers assert that it is becoming harder to meet emissions targets using combustion technology, while batteries are rapidly becoming cheaper to produce and “able to support greater vehicle range than some oil companies have predicted.” Meanwhile, states representing nearly 30% of the U.S. auto market have set sales targets for non-polluting vehicles—effectively mandating electric driving.
According to international consulting giant Deloitte, the shift to electric vehicles “could challenge the long-term fundamentals of midstream and downstream [oil] companies.” In a recent report, the company estimated that “fewer, more fuel-efficient cars on the road could contribute to a 25-year reduction of U.S. gasoline demand on the order of 2.0 to 4.5 million barrels per day (bpd).” At the high end of that range, the difference would slash current U.S. demand for gasoline in half.
Fossil industry consultancy Wood Mackenzie Ltd. has also offered a downbeat assessment for the future of internal combustion vehicles, Bloomberg reports. “A boom in electric vehicles made by the likes of Tesla Motors Inc. could erode as much as 10% of global gasoline demand by 2035,” the agency writes—“in the range of the production cut OPEC and its allies agreed [last] week in order to end a three-year crude surplus.”
Bloomberg adds that “while battery-powered cars and trucks today represent less than 1% of total vehicle sales, they are expected to take off after 2025 as governments move to tackle pollution and costs fall.” The Wood Mackenzie analysis “echoes the International Energy Agency, which last month forecast global gasoline demand has all but peaked because of more efficient cars and the spread of EVs.”
Bloomberg New Energy Finance has predicted that electric vehicles will “displace about 8 million barrels a day of demand by 2035. That will rise to 13 million barrels a day by 2040, about 14% of estimated crude oil demand in 2016.”
The risks of being wrong on the question aren’t equivalent for the two industries, however. If automakers miss the mark with their technological forecasts, they still have gasoline engines to fall back on. If the oil industry is the one that’s mistaken, its alternative to the automotive demand for its product is a lot less obvious.