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EV market accelerates on cost parity

Not everyone is a friend of electric vehicles, but the sector is on a roll that will be hard to stop

US president Donald Trump's support for the internal combustion engine (ICE) at the expense of electric vehicles (EVs) and his administration's trade war with leading EV manufacturer China has created uncertainty over the pace at which the EV market—and thus the displacement of oil in the transport sector—will happen.

But industry analysts think that, with nearly all major vehicle manufacturers already heavily invested in the technology and demand set to grow among fast-growing developing economies, the shift towards lower-cost EVs is unstoppable.

DNV GL, in its just-published annual Energy Transition Outlook, says it expects the global market share of EVs to soar once costs fall. "Our EV uptake model assumes a very rapid increase in the share of electric vehicles when cost-parity is reached," the consultancy said.

It thinks that point may not be far off. "We expect strict vehicle price/performance parity between internal combustion engine vehicles and battery electric vehicles by 2024," DNV GL said, adding that it expected to see global peak oil demand reached as soon as 2023.

The year in which half of all new light EVs (cars) sold globally are EVs will be 2033, the consultancy predicts. In terms of regional variations, that point would be reached in 2027 for Europe, 2032 for North America, industrialised countries in the Pacific region, Greater China and the Indian Subcontinent, and 2037 for the rest of the world.

The impact of all this on oil demand from the transport sector as a whole will be significant. Reliance on oil from the sector is forecast to plummet from 106 exajoules (EJ) a year to 34 EJ/y between 2022 and 2050. DNV GL predicts that non-oil energy sources will account for 62% of energy use in transport in 2050 compared with just 7.3% in 2017.

The consultancy also notes that related sector, such as refining and petrochemicals, need to be prepared for the associated shift in demand for their products. Alternative fuels such as hydrogen are also likely to play a more important role in fuelling transport as that technology evolves and becomes more competitive.

Booming bus business

The upbeat assessment of EV prospects is driven in large part by demand from China, India and other developing economies. In particular, growth in use of electric-powered mass transit vehicles, such as buses and taxis, are helping to underpin market growth, Liv Hovem, chief executive of DNV GL Oil and Gas told Petroleum Economist.

The rapid growth of the electric bus sector in China has been an eye catcher. "China has come much further than we expected," she said.

China already had more than 380,000 electric buses on its roads in 2017, 99% of the global fleet, according to Bloomberg New Energy Finance data. Most of them were deployed within the last eight years, as the country sought to tackle urban pollution and cut carbon emissions. Until recently, battery power was thought unsuitable for buses-except those requiring a very short range between recharges—due to the greater energy requirements compared to lighter electric cars. However, battery technology and efficiency improvements have changed that.

Chinese market leader BYD, perhaps mindful of plans to reduce subsidies in China, has embarked on an export drive. That has reached as far as Hovem's home country of Norway, which recently ordered 42 electric buses from the firm to add to two existing pilot buses.

Diesel in it for the long haul

Range and power improvements make electric technology ideal for urban transport such as buses, but it is unlikely to catch on as fast in the long-haul trucking sector.

Consultancy IHS Markit, in a report called Reinventing the Truck, says commercial vehicles would continue to run on diesel fuel for the foreseeable future. Of new medium and heavy commercial vehicles sold in the US, 66% would still be powered by diesel or diesel hybrid engines in 2040, it forecasts. That is still down on the 80% of today, but oil consumption is more likely to be displaced by compressed or liquefied natural gas than batteries, as these are likely to prove more cost-competitive.

"Additionally, the weight requirements of the battery pack cause limitations on the hauling capacity of the truck. Currently, to achieve equivalent range compared to a diesel class-8 truck the subsequent battery pack weight required would result in a large cargo capacity penalty," IHS says.

Dirty EVs?

Wood Mackenzie, meanwhile, has studied how clean electric vehicles really are, in terms of greenhouse gas emissions. It concludes that a typical mid-sized electric car can generate up to 67% fewer greenhouse gas (GHG) emissions than an ICE-powered car on a well-to-wheel basis, but that the results vary considerably depending on where the vehicle is driven.

"Comparing GHG emissions from an EV and an ICE car is not straightforward. It's worth noting that, even though EVs have zero tailpipe emissions, they are not GHG emissions-free when evaluated on a well-to-wheel basis," Aman Verma, an analyst at Wood Mackenzie, said in a statement.

GHG savings are also fewer in developing countries where there is a high proportion of fossil fuels—notably coal—in the mix than they would be in countries with higher share of renewables in the energy mix.

"To overcome this issue, governments in developing countries—such as China and India—could look at electrifying the current ICE car taxi fleet. In doing so, this would help achieve emissions abatement faster than incentivising and promoting the use of privately owned EVs because of their greater utilisation in terms of miles travelled," Verma said.

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