Not so fast for EVs
EVs will get a bigger share of the car market, but won't pose much of a threat to global gasoline demand
The use of electric vehicles (EVs) will not surge because batteries become cheaper. Widespread adoption will not be at a similar pace to that of mobile phones. And every country in the world will not imitate Norway's policy. Those are three oft-made claims by EV boosters—but if you sell oil, rest easy. The threat of electric cars is overstated.
A key conclusion of FGE's annual Global Long-Term Oil Market Outlook to 2040 is that while EVs will take a bigger share of the market, the growth will slow down, and their emergence won't disrupt oil-demand growth over the coming decades.
In 2040, we still expect 60% of the global light-duty fleet—which by then will number 1.8bn vehicles—to be fuelled by gasoline. Today, the comparable number is 1.1bn and gasoline fires 80% of them. More battery-electric and hybrid vehicles will be on the road by then, but they will account for less than a third (29%) of the fleet.
A realistic view of the future of road transport must take a holistic approach. The success of electrification depends on a host of factors and it will only work if all supportive aspects contribute equally. Government incentives and subsidies, for instance, are vital for mass electrification of road transport. In all markets where electric cars have reached significant sales figures, substantial subsidies have been, or continue to be, critical. In most cases, removing these subsidies leads to a significant slump in EV sales.
Countries like Norway, where subsidies have persuaded many consumers to buy EVs as second cars, are hardly a suitable model for less-developed regions of the world, where mass motorisation will take place over the coming decades. Even China, the cradle of truly large-scale electrification policy, is struggling to keep its subsidies in place.
Battery prices have fallen substantially over the past decade, with a parallel rise in battery energy density. Yet they still haven't reached levels suitable for mass production, and they still can't compete on price and range with gasoline and diesel cars. That's a crucial factor in the absence of widespread charging infrastructure in most parts of the world. That could change—but not imminently. We expect favourable conditions to be achieved only in around 2030.
Other market forces are moving against EVs too. In the US, the SUV share in new registrations in 2016 was 60%; in China, 36%; and around 25% in Europe and India. Lower oil prices will support this in the medium term. Why does this matter? It means people are buying heavier cars again. So the relatively slow improvement in battery energy density will remain a technical problem difficult to overcome—and a deterrent to consumers: the heavier a vehicle, the more difficult it is to increase its range with batteries. Larger battery packs, used today to extend an EV's range, aren't a sustainable solution, because they increase a vehicle's weight and so limit its distance.
On top of the technical constraints is the problem of production capacity—a headwind for both batteries and EVs themselves. The world's four largest car manufacturers sold about 40m vehicles in 2016, but just 0.5m of globally sold cars were electric. Sales of affordable electric cars by Nissan-Renault-Mitsubishi, an alliance of marques that has pushed EVs, was about 100,000 last year. That was less than 1% of their total sales.
As more units are sold, the capacity constraints will be more pressing. In our base case, we expect global EV sales to reach 37m a year in 2040, accounting for 26% of total light-vehicle sales. At an average battery capacity of 60 kilowatt hours, even this modest market share will need battery-production capacity of 2.2 terawatt hours annually—64 times the capacity of Tesla's Gigafactory. Bear in mind, too, that batteries aren't just needed for cars, which account for only a quarter of global lithium-ion battery use. So EVs will face competition with other industries for the output.
We believe EVs will matter in niche markets like California, where half of the zero-emission vehicles in the US have been sold over the past five years, or in heavily subsidised markets like Norway.
But even with the most generous assumptions for each of the above-mentioned factors, it is difficult to see a swift shift to mass electrification globally. If developing countries follow the West's pattern of mass motorisation, gasoline demand will grow substantially.
We expect the light-vehicle fleet in Asia to grow by about 0.5bn vehicles between 2015 and 2040—adding almost twice as many vehicles in that period as the rest of the world combined. By 2040, almost half of the world's vehicles will be on an Asian road.
By our calculation, if mass motorisation in China over the coming decades follows the US pattern, this would add about 9m barrels a day to global gasoline demand by 2040—even while a staggering 130m EVs hit the road in the same time.
Cüneyt Kazokoglu is head of oil demand at Facts Global Energy (FGE)
This article is part of a report series on Electric vehicles. Next article: Fringe engines