Oil and automobile companies are now racing to “solve” the problem of electric cars — an issue made even more urgent now that companies such as Tesla are advancing so quickly.
Electric cars may still consume energy, but they do so at a far more efficient rate, and consequently may be able to reduce global demand on oil. As said demand is reduced, oil producers may need to find ways to compensate — and automobile companies may find themselves evolving.
This begs the question: are electric cars killing the oil and auto industries, or simply forcing them to adapt? Let’s take a deeper look.
Revising Electric Expectations
Until recently, many analysts believed that electrical vehicles would be a fairly small segment of the market — and, therefore, not impact the oil industry in an extreme way. Now, however, oil producing nations and companies have been revising their expectations regarding the electrical industry.
This does not just encompass how much of the market the electric vehicle industry will take over, but also how quickly it will do so. OPEC now estimates that sales of plug-in vehicles may occur at five times the rate previously expected. Moreover, this may lead to a reduction of demand of up to 8 million barrels by 2040.
Oil producers are recognizing that the electric vehicle trend is growing swiftly, and that it may take over more of the market than they initially expected. But what does that mean for oil and gas companies?
The Impact on Big Oil
29 percent of the energy in the United States goes towards transportation. But, it’s now believed that on a global scale plug-in vehicles could penetrate the market by 30% by 2030.
Sources such as Bloomberg have studied electrical vehicles in-depth, and believe that their growth rate will continue to skyrocket. This growth is driven both by eco-conscious consumers and a reduction in price regarding electric vehicle technology. As electric vehicles themselves become more affordable, consumers are more interested in saving money on their gas prices. As gas prices begin to rise again, consumer may actually be more likely to invest in electric vehicles.
Before this trend began to surge, OPEC and Exxon were analyzing electric vehicle adoption at extremely low rates, as they did not believe that the technology would be adopted quickly at all. Now, OPEC has adjusted its numbers to more accurately reflect the growth that is being seen and that may have interesting consequences for the industry.
But all of this doesn’t mean that the oil industry is going to collapse; far from it. It simply means that the oil industry is likely to substantially pivot. Oil industries are currently seeing quite a lot of growth coming from developing nations that are transitioning away from more harmful energy sources such as coal. These countries may not be able to invest in infrastructures such as solar power or wind power, but may find a transition to oil fairly manageable. Thus, it’s expected that even as automotive demand slows, the demand created by these developing nations will continue to grow. Even in the United States, there are still coal-powered plants that are now being moved towards oil.
Revolutionizing the Auto Industry
Many automakers are now moving towards hybrid and electric vehicles, and those who have been able to successfully transition are more likely to be successful overall.
As an example, the Toyota Prius remains one of the more popular electric vehicles and a forerunner of modern consumer electric vehicle technology. Volvo intends to transition its entire product line to all electric by 2019 and, of course, there’s Tesla.
If trends are pointing towards electric cars, then those who are able to provide the fastest, most powerful, and most reliable electric cars are going to be more profitable.
Though automotive companies and oil industries often worked hand-in-hand in the past, they are now beginning to diverge. In order to survive, many automobile manufacturers — from consumer car to fleet truck manufacturers — are going to have to transition towards electric. In so doing, they may be harming the demand for oil. But that doesn’t necessarily mean that the oil industry is going to cash, as the global energy demand for oil is still quite high, and we are seeing decreased production from many oil producing nations.
Regards,
Ethan Warrick
Editor
Wealth Authority
