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Here’s How Electric Cars Will Cause the Next Oil Crisis

Here’s How Electric Cars Will Cause the Next Oil Crisis thumbnail

With all good technologies, there comes a time when buying the alternative no longer makes sense. Think smartphones in the past decade, color TVs in the 1970s, or even gasoline cars in the early 20th century. Predicting the timing of these shifts is difficult, but when it happens, the whole world changes.

It’s looking like the 2020s will be the decade of the electric car.

Battery prices fell 35 percent last year and are on a trajectory to make unsubsidized electric vehicles as affordable as their gasoline counterparts in the next six years, according to a new analysis of the electric-vehicle market by Bloomberg New Energy Finance (BNEF). That will be the start of a real mass-market liftoff for electric cars.

By 2040, long-range electric cars will cost less than $22,000 (in today’s dollars), according to the projections. Thirty-five percent of new cars worldwide will have a plug.

Chart: Rise of Electric Cars

This isn’t something oil markets are planning for, and it’s easy to see why. Plug-in cars make up just one-tenth of 1 percent of the global car market today. They’re a rarity on the streets of most countries and still cost significantly more than similar gasoline burners. OPEC maintains that electric vehicles (EVs) will make up just 1 percent of cars in 2040. Last year ConocoPhillips Chief Executive Officer Ryan Lance told me EVs won’t have a material impact for another 50 years—probably not in his lifetime.

But here’s what we know: In the next few years, Tesla, Chevy, and Nissan plan to start selling long-range electric cars in the $30,000 range. Other carmakers and tech companies are investing billions on dozens of new models. By 2020, some of these will cost less and perform better than their gasoline counterparts. The aim would be to match the success of Tesla’s Model S, which now outsells its competitors in the large luxury class in the U.S. The question then is how much oil demand will these cars displace? And when will the reduced demand be enough to tip the scales and cause the next oil crisis?

GIF: The S curve goes vertical

First we need an estimate for how quickly sales will grow.

Last year EV sales grew by about 60 percent worldwide. That’s an interesting number, because it’s also roughly the annual growth rate that Tesla forecasts for sales through 2020, and it’s the same growth rate that helped the Ford Model T cruise past the horse and buggy in the 1910s. For comparison, solar panels are following a similar curve at around 50 percent growth each year, while LED light-bulb sales are soaring by about 140 percent each year.

Yesterday, on the first episode of Bloomberg’s new animated series Sooner Than You Think, we calculated the effect of continued 60 percent growth. We found that electric vehicles could displace oil demand of 2 million barrels a day as early as 2023. That would create a glut of oil equivalent to what triggered the 2014 oil crisis.

Compound annual growth rates as high as 60 percent can’t hold up for long, so it’s a very aggressive forecast. BNEF takes a more methodical approach in its analysis today, breaking down electric vehicles to their component costs to forecast when prices will drop enough to lure the average car buyer. Using BNEF’s model, we’ll cross the oil-crash benchmark of 2 million barrels a few years later—in 2028.

Chart: Predicting the Big Crash

Predictions like these are tricky at best. The best one can hope for is to be more accurate than conventional wisdom, which in the oil industry is for little interest in electric cars going forward.

“If you look at reports like what OPEC puts out, what Exxon puts out, they put adoption at like 2 percent,” said Salim Morsy, BNEF analyst and author of today’s EV report. “Whether the end number by 2040 is 25 percent or 50 percent, it frankly doesn’t matter as much as making the binary call that there will be mass adoption.”

BNEF’s analysis focuses on the total cost of ownership of electric vehicles, including things like maintenance, gasoline costs, and—most important—the cost of batteries.

Batteries account for a third of the cost of building an electric car. For EVs to achieve widespread adoption, one of four things must happen:

1. Governments must offer incentives to lower the costs.
2. Manufacturers must accept extremely low profit margins.
3. Customers must be willing to pay more to drive electric.
4. The cost of batteries must come down.

The first three things are happening now in the early-adopter days of electric vehicles, but they can’t be sustained. Fortunately, the cost of batteries is headed in the right direction.

Chart: It's All About the Batteries

There’s another side to this EV equation: Where will all this electricity come from? By 2040, electric cars will draw 1,900 terawatt-hours of electricity, according to BNEF. That’s equivalent to 10 percent of humanity’s electricity produced last year.

The good news is electricity is getting cleaner. Since 2013, the world has been adding more electricity-generating capacity from wind and solar than from coal, natural gas, and oil combined. Electric cars will reduce the cost of battery storage and help store intermittent sun and wind power. In the move toward a cleaner grid, electric vehicles and renewable power create a mutually beneficial circle of demand.

And what about all the lithium and other finite materials used in the batteries? BNEF analyzed those markets as well, and found they’re just not an issue. Through 2030, battery packs will require less than 1 percent of the known reserves of lithium, nickel, manganese, and copper. They’ll require 4 percent of the world’s cobalt. After 2030, new battery chemistries will probably shift to other source materials, making packs lighter, smaller, and cheaper.

Video: The Peak Oil Myth and the Rise of the Electric Car
Watch the video: The Peak Oil Myth and the Rise of the Electric Car

Despite all this, there’s still reason for oil markets to be skeptical. Manufacturers need to actually follow through on bringing down the price of electric cars, and there aren’t yet enough fast-charging stations for convenient long-distance travel. Many new drivers in China and India will continue to choose gasoline and diesel. Rising oil demand from developing countries could outweigh the impact of electric cars, especially if crude prices fall to $20 a barrel and stay there.

The other unknown that BNEF considers is the rise of autonomous cars and ride-sharing services like Uber and Lyft, which would all put more cars on the road that drive more than 20,000 miles a year. The more miles a car drives, the more economical battery packs become. If these new services are successful, they could boost electric-vehicle market share to 50 percent of new cars by 2040, according to BNEF.

One thing is certain: Whenever the oil crash comes, it will be only the beginning. Every year that follows will bring more electric cars to the road, and less demand for oil. Someone will be left holding the barrel.


34 Comments on "Here’s How Electric Cars Will Cause the Next Oil Crisis"

  1. ERRATA on Thu, 25th Feb 2016 10:56 am 

    Make sure that the solved / overcome the problem of low durability of electric accumulators?

    How many electric cars actually goes to the United States? Is not it unfair advertising – press propaganda? I mean, how many electric cars can be seen on the street, not in the virtual computer world.
    Clearly we need to distinguish “if sold” from “how much actually goes.” (!!)

    Do you solved the problems with too rapid depletion of the battery ??
    Really? Sold drones (amateur) are able to fly only 20 min.
    A problem with the rapid aging of the battery after 4 years (decrease capacity in Ah)?

    In Europe, somehow, mysteriously abandoned plans “tram without wires.”
    Building a new tram lines continues with the wires (trolley – wire traction).

  2. twocats on Thu, 25th Feb 2016 11:09 am 

    this is at least the second time I’ve heard this horse-n-buggy:model-t as ICE:EV formulation.

    But home ownership rate is only 63%, and not all of those people have a driveway but an assigned parking spot, or something else that doesn’t have access to electricity. So let’s say 55% as a MAXIMUM of people that would consider buying an EV.

    Then there’s the percentage of those people that are really stretching their budget just to buy that house, and so can really only afford to buy used cars, so let’s say for argument we are down to 45%.

    Then there’s a certain percentage of those people who consider a Mustang to be a reasonable purchase (I see muscle cars ALL THE TIME in the Northwest, so it’s not just midwest yahoos). Those people would rather go broke than drive electric.

    So we are down to, I would say, not much more than 35% of the entire United States Population that would even Consider buying an EV in the next ten years. And now let’s look at that supposed slam-dunk analogy of horse = ICE.

    So whereas trading in your horse for a model-t allowed you to NOT – Not have to worry about a living animal, Not have to buy hay, Not have to own a huge stable, Not have to walk your horse just to give it exercise.

    Meanwhile, owning a model T allowed you to own a techno-status symbol showing you were on the cutting edge of the industrial revolution.

    The EV doesn’t really hold that much of a status above ICEs. Owning a Tesla just means people know you have money to burn. It is slightly “cool”, but not much more than owning an Iphone 4 was cool back in the day, and this “cool” comes with an awfully steep price tag.

    All the other example (cellphones to smart phones) are equally idiotic when trying to compare them to a switch from ICEs to EVs.

    If a car company can come out with a car that runs as well as the Tesla S, and hits on some cool factor, has tremendous range, and is somewhat cheap (<$40,000) then perhaps we could begin to have this conversation. But for now. Dreeeeam, dream, dream dream dream, dreeeam.

  3. penury on Thu, 25th Feb 2016 11:17 am 

    I so not know whether the authors are becoming stupider with time or they have lost so much respect for the intelligence of their readers that any crap the write will be paid for. Even their own charts refute their arguments.

  4. joe on Thu, 25th Feb 2016 11:54 am 

    We are asking the world to substitute one good for another with almost no extra utility.
    Sadly, change will have to come from legislature rather than any other way if it is to be quick. Tax breaks are an obvious one, but politicans wont hike taxes on oil. The technology will have to provide the disruption so r+d continuing is essential.

  5. PracticalMaina on Thu, 25th Feb 2016 11:59 am 

    Errata, a drone to car comparison does not work in my opinion. A drone has to vertically lift all of its internal battery storage and I would assume, cannot regain its energy other than by simply falling. An electric car with regenerative breaking that doesn’t need to take off vertically is very different.

    TwoCats, they will figure out how to give the Tesla that muscle car sound and it will get those gasoline junkys spare money. They can out accelerate and out handle anything I would ever be able to buy, other than a crotch rocket.

    I am still holding out for super-capacitors or any battery type superior to these Lithium cells. E cigarette battery just blew up in some guys pocket. Hate to see that on a larger scale.

  6. ennui2 on Thu, 25th Feb 2016 12:27 pm 

    “If a car company can come out with a car that runs as well as the Tesla S, and hits on some cool factor, has tremendous range, and is somewhat cheap (<$40,000) then perhaps we could begin to have this conversation."

    It's called the Tesla Model 3 and it's coming.

  7. vegeholic on Thu, 25th Feb 2016 12:40 pm 

    People don’t seem to remember that in the first decades of the 20th century there were roughly equal numbers of ICE and EV omnibuses operating in New York City. Each side had enthusiastic advocates for their propulsion technology. In the end ICE won and EV lost for mostly the same reasons as today. That’s not to say we should not pursue EV development, but if we have blind allegiance to our glorious marketplace, people will choose what makes sense today, not what is best for humanity in the long term.

  8. twocats on Thu, 25th Feb 2016 12:41 pm 

    maina and ennui – muscle car sounds – yep i’ve seen that being put back in artificially and I think that will be a key.

    have you seen any plans in major cities to get around the charging issues? a lot of the techies live in condos and attached homes (reserved street parking spots – no garage) in urban centers. they are the ones that purchased the priuses first when everyone thought the idea was stupid. if they are going to get on board with EVs they have to know they can reliably find housing with charging.
    what about inductive pads under parking spots?

  9. PracticalMaina on Thu, 25th Feb 2016 1:00 pm 

    TwoCats that would be cool, Solar shades at businesses that you could pay a small fee to draw off make sense to me, maybe they could inductively charge your vehicle and even charge a chipped device wireless, like an ezpass tole, although I do not trust EMF from anything…

  10. Mark on Thu, 25th Feb 2016 1:25 pm 

    Won’t are the EV’s requires lots of fossil fuel energy to construct, transport and of course the the additional energy to charges all those batteries?
    Average American is having trouble affording a normal $30k car now so unless EV’s get really cheap……
    More pipe dream stuff

  11. Hawkcreek on Thu, 25th Feb 2016 1:26 pm 

    I would be happy with a REALLY CHEAP EV with a 100 mile range—- and a small generator trailer that could be hooked up to give ICE range for trips.
    Hobbyists have been doing that for years.

  12. Pennsyguy on Thu, 25th Feb 2016 1:41 pm 

    How many tons of metals, etc. are required for one electric auto?

    How much energy is required to mine, refine, transport those materials?

    What is the payload efficiency of an electric car with one occupant?

    I still think that mules are the transport of the future. We can elect them to congress when they get old.

  13. PracticalMaina on Thu, 25th Feb 2016 1:42 pm 

    Hawkcreek, that is cool and makes sense, leave the weight at home if you don’t need it. I wish there was a trend for significantly lighter vehicles across the board, that would make the prospect of getting hit by another vehicle while driving something very light and efficient much less dangerous.

  14. PracticalMaina on Thu, 25th Feb 2016 1:57 pm 

    Pennysguy, the way I look at the environmental impact of renewables and ev is this. Money is not going to sit in one place for ever, even if you save your whole life its gonna go to the government or your ancestors who will spend it eventually on something derived from fossil fuels. Every dollar in existence, essentially, will eventually end up going to fund something that degrades the environment. Why not use it to purchase something that will have a negative environmental impact once, then negate this impact in the future. Or you can buy the same ICE car that had just as significant of an impact being created, that will continue to degrade the environment threw the drilling pumping transportation to refining, refining and delivery of fuel. This also funds the same assholes who fund bad science and have stood in the way of technological progress in terms of efficiency for years, instead of those trying to improve new tech. Same can be said for renewables, yes they must be mined manufactured and shipped but so must the coal. One gives you power for over 20 years, the other is electricity for an instance and pollution for years.

  15. Surf on Thu, 25th Feb 2016 2:49 pm 

    How many electric cars actually goes to the United States? Is not it unfair advertising – press propaganda? I mean, how many electric cars can be seen on the street, not in the virtual computer world.”

    Well in California I see Nissan Leafs every day. Also some Fiat 500E and Chevy sparks, and a few Volts and Teslas. The local Chevy dealership has mainly small cars and and electric cars and very few trucks and SUV on the lot. EV have Become a very popular choice for a commuter car.

    10 years ago everyone was saying only a few greens would buy the Prius. At that time few had seen them. Most were being sold in California. Now you can find them almost everywhere in the US. The same is happening for EVs now. Buy 2020 whey will be showing up all over.

    Also note that right now many small diesel powered electrical grids are adding wind and solar to cut back on diesel fuel costs. Diesel generators are frequently used on islands, and in desert countries with limited to no hydro resource. It is my opinion that the current oil glut is due to reduced Diesel and fuel oil damage by small diesel powered grids throughout the world.

  16. Wolfie52 on Thu, 25th Feb 2016 7:10 pm 

    Surf: good point. I am an (east coast) EV car owner, but what I read on the blog is many people buy those for 1)Tax credit 2) Maybe THE reason–CAR POOL stickers.

    If they can solve the range issue, put in infrastructure (charging stations)ICE is now, then the article will be prescient.

    What I really see is this: it is part of the widening gap between “haves” and “have nots”. Maybe in 20-30 years those who are well off can afford an EV and the rest will probably not be able to afford anything.

  17. makati1 on Thu, 25th Feb 2016 7:17 pm 

    Many here are still techie dreamers and want to believe in the tech fairy. LOL

    Not a bit of reality in the whole pile of prose bullshit.

  18. Harquebus on Thu, 25th Feb 2016 7:24 pm 

    Without electric trucks to transport the materials required for manufacturing, there won’t be any electric cars.

  19. Practicalmaina on Thu, 25th Feb 2016 8:24 pm 

    Manufacturing hubs are usually located near rail, rail is far more efficient per ton of freight therefore battery’s are a more viable option then say a 50ton truck and trailer doing 70 down the highway.third rail and or overhead power distribution works. These vehicles of the future will be lighter and should incorporate carbon fiber. Therefore less embodied energy. People here tend to talk about the near future comparing to the fall of Rome and the dark ages. But they didn’t have bycycles or rail etc

  20. dave thompson on Thu, 25th Feb 2016 8:30 pm 

    A small % of people may have EV’s at their disposal for local use on a daily basis, at less then 75-80 miles travel per day. Until battery tech improves to match 300-400 mile range per charge, of gasoline driven cars and trucks, EV’s will remain expensive toys for the well to do.

  21. Pennsyguy on Thu, 25th Feb 2016 10:12 pm 

    Practical,et al.:
    Everyone should do what they feel is right, otherwise what’s the point? I respect individuals who buy electric cars, home solar arrays etc. I try to live with a light footprint–usually.
    I think it’s a mistake to believe that (as Mak said) green technologies will allow business as usual, or anything near our consumer binge. I base that on my understanding of physics and yes, I could be wrong.

  22. GregT on Thu, 25th Feb 2016 11:33 pm 

    “Everyone should do what they feel is right, otherwise what’s the point?”

    You guys can all blow your savings on unsustainable human technologies. I’m saving up for an alien intergalactic space vehicle.

  23. Davy on Fri, 26th Feb 2016 4:33 am 

    Rail is and will be a vital transport asset of the future especially where there are existing rail infrastructure. What is wrong about rail is the high speed high tech trend. What is needed is slow tech. This may happen because rail is so effective for transport. Once complex society begins to break down high speed rail is toast. It is too difficult to maintain. The other reason is what is the point? People will not be needing to speed around the country and world. Life will localize and become more of an effort. Discretionary wants and leisure will have to downsize with lower expectations.

    Electric rail with alternative energy application is a good idea but will still be subject to grid instability. Localized use of electric rail will likely be the result. We just can’t assume the grid will be whole as we have it today. It seems reasonable it is going to shrink to the regional and the local. Because rail is so efficient there are multiple possible energy applications including biomass from previous times.

    The important issue with all forecast of future technologies is what kind of future is in store and how soon will destructive change occur. Many will disagree but it appears we are approaching the brick wall of limits in regards to resources and efficiency of networks. It is the pace of decline that will influence the use of technologies like rail. If the pace is slow enough many adaptations can be made.

    What is likely is high tech, complex, and expensive will not last. This is where the brightest and best thinkers are. They are caught up in a future that although possible in theory is not possible in reality. Given the right circumstances human accomplishments could be so much more than what we have today. We don’t have those circumstances. In fact we have a situation just the opposite and that is macro catch 22 predicaments of existential crisis of a human species in overshoot with population and consumption sustainability. This points to slow tech not high speed complex.

  24. Comic relief on Fri, 26th Feb 2016 4:45 am 

    So Davy, BAU lite is your prediction.

  25. Davy on Fri, 26th Feb 2016 6:18 am 

    CR, Bau lite is possible and likely at first. What we have is what we will draw from. Man has reshaped the world to his needs. We no longer have the same world we had pre-industrial society. This means there is no returning to that way of life as it was known then. It is more likely what we can use of BAU will be used through salvage. This will result in a hybrid affair with some of the old ways resurrected. We will see animal and human power increasingly important. Seasonality and localism will be followed by default. It is also possible we could have a hard and quick collapse with a resulting system that does not resemble BAU.

    It appears more likely we will go from BAU, to BAU lite, to post BAU. I know of no way to forecast this process in regards to a time line, duration of each step down, and degree of drop in activity and population. I feel confident I can forecast we are going to decay and not grow.

    It is already pretty evident across the board we have decay especially since mid-2015. This decay became entrenched after the 08 crisis but not yet overt. We had a pronounced and noticeable cyclical turning at that point from growth to decay. Since 08 we have had moral hazardous policies and the extending and pretending of economic problems. These polices have run their course. This process has done untold damage to the social fabric from wealth transfer and personal profit at society’s expense. It did keep economic activity going but not for all.

    Claiming we still have growth is missing the point. We have huge debt overhang. Much of that debt is bad debt in the form of non-preforming loans, industrial overcapacity, unprofitable development, and economically unprofitable commodity issues. These have all been recorded as growth but in reality are the anti-matter of growth.

    One thing that has grown is population and its demands for more consumption. We can logically say that we have huge unfunded macro liabilities for an oversized population with unrealistic expectations of wellbeing. That can’t end well as history as always shown. We have a huge financial system that’s value is dubious and can be considered nothing more than a giant Ponzi. The financial system makes globalism possible and there are no alternatives nor can reform change it. Globalism feeds 7Bil people and there are no alternatives that will. Our social arrangements and political networks are looking more and more like a house of cards. If you want to call that BAU lite so be it.

  26. Practicalmaina on Fri, 26th Feb 2016 8:08 am 

    Davy I agree about the low speed rail, but a large number of those 7 billion are still sustenance farmers and not dependent on globalism. Growth may be over but steady state and even limited degrowth can still foster technologiCal development especially in areas of food and efficiency.

  27. Cloud9 on Fri, 26th Feb 2016 8:20 am 

    Look at the Cuban experience.

  28. simonr on Fri, 26th Feb 2016 8:54 am 

    EV’s have several technical problems, these will either be overcome, or they wont. It sounds trite, but there is no mileage in getting into that debate.

    As for the Grid Capacity issue, current thinking is that charging will be encouraged in the evenings when traditionally the grid is underused, this will buy us time (10-15 years) to build out extra capacity.

    Granted we may not have the cash at that time, but that is another issue.

    The, so far, insurmountable problem is, with what are we going to replace the lost Taxes on fuel. In this respect the USA with its low tax regime, may actually transition smoother.


  29. Davy on Fri, 26th Feb 2016 11:43 am 

    “a large number of those 7 billion are still sustenance farmers and not dependent on globalism.” All people are dependent on globalism directly or indirectly. This is a big disconnect people have with the noble subsistence farmer who is free of the horrible global system. This is just not true accept in a very small amount of circumstances. Everyone is at risk from overpopulation and global decay. There is the fact that large unsupported populations can be set in motion like a swarm of hungry locust. Most all farmers the world over depend on some kind of global product support. If these subsistence farms have localized food failures it is the global that comes to their aid many times. Industrial failures are going to pollute and destroy ecosystems. We just don’t have the isolated populations we once had. Globalism has completely taken over the world with horrible results of leaving all of us delocalized and naked to global failures.

  30. PracticalMaina on Fri, 26th Feb 2016 11:56 am 

    When the US feeds someone it is rarely as innocent and successful as it would seem. Our huge industrial farming power has at some points threw ought our recent history been used as a financial weapon against these small local farmers. Or it cannot be implemented in a fair way because it is too late or the rules of engagement ect. (I am reminded of the beggining of Black Hawk Down or the picture of a starving naked African having their sack of food aid being yanked away by a well fed and dressed individual.)
    As far as them relying on globalism, that is the economic hit men hard at work. Your little farm isn’t good enough, you need a massive tractor so you can out compete and financially destroy your neighbor. This 100,000 tractor will have interest, now you need modified crops and pesticides because if your output is off a few percent you lose everything.

  31. PracticalMaina on Fri, 26th Feb 2016 12:00 pm 

    Everyone is at risk of overpopulation and ECOLOGICAL decay, but this is a product of globalism. It is globalism that has resulted in the climate change that makes large crop failures in dryer areas common.

  32. dennis on Fri, 26th Feb 2016 12:28 pm 

    There are so many blind people who refuse to see the truth. I have owned my volt for 2 1/2 years and I’m getting 194.2 mpg. When there are cars that will go 275 miles on a charge and they cost the same as an ICE then people will start buying them in droves. You will have a choice to buy two cars for $35000. One will cost you $250 a month to drive and the other $25. Which will you choose. I absolutely agree that they don’t fit everybody’s car choice but there will be millions of people who’s car driving habits it will fit.

  33. Harquebus on Fri, 26th Feb 2016 7:06 pm 

    194.2 mpg from an electric vehicle. Not bad.
    How much is a gallon of electricity worth?

  34. Practicalmaina on Fri, 26th Feb 2016 11:26 pm 

    It’s worth more in someone’s car than heating someone’s hot water or hot tub.

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