A recent study by the Boston Consulting Group (BCG) concluded that by 2030 a quarter of all miles driven in the U.S. will most likely be in autonomous vehicles.
BCG’s core message that the automotive industry “is on the brink of a major transformation” and that “for millions of Americans … the next vehicle they purchase may be the last car they ever own” did not surprise us. When back in 2015 we began researching current developments in the automobile industry in order to assess how these could eventually impact the transportation industry’s crude oil demand, it quickly became clear to us that the future of driving is autonomous.
As we documented in “The Second Automotive Revolution: Implications for the Oil Industry”, self-driving cars will simply offer a better value proposition than the conventional car. Most people see the act of driving as a necessary waste of time and would rather spend that time doing something else – which self-driving cars will make possible. Self-driving cars will also reduce road congestion since they improve the flow of traffic, drive more safely thus reducing the number of congestion-causing accidents, and require less distance between them for safe driving so more of them can fit onto any given stretch of road. Furthermore, as an estimated 30 to 60 percent of cars driving in the inner city are simply looking for parking, self-driving cars will reduce the burden on existing roads and solve the parking problem of America’s inner cities – self-driving cars do not need to park, after all, after drop-off they just drive-off.
And this is where the implications for the energy industry come in.
Unlike conventional cars, self-driving cars can be put to productive use after they have dropped you off at your destination. Conventional cars cannot of course, since they need you to drive them, and that is why they tend to be left idle some 95 percent of the time. But your self-driving car could continue on the road without you, and for a fee bring someone else to work or pick-up and drop-off a package. A small fee, that is, since self-driving cars do away with a major cost element of traditional taxi and package delivery services – the driver. Related: How Far Will OPEC Go For $60 Oil?
Logically, therefore, the owners of self-driving cars will become businessmen in the taxi and parcel delivery business since the income this generates will reduce the overall cost of car ownership. Which raises a question: if the owners of self-driving cars will offer their cars as a cheap taxi when they themselves don’t need them, who would choose to continue to own a car? Would it not be much more cost-effective to just hail a self-driving car whenever one needs to go somewhere? Of course it would, which is why self-driving cars will end car ownership as we know it today and Uber-ize transport. Instead of being parked in garages and on the roadside, fleets of self-driving cars will be roaming the streets moving people and goods around.
While this does not necessarily increase or reduce total miles travelled, it will certainly increase the distance an average car travels every day. This is why the self-driving cars of the future will almost certainly all be electric, because electric cars offer superior durability and reliability when compared to conventional cars. A conventional car with its internal combustion engine has hundreds of moving parts and consequently requires regular maintenance and component replacements (oil changes, filter changes, belt replacements, spark plugs, fuel pump, etc). The number of moving parts in an electric car are far, far fewer making the car itself much less heavy in its maintenance requirement and far more reliable.
Clearly, then, a future of self-driving cars is bad news for the oil companies, who should thus be really worried about BCG’s assessment that by 2030 a quarter of all miles driven in the U.S. will most likely be in autonomous vehicles. Because these miles should be expected to be electric and thus imply a 25 percent drop in U.S. gasoline demand.
For the oil companies in particular the following question is critical, therefore: How realistic is BCG’s prediction?
While we were not surprised by the automotive trends highlighted by BCG, the speed at which BCG sees things moving did surprise us. Back in 2015 it was difficult for us to assess how realistic autonomous driving was, i.e. how quickly self-driving cars could become mainstream. But looking at what has happened since, the BCG forecast seems totally realistic.
Essentially all the traditional car makers – Ford, GM, BMW, Volvo, etc. – are investing heavily in self-driving cars. So are the electric car focused upstarts such as Tesla, BYD and Faraday Future. Automobile parts manufacturers such as Bosch and Delphi are developing toolkits for autonomous driving that the car manufacturers could install on their standard models. And outside of the car manufacturing industry Uber is leading development of driverless technology and is already road testing it, while Apple appears ready to follow in Uber’s footsteps and China’s Baidu is working hard to do so as well. Related: Did Algos Drive The Latest Oil Price Rally?
Some, such as Toyota, are more pessimistic as to how quickly these efforts will lead to self-driving cars appearing on the road. Others are more optimistic, such as Mercedes-Benz, which recently announced its plan to have a fleet of driverless taxis on the road by 2020. And this is exactly what BCG forecasts, that the first autonomous cars will appear around 2020 and from there become mainstream by 2025 to 2030.
In response to this the optimists amongst energy executives might say that autonomous, electric vehicles will reduce gasoline demand but increase electricity demand, and thus gas demand since gas is expected to be the preferred electricity provider for the medium term. While some disagree with this expectation completely, pointing to the rapid reduction in the cost of generating electricity from renewable sources, we would bring to the attention of these optimists that since electric cars are about three times more efficient than conventional cars, even in the most optimistic case (from the fossil fuel industry’s perspective, that is) the overall increase in gas demand will be much less than the decrease in the demand for gasoline.
Now is the time, therefore, for the wise amongst the energy executives to start considering alternatives to the fossil fuel business.
By Andreas de Vries and Salman Ghouri
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