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Peter Tertzakian

Peter Tertzakian

Peter is an economist, investment strategist, author and public speaker on issues vital to the future of energy. He has clocked over 30 years of…

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Electric Vehicles And The 5 Trillion Dollar Market Transition

assembly line

Change in the world of wheels is accelerating! Momentum is building and some days it’s hard to keep up.

Every week, the assumptions about the future of transportation, and the energy systems that turn our wheels, are becoming more Jetson-esque.

The excitement is palpable and as a technology junkie I love it. Auto shows are rolling out new electric vehicle (EV) models; China says it’s planning on banning internal combustion engines (ICE); and Daimler is jockeying with Tesla in the budding electric truck segment. In the battery world, lithium prices have reached an all-time high on anticipated demand growth. In tow with all the EV news, there is a trailer full of autonomous vehicle talk that makes me think that 1950s Popular Science articles were real after all.

But it’s time to take our foot of the accelerator and make sense of it all.

For the next several columns I’ll be looking at what the pundits are saying, characterizing and examining all assumptions, and putting things into pragmatic context.

I know one thing for sure: this is a very complicated and contentious subject. There are no easy parallels. An electric car is not like a smartphone or a Netflix subscription. For one thing, neither had much competitive resistance.

Parrying against the sunny alt-transport news, there is a cloudy, competitive reality. Global oil demand is ratcheting up at near-record pace. A couple of weeks ago, the International Energy Agency put our oil-addicted world on track for a 1.6 MMB/d of growth this year over last (the 20-year average is 1.2 MMB/d per year).

For 2018, analysts are already starting to escalate their oil growth forecasts. The lesson shouldn’t be lost on any of us: Never underestimate the consumer’s ability to overindulge in cheap energy commodities.

“Death of the Combustion Engine” and the “End of Oil” headlines are increasing in frequency on the promise of better, cheaper EVs with greater selection. Yet the actual data trends for ICE car sales and oil consumption are like pistons firing in the other direction, revving harder and racing away from any speculative eulogies.

What to believe?

There is little debate in my mind that big changes are forthcoming to our energy systems and transportation paradigms. For context, let’s think about how big is big?

The Biggest Transition Ever

Just the scale of what’s in play will challenge many assumptions and forecasts. As the baseball philosopher Yogi Berra once said, “It’s tough to make predictions, especially about the future.” Related: Africa’s Richest Man: Oil Is Not The Way Forward

When it comes to oil and autos, big is a word that is not big enough. Transitioning not one, but two of the largest industries in the world simultaneously is unprecedented. Both have multi-trillion-dollar roots as tough as oak trees.

Our daily dose of oil momentarily touched 100 million-barrels-a-day in June. I estimate we’ll sustain past that incomprehensible century marker by the middle of 2018. That’s the equivalent rate of burning an ultra-large supertanker of oil every half hour.

(Click to enlarge)

From a sales perspective, the top 10 integrated oil and gas companies recorded annual revenue in excess of $US 3.1 trillion per year in 2015. For comparison, the top 10 technology companies add up to $US 1.3 trillion in sales and they sell a lot more than just smartphones.

There are over 1.2 billion ICE-powered vehicles on the road today. If the average vehicle is modestly worth $US 20,000, that represents a potential fleet turnover of $US 20 trillion. Electrifying this fleet on a fast track won’t be limited by technology (it never is). Aggressive adoption scenarios will be a function of many other considerations; for example, who will compensate car owners for trillions of dollars of devalued capital stock? Related: Russia And Saudi Arabia Are Becoming Unlikely Allies

And the capital stock of a billion-plus vehicles isn’t static. After scrapping 40 million clunkers every year, the overall vehicle fleet is still expanding at a rate of 50 million vehicles annually, 99 percent of which are still ICE-powered. Like oil, autos are big business too: Off the assembly lines, the top 10 conventional automakers generate $US 1.6 trillion in sales worldwide.

Oil and gas plus conventional vehicle sales adds up to more than $US 5 trillion per year of business. That’s a big tree to shake. The multi-trillion-dollar scale of what’s in play is unlike any other we’ve seen. So, even modest shifts in the way we turn our wheels will be hugely impactful.

Many unknowns are in play. Will the world be driving 1.5 or over 2.0 billion vehicles by 2040? How many kilometers will each person be traveling, on average? At what rate will people switch from ICE to EV? Will EVs be full or partial substitutes for each of the various wheeled transportation segments? What will the value of a used car be?

Change one small assumption in the decades to follow—for example, how long people hold onto cars before trading them in—and the forecasts are out by a couple hundred million electric vehicles, several million barrels of oil per day, and hundreds of millions of tons of carbon per year.

By Peter Tertzakian for Oilprice.com

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  • Steve on September 28 2017 said:
    "As the baseball philosopher Yogi Berra once said, “It’s tough to make predictions, especially about the future.”"

    I have often attributed this statement to physicist Niels Bohr, but it seems neither Yogi Berra nor Niels Bohr was the originator...

    https://quoteinvestigator.com/2013/10/20/no-predict/
  • Michelle on September 28 2017 said:
    A pitfall for EV & a Plus for Oil is the power grid & the time it takes to fully charge & how long you can drive. In a normal day traffic can be backed up, but if you have to evacuate for a hurricane that EV is not gonna be the best choice. I really don't see EV coming into the mainstream strong for many years to come. The excitement of reviving up your cylinders is still strong.
  • Eric on September 28 2017 said:
    If EV drivers could depend on finding a level 2 or 3 charger at any gas station, that would be a real game changer.
  • Vadertime on September 29 2017 said:
    So, I am reminded from 7 years ago when the smartphone revolution was in it's infancy. The two dominant monoliths in the mobile phone market were Nokia and Blackberry. You know where they are today? They are small players in an very large mobile device market occupied by a new duopoly called Android and Apple.

    Look, I've waiting for the electric car revolution since I was 10 years old and that was back in 1968, when I first saw a documentary extolling the virtues of quiet, clean, simple propulsion. I've waited 50 years and finally something real is happening - something seismic. A sleeping giant has awoken. Let me tell you something about electricity - it's everywhere. It's in the lithium battery in my smartphone, my bluetooth headphones, my house and it powers all the electrical systems on my car including the computers that diagnose and analyze my fuel injection ratios for that internal combustion engine.

    The internal combustion engine is inefficient, dirty and wastes a large amount of energy as heat, hence the radiator in the front of your car. Who ever came up with the ridiculous idea of exploding a highly combustible gasoline-air mixture in a chamber where the rapidly expanding gases would drive a mechanical piston very much like a bullet being discharged out of a rifle barrel. The electric motor has 3 moving parts compared to about 3000 parts on an ICE.

    I've been watching the devastation in Puerto Rico from the passage of Hurricane Maria on the island. It's been 9 days since the island was ravaged by the storm and there are over 9000 shipping containers sitting at the ports in that island. They can't go anywhere, because the land-based distribution network is in ruins. Roads are damaged, electricity is limited fuel for the trucks and truckers who appeared to have vanished into thin air. Now, Puerto Rico is an island in the Easter Caribbean bathed in the solar rays of the equatorial sun. Imagine if all that energy from our natural, thermo-nuclear power plant could be harnessed into electricity to power batteries in electric trucks and vehicles. No gasoline distribution or shortage issues. It's right up their in the sky - go get it.
  • Paul Smith on November 27 2017 said:
    The big driver for EVs is the battery. The price and energy density have been improving at an exponential rate. Fear of a lithium shortage may well be overstated as numerous new chemistries are developing in labs around the world. EVs are on the verge if not already reached the cost of ownership of fossil fuel vehicles and will very soon leave them behind.

    As the market shifts from gas cars, service stations, already on the edge of profitability will begin to disappear, further hurting the convenience of quick fill ups. Speaking of which, by next year we will be seeing the first 350Kw charging stations that will drop the time of recharge to equal that of a gas fill, for those EVs equipped to handle it.

    Just like the change in the cell market, when it reaches a tipping point the market changes overnight.

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