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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Exploding SUV Market Is Another Big Boost For Oil Demand

  • BNEF: EVs displaced 1.5 million barrels per day in oil demand in 2021.
  • IEA: global CO2 emissions from SUVs in 2022 hit nearly 1.1 billion tons, overshadowing increased EV sales.
  • SUV-related oil consumption rose by 500,000 barrels per day between 2021 and 2022.

The global electrification drive has been hailed as the world’s best shot at preventing a catastrophic and irreversible climate meltdown wrought by uncontrolled emissions of carbon dioxide and other greenhouse gasses. Last year, Bloomberg New Finance (BNEF) reported that EVs displaced 1.5 million barrels per day in oil demand in 2021, potentially preventing the emission of nearly 65 million tons of CO2 in a single year.

Unfortunately, robust SUV demand negates those gains and makes it real hard for EVs to make a dent on the planet’s CO2 footprint. A new IEA analysis has revealed that global CO2 emissions from SUVs in 2022 hit nearly 1.1 billion tons, overshadowing increased EV sales. 

While it’s bad for climate goals, it’s certainly good for oil demand. 

The report says that SUV-related oil consumption rose by 500,000 barrels per day between 2021 and 2022, accounting for one-third of the total growth in oil demand at a time when oil use in conventional cars, excluding SUVs, stayed roughly the same. 

The report comes after a similar report published in 2019 revealed that SUVs were the second-largest contributor to a CO2 increase in the 2010s. While better than their gas-guzzling predecessors, the added weight and poorer aerodynamics of modern SUVs compared to sedans, hatchbacks, and wagons are still detrimental to efficiency and contribute to higher emissions.

The agency says that switching to electric SUVs is hardly the ideal solution, noting that larger electric SUVs generally require larger battery packs, which translates to increased need for raw materials. IEA advises "...downsizing of the average car size; increasing battery swapping; and investing in innovative battery technologies. Those strategies would keep in check the investment requirements for developing the cobalt, copper, lithium and nickel resources needed to satisfy the increasing uptake of EVs." Related: Is India Drifting Away From The U.S.?

Alternatively, buying SUV models such as Lucid Gravity and the Nio EC7 from companies that emphasize efficiency as a priority can help mitigate the problem. Regulatory changes are also required to make SUVs less attractive, with the federal government continuing to incentivize automakers to produce more SUVs.

Or we can just wait for EVs to kill off SUVs, as Citroën CEO Vincent Cobée believes will happen in the future. But it won’t be soon. 

According to the EIA, “electric SUVs are growing in popularity, but not quickly enough to offset the increasing oil consumption and emissions of the wider fleet.”That means continued oil demand growth from this segment. 

Robust EV Growth, Nonetheless

Ultimately, high EV penetration is likely to be the long-term antidote to growing emissions by SUVs and other fossil fuel vehicles considering that the transportation sector is responsible for more than half of global oil demand. 

The EV revolution is likely to get heated in the United States despite signs of slowing EV demand: last year’s Inflation Reduction Act (IRA) included a $7,500 tax credit for purchasing an electric vehicle, with the Biden administration targeting half of US vehicle sales to be electric by 2030. Meanwhile, Tesla Inc. (NASDAQ:TSLA) has cut prices on some of its top models by up to 20% after rising interest rates and inflation deterred potential customers.  

Meanwhile, falling lithium prices are a positive development for the EV industry.

After hitting an all-time high of CNY 595,000 per tonne ($86,170 per tonne) in November 2022, lithium carbonate prices in China have sunk to a 13-month low of CNY 362,500 per tonne ($52,500 per tonne) in March 2023, good for a nearly 40% correction as a confluence of negative catalysts conspired to end lithium’s biggest rally ever thanks in large part to increased supply. 

Goldman Sachs has forecast that lithium carbonate supply will grow at a brisk 33% annual clip, outpacing demand which will only grow at 25% p.a. The mismatch between the two market forces will depress lithium carbonate prices even further with prices expected to sink to $34,000 a tonne in the next 12 months, from around $53,000 per tonne currently, good for another 36% decline.


Battery costs are the most expensive component in an EV, and lower lithium carbonate prices are likely to ease major cost pressure on automakers like Tesla. Last year, E Source estimated that battery cell prices will surge 22% from 2023 through 2026, peaking at $138 per kilowatt-hour thus reversing a multi-year trend whereby battery pack and EV costs have fallen consistently each year. 

Various analysts have estimated that EVs will achieve cost parity with ICE vehicles when battery costs fall to ~$100 per kilowatt-hour, which could happen in just a few years and mark a major win for the global clean energy revolution.

By Alex Kimani for Oilprice.com

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