Oil Investors Shrug Off EV 'Revolution'

EVs can "eat into traditional market share for liquid fuels," but that's largely a "developed economy, or rich country issue at this point." — Dean Foreman, American Petroleum Institute.

Over the past few years, the EV momentum has gone into overdrive thanks to the ESG craze and the shift to renewable energy. Last year marked a fresh high for the EV industry after the global electric-car market recorded growth of 41%, according to an International Energy Agency report. 

Global EV sales in 2020 increased by 39% Y/Y to 3.1 million units, an impressive feat considering that the total passenger car market declined 14% amid the pandemic. Part of the robust growth can be chalked up to legacy automakers accelerating their EV launch plans, partly to comply with increasingly stringent regulations in Europe and China.

And now the undeniable EV momentum has some experts spelling doom for the oil industry.

Bloomberg News' Akshat Rathi recently claimed that "every F-150 Lightning destroys 50+ barrels of oil demand forever." The F-150 Lightning is Ford Motors' (NYSE:F) electric equivalent of the marquee Ford-150 truck.

It's a refrain we have heard in the past from a cross-section of experts, including Stanford University economist Tony Seba who went ballistic a few years ago and declared that EVs will obliterate the global oil industry by 2030.

But let's not get ahead of ourselves here; At the risk of sounding like fossil fuel apologists, the fact of the matter is that whereas EVs remain a critical piece of the global electrification drive, it could be decades before EV uptake can destroy oil demand to an appreciable degree.

F-150 Lightning: Battery on Wheels

For clean energy buffs, Ford's latest EV offering is, by many accounts, a masterpiece.

According to the company, it will be the first electric vehicle to serve as a "battery on wheels," thanks to being equipped with an extended 9.6kWh battery that can power an average home for three days. Ford says the F-150 Lightning's 9.6 kWh of Intelligent Backup Power can provide full-home power for up to three days on a full charge of battery, a potential strong selling point following February's Arctic Blast that left millions of homes in the dark for days on end. Demand for in-home generators in Texas has reached an all-time high since the February ice storms, meaning the battery system 'add-on' might have broad appeal to light truck buyers.

Related: Oil Prices Fall Following Large Fuel Inventory Build

Solar, battery storage, and energy services provider Sunrun Inc. (NASDAQ:RUN) has partnered with Ford to install the 80-amp Ford Charge Station Pro and home integration system that can be used to power the Intelligent Backup Power system. 

Ryan O'Gorman, Ford's energy services lead, says that if your F-150 Lightning is plugged in when an outage occurs, Intelligent Backup Power will automatically kick in to power your home. When power is restored, the truck will automatically revert to charging its battery. Users will have to pay extra to install a home integration system on top of the Lightning's base price of $39,974 before any incentives.

Which brings us to the question of the day: How much damage are EVs like the new Ford-150 Lightning doing to global oil demand?

Akshat has estimated that a light truck like the Lightning consumes about 680 gallons of gasoline every year, which requires about 2,000 gallons of crude to produce. That translates to about 50 barrels of oil every year. Obviously, it takes quite a bit of juice to charge the Lightning's home backup system. However, Akshat has not even factored it in his math, which appears reasonable considering many people might use the backup power system only a few times every year.

When it comes to denting overall oil demand, the EV sector has a long way to go before it can challenge the ICE hegemony.

A report from IHS Markit shows that last year, light plug-in and fuel-cell vehicles, as well as electric city buses and two-wheelers, collectively displaced about 370,000 barrels per day of global oil consumption, a figure that is projected to grow to 1.5 million barrels per day by 2025, equal to about 1.4% of the projected level of total world oil demand. Certainly not enough to lose sleep over by long-term oil investors.

Source: IHS Markit

Electrifying America's vehicles is a critical part of combating climate change, considering that the transport sector accounts for 21% of total GHG emissions. But this is just not happening fast enough. According to Bloomberg New Energy Finance (BNEF), just 2.7 out of 100 vehicles sold last year were EVs, with EVs expected to account for just 8% of the global fleet by 2030. However, EVs could reach 31% of the global fleet by 2040, as per BNEF.

As Dean Foreman, chief economist at the American Petroleum Institute, has quipped: "EVs can "eat into traditional market share for liquid fuels," but that's largely a "developed economy, or rich country issue at this point."

EV stocks retreat 

After enjoying a torrid run in 2020, stocks of electric vehicle manufactures have gone into deep correction mode. 

The leader of the space, Tesla Inc. (NASDAQ:TSLA), has tanked 15.1% so far this year; NIO Inc. (NYSE:NIO) is down 11.2%, XPeng (NYSE:XPEV) is -13.4%, Li Auto (NASDAQ:LI) has lost 11.1% while electric powerboat maker, Vision Marine (NASDAQ:VMAR), has cratered 28.0%. 

Of the market leaders, only battery electric and hydrogen-electric vehicles maker Nikola Corp. (NASDAQ:NKLA) and electric vehicles and mobility solutions company Fisker Inc. (NYSE:FSR) have managed to stand out in this sea of mediocrity with an 11.3% and 8.9% gain, respectively, despite the latter largely being a speculative play with no EV offerings at the moment. 

That's in stark contrast to the oil and gas sector as legacy vehicle manufacturers which are mostly enjoying a banner year.

General Motors (NYSE:GM) has rallied 52.2% YTD, red-hot Ford Motors (NYSE:F) is up a roaring 81.7%, while the oil and gas sector's favorite benchmark, the Energy Select Sector SPDR ETF (XLE), has gained 47.1%.

That said, the long-term EV outlook remains bright. 

BNEF says 58% of all new vehicle sales will be the electric kind two decades down the line. 

That might have appeared like a bad case of blue-sky thinking just a few years ago, but not anymore: The Biden administration has proposed spending heavily on EV infrastructure while the UK wants to ban gas-powered vehicles on its roads after 2030.

By Alex Kimani for Oilprice.com

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