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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The EV Boom Could Accelerate Peak Oil Demand

The COVID-19 pandemic has dramatically changed the short-term outlook for global vehicle manufacturing industry and sales, including sales of electric vehicles (EVs).

But policy actions to support decarbonization and lower-emission transportation in the post-virus world could accelerate the energy transition and displace larger volumes of oil demand for road transport to the point of bringing peak oil demand closer than previously anticipated.

The pandemic and the lockdowns to prevent its spreading have severely hit the automotive market everywhere in the world, as people haven’t driven for two months, dealerships have been closed, and millions of previously potential car buyers are now jobless.

Despite the high uncertainty regarding the current state of the car market, all auto manufacturers are sticking to their EV plans and ambitions to boost the offerings of EVs significantly in the coming decade.

The overall global car market will certainly struggle this year, and possibly another year or two, while the penetration of EVs, especially if governments boost support to zero-emission vehicles, is only set to grow, eating into the share of conventional internal combustion engine (ICE) vehicles.

Automakers Stick To EV Plans 

Demand for road fuels—representing almost half of total global oil demand—is set to shrink as EV manufacturers such as U.S. Tesla and China’s BYD and legacy automakers including GM, Ford, and Volkswagen plan to roll out new vehicles with longer-life cheaper batteries. Tesla is said to be preparing to launch a million-mile battery as soon as this year or early in 2021 for its Model 3 in China as part of a wider plan to introduce longer-lasting, low-cost batteries that would bring EV prices to parity with conventional gas-powered cars. GM is “almost there” in its efforts to make a million-mile battery, GM’s Executive Vice President Doug Parks said at an online conference this week. Related: Downside Risks Remain Despite Oil Price Rebound

According to a Reuters analysis in partnership with Constellation Research & Technology, Tesla is the most mature and with the most momentum manufacturer, out of 27 automakers analyzed, to lead the automotive industry’s drive to zero-emission transportation. BYD and BAIC of China are next, followed by Germany’s Volkswagen, which has one of the most aggressive targets for EV models in the industry, according to the analysis. Volkswagen has yet to demonstrate its capabilities in mass-manufacturing of EVs, while it has been a leader among automakers in increasing the sales of gasoline-powered SUVs.

EV Sales’ Long-Term Prospects Still Bright Despite Covid-19 Shock   

While all car sales are set to drop this year, EV sales will fall by a lower percentage than conventional car sales, according to the new Long-Term Electric Vehicle Outlook published by research company BloombergNEF (BNEF) this week.

Global car sales are seen down 23 percent this year, while EV sales are set to decline by 18 percent.

“EV sales hold up better than combustion vehicles in most markets, due to a backlog of orders, new models, and supportive policy in Europe and China in particular,” BNEF said.

The pandemic is seriously disrupting the automotive industry, and it’s also “raising difficult questions about automakers’ priorities and their ability to fund the transition,” the report reads.

Nevertheless, long-term EV sales prospects are still bright. EV sales are set to increase from 1.7 million in 2020 to 8.5 million in 2025 and 54 million in 2040, BNEF said. The share of EVs of global new car sales is set to jump to 58 percent in 2040 from just 2.7 percent in 2020.

The key drivers of wider EV adoption will be continuously falling battery pack prices, compelling new EV models, and policy pressure for decarbonization in many countries, according to BNEF. Related: Covid-19 Crisis Could Crush Brazil’s Oil Boom

“By the mid-2020s EVs reach up-front price parity – without subsidies – with internal combustion vehicles in most segments, but there is wide variation by region,” BNEF says.

Despite the crisis, EVs are set to take a record share of the overall market this year, experts at the International Energy Agency (IEA) wrote in a commentary this week.

“Government policy responses to the crisis could accelerate the transition to electric cars,” said Timur Gül, Head of the Energy Technology Policy Division, Marine Gorner, Energy analyst, and Leonardo Paoli, Energy and Transport Researcher.

Decarbonization Drive A Boon To EVs, Bane Of Oil Demand 

Increased societal and investor pressure for decarbonization of the energy systems and road transportation could accelerate wider adoption of EVs, and with it, the time when oil demand will plateau and start to decline. Some analysts have already suggested that we may have already hit peak oil demand, and even the top executives at oil majors BP and Shell are not ruling out that notion.

“One conclusion is that there is a good chance the path of oil demand may be permanently lower than we expected at the end of last year. That probably does not mean we have already reached “peak demand” for oil: a sustained decline in global oil consumption depends on large-scale electrification of road transport, and before the pandemic we were not on course to reach that point until the second half of the 2030s,” Wood Mackenzie said earlier this month.

The consultancy has charted three scenarios for the future of energy in a post-virus world, one of them being the ‘Greener growth’ scenario of significantly increased political and policy support, in which oil demand is set to plateau in the 2020s, before starting to fall steeply in the 2030s.

“Reality is likely to mix and match different elements from these scenarios. Some regions will push hard on the accelerator for the energy transition, while others focus more on developing domestic manufacturing industries and protecting existing energy producers. But most of the likely changes work in the same direction: towards weaker oil demand growth,” WoodMac said.

By Tsvetana Paraskova for Oilprice.com

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  • Maxander on May 21 2020 said:
    I dont see any boom coming for EVs as they are too costly, not affordable, not economical to drive, time consuming battery charging.
    & post COVId 19, everybody wants to spend less, spend more time for work.
    & think conventional fuel vehicles & hybrid vehicle demand will accelerate post covid19.
  • Mamdouh Salameh on May 22 2020 said:
    It is up to you to kid yourself but don’t try to kid your readers. There will neither be a peak oil demand throughout the 21st century and far beyond nor an electric vehicle (EV) boom. Moreover, internal combustion engines (ICEs) will continue to dominate the global transport system well into the future.

    Mandated legislation and policy actions to support de-carbonization and lower-emission transportation in the post-virus world won’t accelerate the energy transition since they will only meet with little success. Such measures could prove counterproductive and false economics. For instance, if owners of ICEs are prevented by law after a certain date from changing their ICEs into more modern models, they will hold on to their old ICEs for a few more years rather than buying EVs thus undermining EV sales.

    Before making ambitious projections about future EV sales, let us wait and see how many EVs will be sold in 2020. Without government legislations and subsidies, EV sales might even collapse. I very much doubt that EVs will achieve half the 1.7 million projected for 2020.

    An imminent global energy transition is an illusion. The Tesla bubble will eventually burst and the reason behind it will be oil.

    The global economy will in the aftermath of the coronavirus outbreak be focusing all its efforts on standing again on its own feet and finding jobs for the millions if not billions of people who lost their livelihood to be thinking about zero-emissions and EVs.

    If anything, the coronavirus outbreak with its destructive power of both the global economy and the global oil market has proven irrevocably how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and vice versa.

    Furthermore, there could neither be a global economy nor a modern civilization as we know and enjoy without oil and vice versa. The global economy operates on oil and will continue to do so throughout the 21st century and probably far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bob Forbes on May 22 2020 said:
    What EV boom ? !! I don’t know one person who has one or even wants one. Petrol and Diesel engines are here to stay. EV dominance will never happen, most likely they will fade away.

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