Electric cars and oil-is peak oil demand at hand?

Every day there are new stories and announcements about changes in the automotive industry, especially around electric cars and driverless technology. And several important countries-China, France, and the UK-have announced plans or ideas about eventually banning sales of cars powered by oil only. Cars account for one-third of total oil demand and nearly 40% of total oil demand growth since 2000. Unlike Las Vegas, what happens in the automotive system does not stay there. Repercussions will impact the oil industry, as well as others such as the chemical and financial industries.

99% of cars today are oil powered

There is no doubt that change is afoot in how cars are sold, fueled, and used. The forces of change in the automotive ecosystem are widespread-and go beyond the cost of batteries and policy support for EVs. Economic and energy security, combating pollution, and new business models for mobility services are among the factors that will shape the future.

But the scale of the current automotive system means that change will not come as fast as some fantastic forecasts may indicate. Remaking the automotive fleet is different from smartphones displacing old-school mobile phones.

Currently, more than 99% of cars on the world's roads are oil-powered-only 0.2% are electric cars (battery-only vehicles and plug-in hybrids). Put another way, of the 1.28 billion light duty vehicles (cars and light trucks) on the road today, 1.27 billion are oil powered. But electricity is positioned to challenge oil's monopoly as a transportation fuel and, over time, erode oil's share of the LDV market.

By 2040, we project that one-third of new car sales in the world's largest auto and energy markets-China, Europe, India, and the United States-will be electric. This will translate into about 16% of the cars on the road.

Driverless technology is the disruptor

Driverless technology has the potential to accelerate change and disrupt the automotive system by amplifying the impact of other forces of change. The disruptive force will be determined by how much driverless cars lower the cost of personal mobility, add value to consumers, enhance safety, and alter the model of car ownership and use. The spread of driverless technology would amplify the impact of other catalysts of change, such as electric car adoption, and efforts to address pollution, climate change, and traffic congestion. Driverless car capabilities appear close to being commercially available, but how quickly their use will spread is uncertain.

Change is coming. Some figures, such as new car sales-and how they are powered-will be among the first indicators that the century-long dominance of oil powered cars is facing new rivals. The rivalry between powertrain technologies, business models, and incumbents and new entrants will be a defining feature of 21^st century industry. It will re-shape the automotive industry--with profound impacts on the energy and chemical industries as well.

Learn about our study on the future of cars, oil, chemicals and electric power.

Jim Burkhard is Vice President of Oil Markets at IHS Markit.
Posted 14 November 2017

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.