Electric Vehicles: The Final Oil Crisis

Technology marches on.electric.vehicle.charging.station
Technology that was once new and rare becomes commonplace and mainstream. Think smartphones. Or even further back in history, color televisions.
Today, the technology that is marching on is the electric vehicle.

Electric Vehicles, Going Mainstream

In 2009, there were fewer than 6,000 electric cars traveling along roads in to 40 countries.
By last year that number had grown to 1.2 million vehicles. And sales grew at a 60% annualized rate. Coincidentally, that is the rate Tesla Motors (NASDAQ: TSLA) says its sales will grow through 2020.
A big factor behind the surge in electric vehicle sales is the fact that battery prices had fallen 35% in 2015. And those prices are on a trajectory to make unsubsidized electric vehicles as affordable as their fossil fuel counterparts within the next six years.
If that does happens in 2022, it will mean that electric vehicles have gone mainstream and a liftoff in sales will occur.
Bloomberg New Energy Finance projects there will be an astonishing 400 million electric vehicles on the road by 2040!
Even a much more pessimistic forecast – from oil giant ExxonMobil (NYSE: XOM) – forecasts there will be 50 million electric vehicles out there in 2040. That still comes to a growth rate of about 14% per annum.
That seems reasonable in the light of forecasts saying global GDP will double by 2040.
Even a 14% annual growth rate is great news for Tesla Motors . . . as well as the other automakers that are moving into electric and driverless vehicles in a big way including Ford (NYSE: F), General Motors (NYSE: GM), Nissan (OTC: NSANY) and BMW (OTC: BMWYY).

Oil Companies In Denial

But what about the other half of this energy equation – the oil companies?
This growth in electric vehicles is something most of them have not planned for. After all, plug-in vehicles still make up a mere one-tenth of one percent of the current global vehicle market.
And OPEC continues to say that, by 2040, these vehicles will still account for only 1% of the overall market.
Some oil companies are even further into denial than OPEC. Last year, the CEO of ConocoPhillips (NYSE: COP), Ryan Lance, told Bloomberg that electric vehicles would not have a material impact for another 50 years.
Lance seems to be ignoring the fact that, within the next few years, Tesla, Nissan and Chevy will all be selling longer-range electric vehicles in the $30,000 range. In other words, mass market territory. He’s also ignoring the fact that electric vehicles sales are already increasing faster than most forecasters expected.

Electric Vehicles: Drag on Oil Consumption

If one doesn’t keep one’s head in the sand, how could the growth in electric vehicles affect oil consumption?
According to the IEA, passenger cars currently consume 18 million barrels a day of oil products. That is 18.7% of the 96 million barrels consumed daily.
Some projections are that, by 2040, 14% of current demand or 13 million barrels a day will be displaced by soaring usage of electric vehicles.
I have my doubts about that. That projection assumes there will be plenty of raw materials like lithium, cobalt and graphite available to make all the batteries the auto industry will need. That is an iffy proposition at the moment.
Bloomberg New Energy Finance says that two million barrels of oil demand will be displaced by 2028 thanks to the rise of electric vehicles. But even that estimate may be too optimistic.
I think perhaps one million barrels a day of oil demand will be displaced by 2028 thanks to electric vehicles.
But that will be enough to lower oil prices and hurt the oil companies.
Keep in mind that the crash in oil prices to $30 a barrel from $115 a barrel occurred because supply exceeded demand by roughly only one million barrels per day, according to the International Energy Agency (IEA).
In other words, it doesn’t take much of a downward move in demand to quash oil prices.
So despite any short-term rebound in oil prices thanks to a supply freeze agreement among oil producers, the long-term outlook for oil and oil producers does not look so sunny.
That makes both oil stocks and an ETF like Energy Select SPDR (NYSEArca: XLE) not places I would put long-term money, such as in a retirement account.
In such accounts, I would rather own stocks exposed the growing electric vehicles sector.

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