Policy and technology accelerate EV rise

Carmakers' focus on EVs could hinder progress on improving standard vehicle efficiency, writes Jack Kaskey

Politics, commerce and technology are accelerating the rise in electric vehicle (EV) sales as climate change concerns grow, but predictions about the long-term impact of this trend on oil demand still vary enormously.

EVs could be competitive with traditional vehicles by the middle of this decade, once battery-pack costs drop by half, according to Columbia University adjunct senior research scholar and former chief economist at US independent ConocoPhillips, Marianne Kah. Batteries that power EVs need to cost less than $100/kWh to be competitive with internal combustion engines, Kah says — about half the current cost. That could happen in this decade but not before 2025, Kah told the Argus Americas Crude Summit in Houston, Texas, this month.

Once cost parity is reached, EV sales should accelerate from 2pc of global sales currently, but predictions on how fast this will happen vary from 100pc market share by 2040 to less than 20pc, according to an annual survey by Columbia's Center on Global Energy Policy. "Views are diverging as to whether it is going to be a niche or whether it is going to take over vehicle sales," Kah says.

EV sales have so far been driven by government support through incentives in Europe and China, some federal stimulus measures in the US, and city and state-level incentives in California. The pace of EV penetration may be slowed by less supportive US policy under President Donald Trump, who is in the process of blocking rising fuel-efficiency standards. Corporate average fuel economy (CAFE) standards set by the administration of former president Barack Obama would require the US vehicle fleet to average 54.5 miles/USG by 2040.

American Fuel and Petrochemical Manufacturers chief executive Chet Thompson calls the CAFE standards "an [EV] mandate by another name", as EVs would need to comprise 40pc of the market to attain the fuel-efficiency standard. Democratic presidential candidates Bernie Sanders and Elizabeth Warren have proposed complete electrification of the US transport sector by 2030.

EV does it

Carmakers' focus on EVs could hurt progress on producing vehicles with improved fuel efficiency, Kah says. As more money goes towards creating EVs, less investment is available for research into new technologies to create lighter vehicles. But governments have chosen to encourage EVs over lightweighting, so that is the path carmakers will follow, she says.

California-based EV-maker Tesla — with 2019 sales of under 370,000 — last month became the world's second most valuable carmaker by market capitalisation, overtaking German firm Volkswagen, which produced 11mn vehicles last year. "The horse has left the barn," Kah says. "Governments have chosen electrification because that is the shiny new thing."

The UK government this month brought forward its deadline for ending sales of new diesel and gasoline cars by five years to 2035, and extended the ban to include hybrid vehicles, meaning the only type of new cars and vans sold in the country from 2035 will be those with zero tailpipe emissions. The move aims to help the UK meet its legally binding target of net zero emissions of all greenhouse gases by 2050. UK emissions from transport have fallen by only 3pc since 1990.

Phasing out new gasoline and diesel vehicles within 15 years will require a huge increase in the share of zero-emissions vehicles in the UK market. Battery electric vehicles made up less than 2pc of new UK car sales last year. Sales of zero-emissions vehicles would need to climb to a third of all sales by 2025 to get on track for the 2035 phase-out, Brussels-based non-governmental organisation Transport and Environment says.