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Advances in battery technology for electric vehicles (EV) have some experts questioning whether the global demand for fuel-based cars will decline sooner than expected. With transportation fuel demand representing 65 percent of oil demand, an unexpected shift in the pace of EV adoption has substantial implications for the energy industry.
Bloomberg New Energy Finance (BNEF) most recent Electric Vehicle Outlook forecast that by as early as 2025 EVs will be sold as cheap as gasoline vehicles, due to better technologies and lower battery costs. The trend will help push the global fleet of EVs to 530 million vehicles by 2040, where they predict EVs will be 67 percent of new cars sold in Europe, 58 percent of sales in the U.S. and 51 percent of sales in China.
“This is pure and simple economics,” says Colin McKerracher, lead advanced transportation analyst for BNEF. “Lithium-ion battery prices are going to come down sooner and faster than most other people expect.”
Lithium-ion costs have already fallen by 73 percent since 2010 and BNEF predicts costs will continue to fall. Battery technology will continue to improve, with manufacturing capacity expected to grow to 270 gigawatt-hours by 2021 from 90 gigawatt-hours now.
The International Energy Agency (IEA) offers a more moderate outlook, estimating total EV sales won’t exceed 30 percent of new car sales by 2040, constituting 14 percent of the total passenger vehicle fleet.
Ben Brunnen, vice-president of economic policy for the Canadian Association of Petroleum Producers, called the IEA projection more “realistic” as the agency considers all factors driving EV adoption, including technological development and government policies.
“We look at the IEA forecast as a baseline,” Brunnen says. “It’s a useful benchmark.”
He also noted other factors weigh in on EV adaptation, including the increase in the number of internal combustion-powered vehicles being purchased by a growing worldwide middle class, affordability and improvements in fuel-economy by conventional vehicles.
Using Norway, where 40 percent of vehicle sales in 2017 were EVs, as a benchmark for global purchases is misleading because much of the demand was driven by government subsidies, Brunnen notes. He points to nearby Denmark, where sales plunged by 60 percent after the government eliminated generous incentives in 2015.
Technology Improving Internal Combustion Engine
EV proponents should also take into account that internal combustion engine-based technology has improved dramatically and continues to, with fuel efficiency having improved dramatically, Brunnen adds.
The CAPP spokesman says the organization believes the end goal of EVs, which is to reduce carbon dioxide (CO2) emissions, can be achieved by taking a more holistic approach. For instance, CAPP believes reducing emissions from oil and gas production and developing more energy efficient buildings and infrastructure can also help achieve lower overall CO2 emissions.
“Rather than changing the entire transportation infrastructure, we should focus on lowering overall emissions,” he says.
One factor he says can’t be ignored is that the U.S. administration of Donald Trump has mused about reducing or eliminating fuel efficiency standards for the auto industry, under the so-called CAFE (Corporate Average Fuel Economy) standards. If that happens, the incentives to develop more EVs might be less pressing.
The Wild Cards
BNEF’s McKerracher says what could move the needle on sales is that every major automaker will be introducing dozens of models of new EVs starting in 2020, with the choice of models extending to crossovers, SUVs and other models that are now not widely available.
Another potential drivers of battery technology are a widespread ramp-up of lithium-based technology in smartphones and other electronics.
The quickest adoption of EV technology will be in passenger vehicles, McKerracher says, but eventually passenger buses and delivery vans will also shift to the technology.
However, it's unlikely that EV technology will be widely used in aircraft or long-haul trucking, he notes.
While the shift to EVs will be dramatic, McKerracher says oil demand will still rise worldwide. Bloomberg predicts eight million bbls a day of “demand destruction” by 2040, but the number of vehicles overall on roadways will rise from slightly above one billion now to 1.6 billion by 2040, meaning the number of conventionally-powered vehicles on roadways will still be higher than now.
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