Many carmakers are predicting a significant shift to electric vehicles in the next decade. Advances in battery technology and the growth of autonomous driving and ride sharing – suited to electric vehicles – will power this expansion, they reason.
But some oil executives take a different view, predicting electricity will play only a bit part in transport out to 2040 at least.
If they are on the wrong side of the argument, it could come at a cost to an industry where new projects often cost billions of dollars to build and need decades of at least moderate crude prices to pay off.
Over half of all crude oil pumped is used for transport. An overly pessimistic outlook for electric cars may lead oil companies to adopt an overly optimistic outlook for oil consumption and price growth, analysts say.
ENI SpA chief executive Claudio Descalzi is among those who believe the threat posed to the oil industry by electric vehicles is not significant.
“Electric cars, they can grow, but I don’t think that is a problem (for us),” Descalzi told Reuters on the sidelines of a conference in London last month.
ExxonMobil Corp, the largest western oil producer by market value, and British rival BP plc publish oil market outlooks to 2035 and 2040 respectively that guide their investment decisions. Both predict that in 2035, less than 10 per cent of new cars will be electric vehicles (EVs) or plug-in hybrids – cars with a backup combustion engine for when the battery runs flat.
“Our central view in the outlook is the penetration of electric vehicles and electricity more generally is likely to be pretty limited over the next 20 years,” Spencer Dale, BP’s chief economist, said in February.
The carmakers don’t produce comparable long-term outlooks for vehicle production but their nearer term predictions for vehicle roll-outs envisage a much faster take up of EVs.
Dieter Zetsche, CEO of Mercedes Benz manufacturer Daimler AG, said in September his goal was to have EVs make up between 15 and 25 per cent of group global sales by 2025.
BMW AG has said it could do the same. Ford CEO Mark Fields said in April that by 2020, 40 per cent of models would be electrified.
“For over 100 years the internal combustion engine has been a basic design assumption for our business, for our industry,” Hau Thai-Tang, Ford vice president for purchasing told analysts in September.
For the oil companies, a lot is riding on the accuracy of their demand forecasts. To be sure, some in the oil industry are predicting a rapid expansion of EVs and some carmakers are conservative on EV prospects, but they are in a minority.
Norway’s Statoil, for instance, says electric motors could roll out widely in the next two decades. And Fiat Chrysler Automobiles NV CEO Sergio Marchionne has expressed caution about the uptake of electric cars.
Where there is a variance in outlook between the oil and auto industries, it is usually down to different expectations around technological developments and what happens in emerging markets.
Carmakers expect batteries to become cheaper and be able to support greater vehicle range than some oil companies have predicted.
Oil companies have said regulated caps on vehicle emissions can be most efficiently achieved by improvements in combustion engine efficiency. But carmakers say it is becoming increasingly expensive to hit emissions targets with combustion technology.
Electric cars are expected to remain more expensive than combustion engine vehicles for the foreseeable future but their operating costs are much lower than gasoline.
Oil executives’ outlook for oilis also supported by an expectation that increased car ownership in emerging markets can more than make up for any increase in EV penetration.
Exxon predicts that by 2040, car ownership in China will triple to about 30 vehicles per 1,000 people.
It is already the largest market for electric vehicles in the world, helped by government subsidies worth up to $10,000 per car and exemptions from traffic restrictions in cities such as Beijing and Shanghai.
The country is targeting five million plug-in hybrid models on its roads by 2020.