As electric vehicles would make “dramatic” inroads into the car market, they could have noticeable effect on traditional cars that run on petroleum and the internal combustion engine. That’s according to Fitch Ratings, which says that this would be “resoundingly credit negative” for the oil sector, as the transportation sector accounts for 55% for all of oil consumption.
The big winner: electric utilities, which would see increased sales as more people would plug to run their vehicles. Utility executive have said that they could handle the increased demand, although looking out and if the trend would really gain traction, it would require new electric generation. Another big winner, it adds, is renewable energy, which could pair nicely with the advances in the electric battery that is used as a storage device.
“Even if there were swift advances in battery technology, barriers to rapid shifts in demand would remain high,” says the Fitch report, emphasizing that its findings are a best case scenario for electric vehicles. “The transition to EVs will be slow due to the need for infrastructure investment and the fact that new vehicles can have a 20-year lifespan.”
The ratings services calculates that will 32.5% compound annual growth rate, it would be nearly 20 years before electric vehicles comprised 25% of the auto market. So, it does expect oil to be around for a while.
That said, the expansion of such a market “could tip the oil market from growth to contraction” earlier than many analysts have thought. That could lead to oversupply, cheaper oil prices and less investment.
“We believe it will be important for oil companies to react early, and we will continue to evaluate their strategies for doing so even though the changes discussed here would occur well beyond our rating horizon,” says Fitch. “Many are already taking initial steps such as diversifying into batteries or renewables or focusing more on natural gas, and many are actively participating in the debate around future energy sources.”
The prevailing wisdom — at the moment — is that electric vehicles are too costly compared to traditional ones, especially now given that gas prices have remained relatively cheap. At the same time, the internal combustion is also making improvements and becoming more efficient, which means they are getting better gas mileage.
But, as electric cars continue to improve, so do the efficiencies — or the ability to input a unit of energy and to realize more output. In fact, traditional cars running on an internal combustion engine have a 30 percent efficiency rate. The rest is lost to heat, sound and energy. Just refining a gallon of gasoline takes 7 kilowatts-hours per gallon, says Thor Hinckley, an electric vehicle and renewable energy expert with CLEAResult, a consulting specializing in energy efficiency.
Vehicles that run on electricity, however, have an 80 percent efficiency rate, or they convert 80 percent of those Btus to energy, he explains. The efficiencies are greater because of the superiority of the electric motor over that of the internal combustion engine — not because one unit of energy is better than another.
“With an efficiency difference that great, anything will be cleaner than burning gasoline,” says Hinckley. Obviously, burning a Btu of wind, solar or hydro is cleaner than burning the same unit of coal. But even if coal is used to generate the electricity to drive the car, he says that emissions are 20-30 percent less than a comparable vehicle running on petroleum. That’s huge.
Moreover, Bloomberg New Energy Finance is predicting that electric cars will be just as cost effective as traditional vehicles by 2022. The firm’s analysis assumes the price per barrel of oil is between $50-$70 a barrel. By 2040, it expects electric vehicles to make up 35% of the transportation market.
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