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EVs Set to Kick Into High Gear

Copyright © 2021 Energy Intelligence Group

Electric vehicle (EV) uptake, which is already defying expectations, is projected to accelerate further by mid-decade and help lead to peak oil demand by 2028, at somewhat over 105 million barrels per day. That's a top insight from the core case of a new report from Energy Intelligence's Energy Transition Research. Global EV sales grew by a surprising 43% last year despite Covid-19, albeit from low bases, and sales are expected to be fueled further by falling battery costs and other accelerants. In the report's core scenario, EV sales would hit 41% of all car sales by 2030 and 73% by 2040 in China, Europe and the US. In terms of the vehicle fleet, rather than new sales, EVs would grab a 36% share by 2040. The report's EV figures encompass both plug-in hybrids and full battery-electrics.

EV sales will not only continue their current trajectory but rise more steeply in the next few years, especially since EV prices are on track to reach cost parity with internal combustion engine (ICE) vehicles (WEO Feb.16'21 ). The key driver is battery costs, which Energy Intelligence sees on trend to fall below $100 per kilowatt hour -- a proxy for cost parity -- by the mid-2020s.


Nonetheless, the projected market shares of 41% in 2030 and 73% in 2040 suggest that mounting support for phasing out new ICE vehicle sales by 2035 -- including a mandatory target just set by Canada -- simply isn’t realistic. When it comes to government ICE bans, the “devil is in the details,” says report author TJ Conway, head of Energy Transition Research. For example, some governments may retain an important transitional role for conventional hybrid vehicles in their policy designs. And while some automakers have moved to phase out ICE vehicles, with ambitious targets rolled out by such companies as Volvo and General Motors -- others could remain skeptical of such moves.

Charging infrastructure is another potential obstacle to adoption, especially to boost EV uptake outside of urban areas. The report estimates that total public charge points would need to expand tenfold by 2030 to meet the projections in the core case. Policy is likewise integral for putting necessary conditions in place for expanded EV uptake, with support expected to rise especially in Europe and China -- and, in turn, influencing automakers and consumers even more.

Risks and Solutions

In Energy Intelligence’s core case, oil demand peaks in 2028, after rising above 105 million b/d by 2026 amid robust post-pandemic economic recovery. By 2040, oil demand is 1.8 million b/d below pandemic-impacted 2020 levels, with oil use in light-duty vehicles set to peak across the three key markets in 2025-28. EV adoption plays the leading role in this peak, but improving fuel economy is also a big factor.

Of course, a wide range of outcomes is possible. On one hand, EV uptake could accelerate more rapidly, with a high case seeing EV sales reach 96% market share by 2040. In a low case, on the flipside, EV sales would grab just 46% market share by 2040. Obstacles to widespread EV adoption are real and legitimate -- but likely manageable, the report finds. The most serious risks surround long-term battery performance, critical minerals, and charging infrastructure.

Oil companies have generally recognized that oil demand is likely to peak or plateau, with a growing consensus having formed in the last few years. “There is still some divergence in views, and the increasing divide is more about just how soon oil demand may reach a peak, and how quickly it may then fall,” says Conway.

The oil demand risks have, in turn, spurred strategies on what companies should do next. With oil demand in auto transport shrinking, companies are looking more to petrochemicals, natural gas, and even direct involvement in the expanding EV space -- primarily through the placement of EV charging units at fuel stations. Companies including Royal Dutch Shell, BP and TotalEnergies have already been investing in areas such as charging and battery technology.

E-mobility hasn’t been the biggest growth area for oil company green investments in recent years, but it could gain more attention in the future. Renewable power generation -- where significant capital investments can be made today -- have been dominating investments so far, according to Energy Intelligence’s Low-Carbon Investment Tracker. “I would expect that as we start to see electrification pick up, that could prompt another wave of investments,” Conway says.

Lauren Craft is editor of EI New Energy, based in Washington.

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