Posted on February 26, 2016 by Matt Pressman
According to Bloomberg Business*, electric cars could cause the next oil crisis. And it turns out that Tesla Motors [NASDAQ: TSLA] might be the "spark" that starts a revolution in the energy industry. Let's review Bloomberg's rationale for the demise of oil in connection to the rise of electric vehicles.
With all good technologies, there comes a time when buying the alternative no longer makes sense. Think smartphones in the past decade, color TVs in the 1970s, or even gasoline cars in the early 20th century. Predicting the timing of these shifts is difficult, but when it happens, the whole world changes. It’s looking like the 2020s will be the decade of the electric car.
Battery prices fell 35 percent last year and are on a trajectory to make unsubsidized electric vehicles as affordable as their gasoline counterparts in the next six years, according to a new analysis of the electric-vehicle market by Bloomberg New Energy Finance (BNEF). That will be the start of a real mass-market liftoff for electric cars. By 2040, long-range electric cars will cost less than $22,000 (in today’s dollars), according to the projections. Thirty-five percent of new cars worldwide will have a plug.
In the next few years, Tesla, Chevy, and Nissan plan to start selling long-range electric cars in the $30,000 range. Other carmakers and tech companies are investing billions on dozens of new models. By 2020, some of these will cost less and perform better than their gasoline counterparts. The aim would be to match the success of Tesla’s Model S, which now outsells its competitors in the large luxury class in the U.S. The question then is how much oil demand will these cars displace? And when will the reduced demand be enough to tip the scales and cause the next oil crisis?
Last year EV sales grew by about 60 percent worldwide. That’s an interesting number, because it’s also roughly the annual growth rate that Tesla forecasts for sales through 2020, and it’s the same growth rate that helped the Ford Model T cruise past the horse and buggy in the 1910s. We found that electric vehicles could displace oil demand of 2 million barrels a day as early as 2023. That would create a glut of oil equivalent to what triggered the 2014 oil crisis.
BNEF’s analysis focuses on the total cost of ownership of electric vehicles, including things like maintenance, gasoline costs, and—most important—the cost of batteries. Batteries account for a third of the cost of building an electric car. Fortunately, the cost of batteries is headed in the right direction.
One thing is certain: Whenever the oil crash comes, it will be only the beginning. Every year that follows will bring more electric cars to the road, and less demand for oil. Someone will be left holding the barrel.
*Source: Bloomberg Business