Oil companies may be facing uncertainty as the coronavirus pandemic triggers a collapse in demand for their products, but auto makers are betting the crisis will help accelerate an electric future.
With economies reeling from lockdowns to curb the virus, the sharpest plunge in oil prices in two decades has slashed the cost of filling up a tank of gas, eroding some of the incentive to make the switch to cleaner fuels.
Looking ahead, cuts in capital spending forced upon energy companies as their revenues crumble could tighten supply enough to cause a spike in oil prices, making electric vehicles more attractive just as automakers ramp up production, analysts say.
"We think this will lead to a tipping point, accelerating the switch to electric vehicles in many more countries around 2023-24," Per Magnus Nysveen, senior partner at Rystad Energy, a consultancy in Oslo, told Reuters.
"We will start to see that this starts to dig into global oil demand in a very significant way," he said.
According to a Reuters analysis of 27 automakers compiled in partnership with Constellation Research & Technology, most companies apart from Elon Musk's Tesla Inc and China's BYD Co Ltd are still in the early stages of transitioning to EVs, which make up a fraction of global sales.
(For an interactive graphic on business model transformation and decarbonization within the auto manufacturing sector, click here now.)
With mid-sized to large petroleum-fueled SUVs and trucks driving much of the recent growth in the auto sector, many companies are banking on these high-emitting gas-guzzlers to drive their near-term performance.
Nevertheless, with China's BAIC Motor Corp. and German rivals Volkswagen Group and Daimler AG pursuing some of the industry's most ambitious decarbonisation targets, investors are increasingly using a company's EV prospects as a proxy for future success.
"All the growth in transportation is being eaten by electricity," said Harry Benham, chairman of Ember-Climate, a British energy transition think-tank. "Oil and gas companies have got no ability to defeat electricity as a transport fuel."
PEAK OIL DEMAND?
With fuel for road transport accounting for about half of all oil demand, the possibility of a faster-than-expected switch to EVs in the wake of the pandemic is one of the main reasons some forecasts for a peak have been brought forward.
Global oil demand hit a record of just over 100 million barrels per day (bpd) in 2019. Rystad now sees demand topping out at 106.5 million-107 million bpd in 2027-2028. The consultancy had previously forecast a marginally higher peak in 2030.
Although the oil industry has defied numerous attempts to call "peak oil" in the past, the fact that the International Energy Agency projects that demand will plunge by a record 8.6 million bpd this year has reignited the debate.
Though as yet a minority view, some believe the pandemic is reshaping patterns of work, aviation and commuting so profoundly that oil demand might never return to 2019 levels - a potential boost to hopes of avoiding the worst impacts of climate change.
"It's inconceivable that all that demand for oil comes back in one go, so the real question is how much of that is lost permanently," said Mark Lewis, head of sustainability research at BNP Paribas Asset Management.
Underscoring the changing economics of transport, Reuters revealed last week that Tesla plans to introduce a new low-cost, long-life battery in its Model 3 sedan in China that it expects to bring the cost of EVs in line with gasoline models.
Despite such potential breakthroughs, the Constellation data shows that automakers still have a long way to go to align themselves with climate goals enshrined in the 2015 Paris Agreement, with Ford Motor Co and Fiat Chrysler Automobiles among the biggest laggards.
Volkswagen has announced some of the most aggressive long-term plans to decarbonise its fleet, but the company still has to prove it can build EVs at scale, and has led the field in ramping up sales of mid- and large SUVs, the data shows.
Although the public decarbonisation targets of Japan's Toyota Motor Corp are only a little bolder than the industry average, the company's proven capacity to build hybrids may bode well for its EV ambitions, the data suggests.
Japan's Subaru Corp, which produces only a small number of hybrid vehicles, might have to rely on its partnership with Toyota if it wants to prosper as demand for EVs picks up, Constellation analysts said.
'CRISIS OF UNCERTAINTY'
Although the oil industry hopes to offset demand lost to EVs with a growing appetite for crude to make petrochemicals and plastics, companies facing growing pressure from investors over climate change are increasingly open about the risks.
In April, Ben van Beurden, chief executive of Anglo-Dutch oil major Royal Dutch Shell, said the company did not expect oil demand to recover in the medium term, saying the industry was living in a "crisis of uncertainty."
Bernard Looney, chief executive of BP, was later quoted in the Financial Times as saying he would not "write off" the possibility the world had reached peak oil.
Much will depend on whether economies stage a V-shaped recovery, as some forecasters predict, and how far governments adopt new EV targets as part of "green stimulus" packages to spur a faster shift to a low-carbon future.
With many European politicians calling for green recoveries, the French government signaled on Monday that the country wants to boost sales of low-emission cars. China has extended backing for EVs as part of its recovery package, and U.S. Democrats are exploring ways to boost demand for clean vehicles.
With various European countries planning to ultimately ban sales of new petrol and diesel cars, some see increasingly ambitious EV commitments by automakers as another sign of the beginning of the end of the fossil fuel era.
"One of the primary factors holding back the transition has been resistance by the fossil fuel incumbents," said Kingsmill Bond, senior strategist at financial think-tank Carbon Tracker. "Now those incumbents are significantly weakened."
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