Are Energy Majors Under Threat From Big Tech?

Audi unveiled last month its first fully electric SUV, the e-tron, at an event on Tesla’s home turf in San Francisco—the electric vehicle industry’s latest step toward mass adoption of EVs, and a real threat to Tesla’s current top spot in the market.

Innovation in the EV industry is rolled out at a steady pace, but what’s unusual about this particular launch is that Audi teamed up with Amazon for a home charging solution, letting Amazon into the energy and transportation businesses.

Amazon Home Services and Audi will be offering an in-home charging solution that can charge the e-tron in just nine hours. It also allows users to schedule charging for a time when electricity is cheapest, according to Amazon. Sales of the e-tron are set to begin next year.

The entry of Big Tech into the EV charging business could potentially make charging much easier, and possibly challenge one of the biggest markets of Big Oil—selling transportation fuels, Bloomberg Opinion’s energy columnist Liam Denning writes.

It’s true that one of the key roadblocks to mass EV adoption is insufficient charging infrastructure. With the current range of the electric cars, consumers worry that they could be left stranded on the road.

With more home installations and mobile chargers, charging EVs may become easier. Moreover, competition will get crowded with many automakers offering many new vehicles and trying to outbid and outsmart rivals with longer range and faster charging times—a fact that will spur additional improvements.

“I want Audi to be the number-one electric vehicle seller in America over the long term,” Audi of America President Scott Keogh told Reuters after the unveiling of the e-tron last month.

Audi officials say that the home charging installation would cost around US$1,000, depending on the home electrical system. Tesla’s wall connectors for home charging come at a list price of US$500, Reuters reports.

Charging solutions may be one of the roadblocks to en masse EV adoption, but they are not the single biggest barrier. Battery costs are another roadblock for the EV market to overcome to make zero-emission cars on par with internal combustion engine (ICE) vehicles.

According to Wood Mackenzie, the battery is one third of the cost of an EV today. Yet, costs have already declined by 80 percent this decade, and it’s set to fall further. Battery pack prices will drop below US$200/kWh this year and then fall by around 10 percent each year, WoodMac said in July.

“The critical threshold is US$100/kWh – that’s when EVs will compete on commercial terms with ICE vehicles. We think we’ll get there by 2027,” WoodMac says.

Falling battery costs, coupled with government policies to incentivize purchases of EVs, were the key drivers of another record year for electric car sales in 2017, the International Energy Agency (IEA) said in its Global EV Outlook 2018.

Yet, in order to improve the appeal of the EVs, the industry needs to achieve further battery cost reductions and performance improvements. Battery chemistry innovations will also be needed if EV sales are to pick up the pace, because supply issues with core elements of the lithium-ion batteries such as nickel, lithium, and cobalt, have started to emerge, the Paris-based agency noted.

EV sales will continue to grow; no one doubts this. Recently, estimates have started to emerge about how much oil demand EVs could displace in the long term and how they could accelerate the timeline of peak oil demand.

Wood Mackenzie reckons that EVs will displace around 5 million bpd to 6 million bpd of oil demand by 2040—some 5 percent of total oil demand. In a scenario in which autonomous EVs (AEVs) become commercial and gain public acceptance much faster than currently expected, AEVs alone could displace 5 million bpd by 2040, bringing total lost oil demand to 10 million bpd. But this scenario assumes that AEV tech is proven and widely accepted five years earlier than WoodMac currently expects.

According to BloombergNEF, e-buses and EVs will have displaced a combined 7.3 million bpd of transportation fuel in 2040.

Big Oil may see its transportation fuel market shrinking in the coming decades, but it still has a key growth driver in the petrochemical industry.

The drivers of oil demand growth will be shifting as times change. Big Oil stocks are no longer dominant in the S&P 500 like they were just ten years ago. Only Exxon makes the top ten weighted stocks in the index now dominated by FAANGs and other tech stocks. Will Big Tech grab energy and transportation demand away from Exxon, Chevron, or Shell? We’re not there yet.

By Tsvetana Paraskova for Oilprice.com