Will 1 Billion EVs Crash Gasoline Demand?

Vehicle fuel consumption should see a major decline globally, but it won’t happen for a couple of decades.

Last year was big on announcements from automakers, and suppliers, and tech giants regarding electric vehicles, robotaxis, and autonomous vehicles. We also heard from countries like China, India, France, Great Britain, and Norway—all pledging to ban the sale of fossil fuels to power vehicles on their roads.

How will this affect auto sales, gasoline, diesel…?

Morgan Stanley has long sounded the warning bell to the auto industry. A study last year forecasted that electric vehicles will make up 90 percent off all vehicle sales globally by 2050. That would be made up of about one billion battery electric vehicles out on roads worldwide.

That will be spurred in part by existing and proposed emissions legislation that will jack up the cost of manufacturing internal combustion engines. EVs with long-range, fast-charging batteries will become much more viable for global auto sales. Growing consumer interest is expected to follow.

The investment firm warns that this will have a big impact on component suppliers, semiconductor manufacturers, commodities, chemical producers, and players in capital goods.

Even if vehicles continue to become more electrified and fuel efficient, petroleum consumption will continue to grow, with markets like China and Russia leading the way.

Global new vehicle sales are growing larger every year, and that won’t change anytime soon. BMI Research forecasts that global auto sales will go up 3.6 percent in 2018, up from an estimated 3.3 percent growth percentage in 2017.

The sales trend has been a few years in the making. Macquarie Bank reported that 88.1 million cars and light vehicles were sold in 2016, up 4.8 percent from a year earlier.

China is expected to continue growth as the world’s largest auto sales market, with a slowdown expected. Japan should see acceleration in its new vehicle market, as well.

Auto analysts are keeping a nervous watch over what may happen to the North American Free Trade Agreement, with U.S. President Donald Trump expected to block its renewal. Trade ministers from the U.S., Canada, and Mexico agreed late last year to extend talks on the NAFTA renegotiation into the first quarter of 2018.

Automakers are concerned that the Trump administration may break apart the regional alliance, which has been pivotal in reducing the cost of vehicle manufacturing and making supply chain logistics more efficient.

The U.S. Energy Information Administration expects energy consumption by light-duty vehicles in the U.S. to see a real drop between 2018 and 2040. Improvements in fuel economy should more than offset increases in light-duty vehicle miles driven over that period of time.

Fuel economy has stayed flat in the U.S. lately. While there are a lot more electric cars, hybrids, and fuel-efficient gasoline-powered cars than a decade ago, sales of pickup trucks, SUVs and crossovers have taken away fuel economy gains.

The University of Michigan’s Transportation Research Institute reported that the average sales-weighted fuel economy, calculated from the monthly sales of individual models of light-duty vehicles, has stayed flat near 25 mpg over the past two years.

Bottom line: Petroleum consumption should drop significantly over the next two decades. But for the next few years, global vehicle fuel consumption will likely continue to increase.

By Jon LeSage for Oilprice.com