Sarah Miller - Feb 16, 2021

Last year’s rush away from oil risks turning into a rout. Even as the global economy shrank by 3.5% and oil demand by nearly 9% in 2020, electric vehicle (EV) sales leapt by more than 40%. For December alone, the year-on-year worldwide EV gain was a stunning 105%, according to online equity research platform Seeking Alpha. Already, 2021 has seen that icon of US car culture, General Motors (GM), declare its “aspiration” to stop selling gasoline and diesel passenger vehicles by 2035. But truth be told, GM’s ambition isn’t radical: 2035 is a fairly conservative estimate of when new fossil fuel-engine car and pickup sales will cease. That cutoff year already applies in California and is being considered for the entire US, even though the US is way behind Europe and China in moving into EVs. Once the world’s fossil-fueled transport behemoth starts to topple, it’s likely to fall fast -- taking oil demand down with it at a speed few oil companies are yet preparing for.

Until recently, it was easy to imagine the transition into EVs might be a relatively slow affair. Fully electric and plug-in hybrid vehicles combined (referred to below simply as EVs) still accounted for roughly 4% of worldwide passenger vehicle sales last year, by most estimates, and barely over 2% of US light-vehicle sales. It’s easy to extrapolate comfortably long transition times from those still relatively low market shares. But such comfort is likely to prove short-lived.

For EVs, 2020 was a game changer. In Europe, EVs drove at top speed into the mainstream: Preliminary estimates from EV data gatherers including Seeking Alpha and EV-volumes show full-year 2020 EV sales up by 137% from 2019, even as the total market shrank by 20%, leaving EVs with over 10% of the market -- the UK included. Equally important as an indicator of future trends, the growth was backend-loaded. By December, Europe’s year-on-year increase had soared to a mind-boggling 250% and the EV market share exceeded 20%, according to EV-volumes.

Sales growth in China, the US and elsewhere was not as crazy fast, but market shares grew virtually worldwide, and most projections are for worldwide growth of 40%-60% in EV sales this year. Battery EVs (BEVs) are estimated to account for about 70% and plug-in hybrids the rest of global EV sales, with BEVs expected to gradually push hybrids aside in coming years.

Looking only slightly further out, prospective government bans on fossil fuel vehicle sales are spreading and getting nearer in time. Countries with announced plans to ban carbon-emitting vehicles include Norway by 2025; India, Sweden, Ireland, Iceland and the Netherlands after 2030; Japan and the UK after 2035, with plug-in hybrids the only fossil fuel engines allowed in the UK after 2030; Taiwan, Sri Lanka, Spain, Canada, Egypt and France by 2040; and China at a date yet to be announced. Denmark plans not only to halt sales of new internal combustion engine (ICE) vehicles after 2030 but to ban such vehicles from the roads by 2035.

The strength of the political commitment to such goals varies widely, but they all put auto manufacturers on notice that there’s no future for the ICE. They’ve gotten the message and are in a race to offer as many EV models as possible in as many places as possible over the next year and beyond (NE Feb.11'21). It effectively puts the oil industry on notice, as well.

One of the most important bans came from California Gov. Gavin Newsom. Last September, he issued an executive order “requiring sales of all new passenger vehicles to be zero emission by 2035.” This is important not only because California and other states that frequently follow its emission rules -- rather than laxer federal standards -- account for roughly 40% of all US auto sales. It’s critical because new Democratic US President Joe Biden may go along with California’s rules, according to reports. And even if he doesn’t, Biden will not challenge California’s separate, tighter standards as the Trump administration was doing, meaning that carmakers will have to be able to meet California’s rules whatever Washington and other state governments do (WEO Apr.3'17). California is too big for them to ignore.

The Speed of Change

Still, can things really change that fast? Can battery manufacturing, power generation, and charging stations all ramp up quickly enough? Skeptics abound. A look back 100 years for guidance to the transition from horse transport to automobiles suggests the sprawling US transport system can change radically in a single decade. In 1907, only 140,300 cars and 2,900 trucks were registered in the entire US, according to Scientific American. A mere decade later, in 1917, the number of registered cars had multiplied 33 times to almost 5 million and heavier motorized vehicles had seen a 134-fold gain to 400,000.

Fast-forward to 2020. US sales of EVs totaled a relatively measly 345,300 out of overall auto sales of 14.5 million. Car and pickup sales were running at over 17 million per year before Covid-19 hit. Multiplying that 345,000 by 33, to match the 1907-17 surge, would push EV sales up to nearly 11.4 million. That implies a 2030 EV market share in the neighborhood of two-thirds, even if total car sales rebound to pre Covid-19-levels. Historical precedent indicates electric cars could dominate the market by 2030, five years ahead of the GM cutoff target.

That is not a forecast based on modeling. It’s just an anecdotal demonstration that such rapid shifts are possible. But it also undermines objections to rapid EV penetration based on shortage of fueling stations or electricity supply. After all, few filling stations and little oil refining and distribution capacity existed in the US in 1907 and crude oil production was just 455,000 barrels per day, according to the Energy Information Administration. By 1917, all that had changed, including a doubling in crude production.

Turning to the future, it’s easy to imagine how momentum behind EVs will build in the 2030s, and gasoline and diesel vehicle sales will collapse. What factors will people consider as they set out to buy a new car in 2030 if EV sales have been climbing rapidly for 10 years, to a point that’s well over half the new-car market? What will used-car resale values be? Will buyers worry that their gasoline cars may become unsalable? What about replacement parts? Might gasoline stations soon become scarce? Certainly, automakers won’t be designing sexy new models of the ICE vehicles they are aiming to phase out.

It’s a dizzying thought, if you posit the possibility for only 10 years out. And even this doesn’t take account of other drivers of change. Of the possibility that governments will buy up old “gas guzzlers” to get them off the roads. Of the strong probability that midsize trucks and delivery vans will shift to electric motors as fast or faster than passenger vehicles. Just this month, Amazon began testing the first of the 100,000 electric vans it has agreed to buy from start-up manufacturer Rivian. Biden may soon be taking the US Postal Service down a similar path.

Then there are those claims from Tesla and some of the big Asian battery makers that battery prices will halve and ranges increase by at least 50% by 2023 or sooner. There’s a century-old echo here, too. Scientific America says, “Cars became popular because the price of these machines had plummeted: a Ford Model T sold for $850 in 1908 but $260 in 1916, with a dramatic rise in reliability along the way.”

Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass.