Electric Vehicles and Crude Oil Demand

Energy
  • Seven things that may surprise you:
    • We see a payback period of three years as the benchmark for consumers to take to EVs
    • Subsidies supporting EV adoption should no longer be necessary by 2028
    • EVs are not necessarily eco-friendly
    • Misconception to say EVs are simple to manufacture
    • Payback period for ICEs is typically 10-15 years
    • Raw material costs standing in the way of battery cost reductions
    • All-solid-state batteries nearing viability

 

  • Forecasting that EV ownership volume to be 5% in 2030
  • We forecast China and Western Europe will be the main drivers of EV market growth until 2025 and account for 47% of global EV sales in 2025
  • By 2040, we estimate the EV sales weighting will hit 45% in the US, 35% in Japan, 40% in China, 50% in Western Europe, and 38% in India, resulting in a global EV sales weighting of 32%
  • Battery cost is the biggest hurdle and we expect this cost to drop from $272 in 2015 to $110 in 2025 and $95 in 2030; early feasibility for all-solid-state and lithium-sulfur batteries as successors to lithium-ion batteries could support a battery cost breakthrough

 

  • Tesla’s 10+ year investment equals 1-2 years for Toyota
    • In order to achieve output of 300,000 vehicles, it will have to spend a total of $3.5bn on R&D and $17.2bn on capex
    • A financial plan to manage negative FCF over a long period is indispensable
    • Still, the reality is that Tesla’s 10+ years of upfront investment amount to only a year or two of upfront investments at Toyota
  • It is likely that manufacturers that believe in technological innovation may only allocate enough resources for their EV businesses to meet regulations until such technologies are available
    • Hence, we believe the precise timing of large investments is the most important factor, to invest in the right technologies
    • We do not see the need for companies to be the first movers in the shift to EV, and see a fast-follower strategy more fitting
  • Market price of lithium carbonate has doubled to $12/kg in 2017 from $5/kg in 2015. Lithium prices account for 5-10% of the production cost but lithium reserves are plentiful and we expect production to increase in China when extraction costs make it more economically viable

 

  • Growth in demand for crude oil to slow through 2030, dropping from 1.5% CAGR in 2015-2020 to 0.8% in 2020-2025 and 0.5% in 2025-2030
  • Each 1% increase in volume weighting of EV ownership lowers crude oil demand by 246,000 bpd and by 0.3% overall
  • To illustrate, a 1% deceleration in global GDP has a roughly 0.8% negative impact on crude oil
  • Transportation sector accounts for around half of crude oil demand
  • The switch to EVs and various measures to improve fuel efficiency for gasoline vehicles look set to impede growth
  • We expect crude oil demand to edge up from 97mn bpd in 2016 to 109 mn bpd in 2030
  • We expect a 29mn bpd demand boost related to GDP as emerging economies expand, we also see demand negatives of 14mn bpd from fuel efficiency improvement and 2mn bpd from the switch to EVs and HVs
  • In the medium term, we believe that gasoline demand growth will continue to grow at above or in line with historical trends as (1) passenger car penetration in EMs remains low and is set to increase with rising economic growth in these countries, and (2) we expect a higher mix of light duty trucks amid lower-for-longer oil prices and taxes in US
    • China is also showing preference for light duty trucks, sales of which have grown 66% since 2013, outpacing +21% in all passenger vehicle sales
  • EVs and efficiency gains denting global gasoline demand growth rate
    • While we see EV penetration increasing significantly in the coming years, globally we see internal combustion engine vehicles contributing almost half of all vehicle efficiency gains

Goldman Sachs Research – Electric Vehicle Boom: ICE-ing the Combustion Engine, September 2017

Image Source: Goldman Sachs Global Investment Research

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