BP’s latest long term outlook for the energy sector looks particularly unrealistic in its projection of a “most likely” case of almost no uptake of electric vehicles by 2035. This needs to change in their next review.
Electric vehicles (pure EVs and plug-in hybrids) will make almost no difference to the transport sector until beyond 2035 – that is according to BP in their latest long term projections for the energy sector[i], which were published last week. It is easy – and perhaps accurate – to dismiss this view simply as an incumbent not facing up to the effects of a disruptive new technology, the equivalent of a silent movie producer suggesting in the late 1920s that talking pictures were a merely a fad which would never catch on.
However sales of electric vehicles remain a small proportion of the market, with continuing challenges around cost, range and charging infrastructure. And they are presently a relatively expensive way of reducing CO2 emissions.
So why does the BP analysis look to be so far from being the most likely outcome that it’s presented as? There are several reasons for this.
The trend is of rapid sales growth
Although small, the market for electric vehicles looks to be growing exponentially at present. Annual sales have grown from almost nothing 5 years ago to approaching 1% of the total market of just over 70 million cars p.a.[ii]. Sales have roughly doubled every 18 months over the last three years, which is similar to the growth rate of solar PV in its early years.
Simply extrapolating this growth rate would imply annual sales of nearly 5 million vehicles in 2020, with a cumulative total of about 13 million vehicles, or 1% of the world stock which is currently about 1.3 billion vehicles[iii]. Even a slower rate of growth, with sales doubling every two and a half years, would imply annual sales of over 2 million vehicles by 2020 (about a 3% annual market share), and a cumulative total of 7.8 million. This figure is close to Bloomberg’s projection of 7.4 million electric vehicles by that date.
Annual global sales of plug-in vehicles in thousands [iv]
New models are increasingly coming on line
Growth in sales looks likely to be sustained by new models. Pure electric vehicles with mainstream market prices and a range of around 200 miles are expected over the next couple of years or so, including new versions of the Nissan Leaf and Chevrolet Volt, and the new Tesla E, while in China BYD is introducing its e5 300 EV. General Motors also plans to produce its first fully electric car, and Apple is widely understood to be undertaking a major programme to produce an electric car. Meanwhile major manufacturers including BMW, Mercedes and Porsche are gradually migrating plug-in hybrid drive train options across their ranges. These developments should greatly increase the number of customers who can find a model that fits their needs.
Battery technology is improving rapidly
This growth is being underpinned by rapid improvements battery technology, with cost and weight per kWh halving or more in the last five years. This trend is expected to continue in the coming years. Goldman Sachs[v] estimates that continuing advances in technology (see chart below) will lead to major improvements in cost and performance over the next five years.
Projected battery cost reductions and performance improvements
Source: Goldman Sachs
CO2 emissions standards will continue to tighten
Regulations limiting average CO2 emissions from cars are tightening across the world. As this trend is sustained and extended electric vehicles are likely to play an increasingly important role in reaching targets. As adoption of electric vehicles increases this is in turn likely to lead to governments to seek tighter standards, knowing that the technology to meet them is available. Furthermore, a move to electricity in transport is consistent with wider programmes of emissions reduction that include increasing decarbonisation of electricity generation. However, lifecycle emissions including from vehicle production will require continuing attention.
Regulations to promote urban air quality are likely to tighten
Just about every major city in the (increasingly urbanised) world has problems with poor air quality. Vehicles are responsible for much of this. Concerns about this are likely to lead to increasing prevalence of low emissions zones in cities. The UK Conservative party manifesto went further in its 2015 election manifesto, setting out an aim for nearly all cars and vans on the road to be zero emissions by 2050[vi]. Indeed, improving local air quality is often seen as a more pressing problem than reducing CO2 emissions because of the immediate and localised health effects.
Such regulations are likely to lead to greatly increased take-up of electric cars and buses. (Around 46,000 electric buses were already in use worldwide by 2014[vii].) This is among the reasons why choices between EVs and internal combustion engine vehicles won’t simply be a matter of which is cheaper. EVs only need to be close enough in cost and sufficiently available for tighter regulation to be practicable.
Consumer preferences and lifestyle are likely to favour electric vehicles
Electric vehicles are quieter than those with internal combustion engines, especially at low speeds (at higher speeds wind and road noise tend to predominate for all vehicles). They are also good to drive, with excellent acceleration and road holding, and they reduce or eliminate trips to petrol stations (never pleasant places despite the best efforts of those involved). They fit with consumer preferences for cleaner vehicles, which seem likely to increase in tandem with regulatory action. And they fit comfortably with trends towards increased functionality of communication systems (cars as “smart phones on wheels”), driver assistance and autonomous driving, and greater prevalence of car sharing models. These trends look to be significant, especially for younger consumers.
Together these trends give a convergent story of much earlier and more rapid growth in EVs than suggested by BP. Norway shows what can be done. Electric vehicles reached 16% of sales of new cars there in 2015[viii]. Changeover of the vehicle stock will take a while. And oil products look likely to continue to predominate in aviation and heavy trucking. But their future in light vehicles seems much more challenged. Electrification of light vehicles is likely to lead to substantial changes in the transport system over the next 20 years. It is to be hoped that the next edition of BP’s long-term outlook includes a much more realistic view of this.
Adam Whitmore – 18th February 2016
[i] http://www.bp.com/content/dam/bp/pdf/energy-economics/energy-outlook-2016/bp-energy-outlook-2016.pdf , see p.22-23 of the presentation
[iii] See BP presentation page 25 for current global total
[v] See http://www.goldmansachs.com/our-thinking/pages/new-energy-landscape-folder/report-the-low-carbon-economy/report.pdf See p.23for sales projection
[vi] https://www.conservatives.com/manifesto, see page 15
[viii] See http://www.goldmansachs.com/our-thinking/pages/new-energy-landscape-folder/report-the-low-carbon-economy/report.pdf