An Electric World?

Ever played “what if ….”

Well even learned professors do, with scary results.

Stanford University economist Tony Seba has forecast (“Rethinking Transportation 2020-2030”) that no more petrol or diesel cars, buses, or trucks will be sold anywhere in the world within eight years. The entire market for land transport will switch to electrification.  A further prediction is that people will stop driving altogether – they will switch to self-drive electric vehicles that are ten times cheaper to run than fossil-based cars, with a near-zero marginal cost of fuel and an expected lifespan of 1 million miles.

What do you think will be the consequences?

Here are some of Seba’s projections:

  1. Cities will ban human drivers once the data confirms how dangerous they can be behind a wheel.
  2. The value of second-hard cars will plunge. You will have to pay to dispose of your old vehicle.
  3. The long-term price of crude will fall to US$25 a barrel. Most forms of shale and deep-water drilling will no longer be viable.
  4. Assets will be stranded.
  5. Scotland will forfeit any North Sea bonanza.
  6. Russia, Saudi Arabia, Nigeria, and Venezuela will be in (more) trouble.
  7. There is an existential threat to Ford, General Motors, and the German car industry. They will face a choice between manufacturing EVs in a brutal low-profit market, or reinventing themselves as self-drive service companies, variants of Uber and Lyft.
  8. The next generation of cars will be “computers on wheels”. Google, Apple, and Foxconn have the disruptive edge, and are going in for the kill.

Paying to dispose of your vehicle and a drop in second hand car value could mean more abandoned cars such as those left in Dubai’s financial crisis

There will always be those who like the old habit of car ownership. The rest of us will adapt to vehicles on demand ..with the consequences that it will become harder to find a petrol station, spares, or anybody to fix the internal combustion engines – which typically has 2,000 moving parts compared to 18 in the Tesla S.

The shift, according to Seba, is driven by technology, not climate policies. The “tipping point” will arrive over the next two to three years as EV battery ranges surpass 200 miles and electric car prices in the US drop to $30,000. By 2022 the low-end models will be down to $20,000. After that, the avalanche will sweep all before it.

Mark Carney, the Governor of the Bank England and chairman of Basel’s Financial Stability Board, has repeatedly warned that fossil energy companies are booking assets that can never be burned under the Paris agreement.

He pointed out last year that it took only a small shift in global demand for coal to bankrupt three of the four largest coal-mining companies in short order. Other seemingly entrenched sectors could be just as vulnerable. He warned of a “Minsky moment”, if we do not prepare in time the energy revolution may move so fast that it will precipitate another global financial crisis.

Seba predicts that: “Global oil demand will peak at 100 million barrels per day by 2020, dropping to 70 million by 2030.” There will be oil demand for use in the chemical industries, and for aviation, though Nasa and Boeing are working on hybrid-electric aircraft for short-haul passenger flights. Oil use for road transport will crash from 8 million barrels a day to 1 million.

The cost per mile for EVs will be 6.8 cents as EVs are four times more efficient than petrol or diesel cars (which lose 80 per cent of their power in heat), while “safe” driving will cut insurance costs by 90 per cent. Seba predicts that the average American household will save $5,600 per year by making the switch. The US government will lose $50 billion a year in fuel taxes.

Sooner or Later…

These are all large claims, and while the professor’s timing may be off by years, there is little doubt about the general direction.  Not sure?  Well:

  1. India is drawing up plans to phase out all petrol and diesel cars by 2032, leap-frogging China in an electrification race across Asia.  Prime Minister Modi has called for a mix of subsidies, car-pooling, and caps on fossil-based cars. The goal is to cut pollution and break reliance on imported oil.
  2. Meanwhile, China is moving in parallel, pushing for 7 million electric vehicles by 2025 (which is admittedly a small drop in the ocean compared to total car ownership in China – as anyone who has tried to move in any major city there will testify).  However, China is also enforcing a minimum quota for “new energy” vehicles that shifts the burden for the switch onto manufacturers so may well force higher volumes.
  3. At the same time, global shipping rules are clamping down on dirty high-sulphur oil used in the cargo trade, a move that may lead to widespread use of liquefied natural gas for ship fuel.
  4. Seba cites as a parallel of what happened to film cameras – and to Kodak – once digital rivals hit the market. It was swift and brutal. “You can’t compete with zero marginal costs,” he said.


An Alternative View Point

However, is this a totally one-sided view?  OPEC‘s World Oil Outlook last year dismissed electric vehicles as a fringe curiosity that would make little difference to ever-rising global demand for oil.  It predicted a jump in crude consumption by a further 16.4 million barrels a day to 109 million by 2040, with India increasingly taking over from China as growing market. The cartel said fossils will still make up 77 per cent of global energy use, much like today. However, OPEC, Russia, and the oil-exporting states are now caught in a squeeze and will probably be forced to extend output caps into 2018 to stop prices falling. Shale fracking in the US is now so efficient, and rebounding so fast, that it may cap oil prices in a range of US$45 to $55 until the end of the decade. By then the historic window will be closing.


Please reply and join our debate / prediction on the effect or the timing of change coming up.  We may store them up and award a bar of chocolate to the one who gets their predictions closest (in 2025!).

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