A year ago Bloomberg wrote an article called Here’s How Electric Cars Will Cause the Next Oil Crisis. The gist was that if global electric vehicle (EV) sales continued to grow at 60% annually, by 2023 that could displace two million barrels per day (BPD) of global crude oil demand. Such a decline in oil demand, they speculated, could cause another oil price crash.

As someone who is keenly interested in developments in the energy markets, I took a close look at their analysis.

There were two significant problems with their outlook. The first is that it ignored the underlying annual growth rate in crude oil demand, treating it as a static number. In other words, they assumed that in 2023, EVs would reduce oil demand by two million BPD below today’s level.

In fact, since they wrote that article, global demand has risen by another 1.6 million BPD, and is forecast to rise another 1.3 million BPD this year. So at the end of this year, global crude oil demand will already be nearly two million BPD higher than in their starting assumption. So, at this end of this year, crude oil demand will be four million BPD higher than the assumption they made for 2023.

The second problem is that a 60% annual growth rate would be challenging to sustain for very long. My expectation was that those explosive growth rates would inevitably slow as more EVs hit the market. 

Indeed, global sales figures for 2016 were impressive, but they failed to match the blistering pace of 2015. According to InsideEVs.com, the largest independent website devoted to electric vehicle news, global sales numbers of EVs in 2014, 2015, and 2016 were 320,713, 550,297, and 777,497 respectively. This represents a growth rate from 2014 to 2015 of nearly 72%, but that rate of increase fell to 41% from 2015 to 2016.

Global EV sales slowed even more in late 2016 and early 2017. November 2016 sales were only 29% higher year-over-year (YOY), but then December’s YOY number dropped to 19%. January’s came in at less than 13% above January 2016. So I asked Jay Cole, of InsideEVs, if he expects the slowdown to continue. He explained:

There have been a couple of short term drivers that slowed growth late in 2016 and especially in January/early February of 2017.

 

The first being the wait on the new/longer range Renault ZOE in Europe (huge range gain for basically the same price) which cratered Renault sales, and is just bumping February sales now; a void while waiting on the new Prius Prime, and a lack of follow-through production on some BMW models (people won’t buy the old once they know the “new” is en route); but more specifically China has played a big/the biggest role, as its sales outweigh the global registrations.

 

China had a lot of cheaters/fraud in 2016…and as a result it said it was going to review and replace its “eligible” plug-in vehicle and OEM list for 2017.  

 

Naturally red tape ensued, and the result was that the “new” list didn’t actually get approved/published approved until mid-February (and if you aren’t on the list…no incentives for you)…so we saw huge declines in China (see story on January Chinese sales here,  BYD specifically had its throat cut in China in January with a 90% percent drop). The list was finally issued mid-February, so the numbers did rebound late (up 55%), but still the list is a work in progress and is only half the size it was previously.

 

When you are talking global EV sales, the “China effect” is too large. There are China EV sales, and “RoW Sales” (rest of world). And because China basically “tells” the market what it will buy, big gains for 2017 are mostly baked in.

 

For 2017, China says it is looking for 800k sales overall (passenger & buses), and a 70% gain in passenger EV sales (and even though the yearly target is always 25% or so higher than reality – it is still a lot)…so if you try to make a month-to-month line chart globally, China will shortly be dropping some 50-60k months now it has its house in order, meaning we will see multiple 6 digits months on the global level this year, and almost every month needs a (*) asterisk for ‘what is China up to’. 

 

Depending on the pent-up demand/production arrives after the China incident, we are likely to see a “monster” number from the region shortly, meaning there will suddenly be a ~100% global increase in EV sales in one of the next 2-3 months.

In addition to providing some clarity around the seeming slowdown in sales, I think there are two more takeaways from Jay’s comments. First, EV sales are still being driven by incentives. Take the incentives away, and sales fall. So it’s still not clear what a sustainable EV growth rate may be in the absence of incentives. 

Second, the type of EV sales in China is not at all what Bloomberg envisioned in its scenario. Bloomberg estimated the impact of EVs replacing gasoline engines. That is not what is taking place in China. Automobile sales are exploding across the board. Total car sales in China increased by more than three million from 2015 to 2016. Most of those were gasoline-powered. The Bloomberg scenario requires both 60% EV demand growth, while at the same time displacing demand for gasoline engines.

Thus, Bloomberg’s projections look even less likely today than they did a year ago – despite EV sales that are stronger than recent numbers suggest. As a result, there is still little risk that electric vehicles will significantly impact crude oil demand in the foreseeable future.

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