Electric Vehicle Market Analysis: The Rise of Plug-in Hybrids and the Future of Oil Demand
Introduction
The global fleet of internal combustion vehicles is set to peak in 2025, marking a significant turning point in the automotive industry. However, the role of plug-in hybrids in this transition will determine whether this shift leads to a decrease in oil demand. A recent analysis by Bloomberg New Energy Finance (BNEF) sheds light on the current state of the electric vehicle (EV) market, highlighting the challenges and opportunities ahead.
The Peak of Internal-Combustion Vehicles and the Rise of Plug-in Hybrids
Sales of internal-combustion vehicles reached their peak in 2017 and are expected to be 29% below that peak by 2027, according to BNEF. While electric vehicles are still seen as the primary method of decarbonizing road transport, plug-in hybrids are making a comeback in established markets. The electric range for plug-in hybrids has been increasing, with an average of 80 kilometers in 2023. However, the share of kilometers driven in electric mode ranges from 11% to 54% depending on the country and owner type.
Impact of Plug-in Hybrids on Global Oil Demand
BNEF’s analysis suggests that if plug-in hybrids are displacing battery electric vehicle (BEV) sales and not fully utilizing their electric driving potential, they may contribute to an increase in oil demand. In the U.S., the Environmental Protection Agency (EPA) has introduced new regulations that could impact the adoption of plug-in hybrids. It remains to be seen how often drivers will actually plug in their vehicles, potentially affecting oil demand in the future.
Diverging Trends in the EV Market
While some established EV markets like the U.S., Germany, and Italy have experienced slowing sales, markets in China, India, and France continue to see healthy growth. Automakers, such as Mercedes-Benz, have also adjusted their EV targets in response to market dynamics. On a global level, EV sales are still on the rise, fueled by the expansion of low-cost models in developing economies. Chinese manufacturers have played a significant role in this growth, as they seek new markets for their EV products.
Battery Price Reduction and Implications for the EV Market
The declining prices of batteries have been a boon for the EV market, as they move closer to achieving cost parity with internal combustion vehicles. Goldman Sachs projects that a 40% drop in battery prices could lead to cost parity in certain segments of the market without subsidies as early as next year. The increasing use of LFP battery cells is also expected to reduce the demand for nickel and manganese, further improving the economic and environmental viability of EVs.
Challenges in EV Adoption and Fleet Turnover
Despite the rapid adoption of EVs, BNEF estimates that less than 50% of the global passenger vehicle fleet will be electric at the current rate. This disparity raises questions about whether regulators are focusing enough on retiring internal combustion vehicles, in addition to promoting EV sales. The transition to a predominantly electric vehicle fleet will require a combination of government policies, technological advancements, and consumer preferences to drive the shift towards sustainable transportation.
Overall, the evolving landscape of the EV market presents both challenges and opportunities for stakeholders across the automotive industry. Maintaining momentum in EV adoption, addressing barriers to entry for new technologies, and transitioning away from internal combustion vehicles will be key priorities in shaping the future of transportation. As the world moves towards a more sustainable future, the role of plug-in hybrids and their impact on oil demand will be closely monitored by analysts, policymakers, and industry experts alike.