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Does the EV Revolution Pose a Serious Threat to the Oil Industry?

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The rise of electric vehicles (EVs) has been one of the most significant changes in the transportation industry in recent years. As governments worldwide work to reduce carbon emissions, the push towards cleaner energy is gaining momentum, and electric vehicles are becoming an increasingly popular choice among consumers.

While EVs still account for a small share of global vehicle sales, they are poised to lead the transportation space in the coming years. This has led some to wonder whether the EV boom poses a serious threat to the oil industry, which has long been the backbone of the global energy market.

In this article, we will explore this question in detail, looking at the current state of the EV market, the potential impact on oil demand, and how oil companies may adapt to the changing landscape.

The Electric Future Is Here

The growth of the EV industry has been impressive. In 2020, despite the COVID-19 pandemic's impact on the global economy, EV sales continued to rise, reaching a record high of 3.24 million units, according to Sales of electric cars doubled in 2021 and rose another 55% in 2022 to hit a record of 10.1 million units.  The International Energy Agency predicts that the number of electric cars on the road could reach more than 300 million by 2030, up from just 16.5 million in 2021.

This growth is being driven by several factors, including the increasing availability of affordable EVs, improvements in battery technology, and government incentives to encourage EV adoption. Legacy automakers are revving their up e-mobility game and are setting deadlines to phase out ICE models. Pure-play EV makers are focused on expanding their vehicle lineup.

Could the EV Boom Eat Away Oil Demand?

The rise of EVs presents a threat to the oil industry as EVs do not require oil as their primary fuel source. According to the International Energy Agency (IEA), transportation accounts for around 60% of global oil demand, and the rise of EVs could significantly reduce this demand. Per BloombergNEF estimates, EVs on the roads are displacing 1.5 million barrels of oil demand per day. Electric cars are expected to displace around 2.5 million barrels of oil demand daily by 2025.BNEF estimates that electric and fuel cell vehicles will displace 21 million barrels per day in oil demand by 2050.

Some industry watchers and economists view EVs as the archnemesis of the oil industry. For instance, Stanford University economist Tony Seba is of the view that EVs will destroy the global oil industry by 2030. Akshat Rathi from Bloomberg News went on record claiming that “every F-150 Lightning destroys 50+ barrels of oil demand forever.” In 2016, Bloomberg predicted EVs to trigger a global oil crisis.

While there’s no denying that rapid EV momentum is set to hurt the oil industry’s prospects, things don’t look as appalling now as predicted by some analysts and economists.  

It’s also worth noting that the impact on oil demand will vary by region. In countries with a strong renewable energy infrastructure, such as Norway, where EVs already account for major chunk of all new car sales (around 80% in 2022), the shift away from oil will be more rapid. In contrast, in developing countries with limited charging infrastructure and high levels of oil dependency, the transition to EVs may take longer.

Having said that, it’s certain that EVs will not replace all oil demand. The petrochemical industry uses oil as a feedstock to produce plastics, fertilizers, and other products. Additionally, heavy-duty vehicles, such as trucks and airplanes, are not yet feasible for electrification and continue to rely on oil.

How Are Oil Companies Adapting to the Swift EV Transition?

The oil industry is already taking steps to adapt to the rise of electric vehicles. Many companies are investing in renewable energy, such as wind and solar power, to diversify their portfolios and reduce their carbon footprints.

For instance, BP plc (BP - Free Report) has set a target of becoming a net-zero company by 2050 and plans to invest $5 billion per year in low-carbon energy by 2030.The integrated company intends to invest in and create its renewable energy generation capacity of 20 gigawatts by 2025. In February, it announced plans to invest $1 billion in EV charging stations across the United States by 2030.EV charging is one of BP’s five strategic transition growth engines, wherein the company expects to grow investment over the next 10 years. BP currently offers 22,000 EV charge points worldwide and aims for more than 100,000 by 2030, with 90% of those being quick or ultra-fast. BP has also invested $7 million in IoTecha, in sync with its objective to provide more than 70,000 public EV charging points worldwide by 2030.

Oil companies are also exploring new business models, such as offering charging infrastructure and battery storage solutions to EV owners. Shell plc (SHEL - Free Report) , Europe’s largest oil company, is investing in a network of fast-charging stations across Europe. Early this year, the company inked a deal to acquire Volta, in a bid to diversify from oil and invest in green energy management. It bought Greenlots — another company involved in EV charging and management — in 2019 and ubitricity — U.K.'s largest EV charging network — in 2021.   Shell also has the same ambitious target of becoming a net-zero emissions energy player by 2050 or earlier. By 2030, the integrated energy company plans to lower absolute emissions by 50%.

TotalEnergies SE (TTE - Free Report) also strives to be a net-zero carbon emission company by 2050 and has taken the necessary steps to achieve the target. TTE plans to add more renewable gross capacity in operation by 2023-end and plans to invest $5 billion to expand the Renewable & Electricity business in 2023. It is partnering with automakers to offer home charging solutions. TotalEnergies’ EV charging network in Belgium is praiseworthy. TTE has already won public contracts to install and operate more than 3,500 EV charging stations in Brussels and Antwerp, Belgium. Last September, it received a contract to install and commercially operate 4,400 EV charging points in West Flanders and Flemish Brabant, Belgium, over the next two years.

While SHEL carries a Zacks Rank #4 (Sell), BP and TTE are #3 Ranked (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Last Word

The EV revolution does present a threat to the oil industry, as it could lead to a decline in oil demand and prices. However, it is essential to note that oil remains an essential resource for many industries, and EVs are not yet a viable solution for all transportation needs. Oil companies have recognized the need to adapt and are investing in renewable energy sources to diversify their portfolios. As the world continues to shift towards sustainable energy sources, the oil industry's ability to adapt will determine its future success.

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