Some industry watchers and economists view EVs as the arch nemesis 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.
ADEREMI MEDUPIN
Onset of the electric vehicle (EV)
On Sunday, April 30, 2023 via his Twitter account as captured by Premium Times, the Lagos State governor, Babajide Sanwo-Olu, announced the arrival of the first set of electric buses for the state’s mass transit scheme, an initiative that resulted from a partnership with Oando Plc. In an evidently celebrative mood, the governor declared:
With the ability to travel 280km at full charge, taking into account our unique travel times in Lagos, our electric buses are a game-changer. With an average daily usage of 200km by existing BRTs, there is no need to fear that the buses can stop while in transit.
The governor made the point that the new electric buses will reduce carbon emissions and also increase efficiency; in order words, Lagosians can say goodbye to high fuel costs and hello to cost-efficient transportation. This aligns with the growing belief that a rapid transition from conventional oil-powered cars to electric vehicles (EVs) is both possible and necessary to reduce greenhouse gas emissions and improve urban air quality. Coincidentally and significantly, earlier on April 18, 2023, this Midlandpost had come out with the news headline: “Unilorin to tap on e-vehicle technology, for research, ease transportation problem” and a follow up detail on how the Vice Chancellor of the University, Professor Abdulwahab Egbewole, at an interactive Ramadan Iftar with journalists had disclosed “that the institution is exploring the possibility of electric transportation system to ease its perennial transportation problem and especially to latch on to the transition to e-mobility that is expanding and accelerating across the world”. Clearly, what is unfolding before our very eyes may soon fall on our laps as already anticipated by oil producers who are expectedly very conscious of the trend, such that we see oil-backed groups challenging electric companies and lobbying against any proposals in support of electric vehicle makers. One may ask: How did the journey begin?
A brief historical recap
That EVs have a fairly long history behind it may strike the reader as strange but it is true. As the duo, Spencer Dale and Thomas D Smith, in their piece, “Back to the future: electric vehicles and oil demand”, published on the platform of their company, BP, asserted, “electric vehicles have been around for a long time; longer than gasoline cars. But the advent of the Model T Ford and the mass production of affordable gasoline cars led to their demise in the early 1900s. One hundred years on, electric cars are back”. Thus, the idea of electric vehicles is not new
Going by the history of automobile, around 1832, a British inventor, Robert Anderson, developed the first crude electric vehicle. It is said that the first electric vehicle was displayed by him at an industry conference in 1835 but it was not until the 1870s or later that electric cars became practical. Robert Anderson's vehicle used a disposable battery powered by crude oil to turn the wheels. Thomas Edison, one of the world’s most prolific inventors, thought electric vehicles were the superior technology and worked to build a better electric vehicle battery. Even Henry Ford, who was friends with Edison, partnered with Edison to explore options for a low-cost electric car in 1914.
Over time, following improvements in gasoline-powered cars, automakers began modifying some of their popular vehicle models into electric vehicles. This meant that electric vehicles now achieved speed and performance much closer to gasoline-powered vehicles, and many of them had a range of 60 miles. In the USA of the era, “with a booming economy, a growing middle class and low gas prices in the late 1990s, many consumers didn’t worry about fuel-efficient vehicles. Even though there wasn’t much public attention to electric vehicles at this time, behind the scenes, scientists and engineers -- supported by the Energy Department -- were working to improve electric vehicle technology, including batteries”, as reported by the country’s Energy Department.
On February 27, 1911 in Detroit, inventor Charles Kettering demonstrated his electric automobile starter on a Cadillac's motor with the press of a button. In 1912 Cadillac put the electric starter on its Model 30 1912 Cadillac and the new invention changed everything. However, the true revival of the electric vehicle didn’t happen until around the start of the 21st century. Specifically, in 1996, General Motors released the EV1 – the first mass-produced, purpose-built modern electric car from one of the industry's key players; it was released under a leasing programme, and just over 1,000 were produced, but the saga ended in controversy. It is pertinent to note that the patent for electric cars belongs to the first commercially viable EV effort, Philadelphians Pedro Salom and Henry G. Morris following their adaption of technology from battery-electric street cars and boats and got a patent in 1894. Going down memory lane on September 15, 2014, the spokesperson of the US Energy Department, Rebecca Matulka, recounted how:
It’s hard to pinpoint the invention of the electric car to one inventor or country. Instead it was a series of breakthroughs -- from the battery to the electric motor -- in the 1800s that led to the first electric vehicle on the road. In the early part of the century, innovators in Hungary, the Netherlands and the United States -- including a blacksmith from Vermont -- began toying with the concept of a battery-powered vehicle and created some of the first small-scale electric cars. And while Robert Anderson, a British inventor, developed the first crude electric carriage around this same time, it wasn’t until the second half of the 19th century that French and English inventors built some of the first practical electric cars.
A major event that helped reshape electric vehicles was the announcement in 2006 that a small Silicon Valley startup, Tesla Motors, would start producing a luxury electric sports car that could go more than 200 miles on a single charge; it should be remembered that one of the early problems of electric vehicles was where to charge them on the go. As we know, an all-electric vehicle is a vehicle that gets its energy for driving entirely from its battery and it must be plugged in to be recharged. EVs have a limited range and require charging stations to refuel. Indeed, the range anxiety is one of the biggest challenges faced by electric vehicle owners. The availability of charging stations varies widely, and some areas have limited or no charging infrastructure; on this, developing economies come to mind.
Put together, amid highly volatile and increasingly expensive gas prices, as well as a general concern over the catastrophic effects of climate change, electric cars are being widely adopted. Thus, it has been observed that “one of the next seismic shifts in technology” is the proliferation of EVs. Unlike gas-powered and hybrid cars, electric vehicles do not need engine oil; besides, electric engines generate much less friction than the other types of engines. The beauty of EV batteries is that they are a technology that is bound to improve over time, whereas crude oil is a finite resource (or regenerates too slowly), hence the growing popularity of EVs.
Market for electric vehicles on the rise
As Spencer Dale and Thomas D Smith-cited earlier rightly noted, “what was once the aspirational domain of one or two niche manufacturers has become a central element in the strategies of virtually all of the world’s major car manufacturers, with plans to produce ever-increasing ranges of electric vehicles (EVs) in order to meet ambitious sales targets”. In other words, the growth of the EV industry has been impressive. For example, as Gabriel Black recalled on World Socialist Website (wsws.org) platform on 26 May 2023: in just three years, between 2019 and 2022, global EV sales increased from 2 million to over 10 million units. The International Energy Agency (IEA) estimates that by 2030, EVs will compose 60 percent of all car sales in the combined area of China, Europe and the United States. The Agency predicts that the number of electric cars on the road could reach more than 300 million by 2030. In 2020, despite the COVID-19 pandemic's impact on the global economy, according to EV-volumes.com, EV sales continued to rise, reaching a record high of 3.24 million units.
The growth in EV sales is being driven by several factors, including the increasing availability of its affordability, improvements in battery technology, and government incentives to encourage EV adoption. In the submission of Rimmi Singhi on Yahoo Finance platform on April 12, 2023, 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. In 2022, the electric car market experienced exponential growth, with sales exceeding 10 million cars; the market is expected to continue its strong growth throughout 2023 and beyond, eventually coming to save a predicted 886,700 barrels of oil per day in 2025.
Global Electric Vehicle Market was valued at USD 193.55 Billion in 2022 and is projected to reach a value of USD 693.70 Billion by 2030 at a CAGR (Compound Annual Growth Rate) of 17.30% over the forecast period. China is the largest single market for EVs, and it's also becoming a significant exporter of same; today, more than half of all electric cars on the road worldwide are in China. Europe and the United States, the second and third largest markets, both saw strong growth with sales increasing 15% and 55% respectively in 2022.
The number one producer of electric vehicles in the world is Tesla, with a market capitalization of over $580 billion. There are various attributes that differentiate Tesla from other automakers, but the most notable is its supply chain, having adopted a vertical integration strategy- which means that the company is involved in every step of the production process, from the sourcing of raw materials to the assembly of the final product. By controlling the entire supply chain, Tesla is able to reduce costs and ensure quality control. Besides, as is the case for most automotive companies, the supply chain strategy of Tesla focuses on sourcing components and systems from single suppliers. Where multiple sources are available for specific vital components, Tesla works towards qualifying the multiple suppliers to minimize production risks due to supply disruptions. What a smart capitalist who we understand does not pay his workers adequately.
As concrete illustration, Work Happiness survey asked over 5,462 current and former employees whether they feel they are paid fairly for their work. Of the respondents, just 42% said that they strongly agreed or agreed that they are paid fairly. In its Editor’s Pick for January 25, 2020, Forbes Magazine, anchored by Erik Sherman, captioned its commentary on Tesla instructively as follows: “Tesla Touts ‘Middle-Skill’ Factory Jobs That Pay No More Than Trash Collection”. This is a company whose CEO, Elon Musk the genius, popularly referred to as the Techno King, albeit “a capricious billionaire with dictatorial and authoritarian inclinations” has a net wealth valued at $233 billion as of June 16, 2923 according to the Bloomberg Billionaire Index-thanks to Luc Olinga, who did the monitoring as shared on The Street platform.
At a more aggregated level on the fate of labour under the regime of EV production, a Boston Consulting Group (BCG) analysis of the European auto industry posits that about 930,000 existing auto manufacturing and supplier jobs will disappear with the introduction of EVS by 2030, but another 895,000 new jobs will be added. In other words according to BCG, the transition to EVs will basically be a net job loss, at least in the short run. Of course, this negative potential fallout from EV production does not apply to the typical underdeveloped economy where automobile making industry remains shamefully a literal virgin land such that if it comes to producing EVs, it would result in obvious net gain. But our emphasis here is on domestic production, unlike some otherwise patriotic counselling suggesting the massive importation of such vehicles by the respective tiers of government in Nigeria as part of any effort to alleviate the sufferings of the masses in the area of transportation. Any thinking along the line of deepening the nation’s dependency must be subjected to rigorous interrogation. In this vein, it must be appreciated that a modern nation’s ability to define its future rests largely on its technological capacity especially on decisions pertaining to the combination of labour and capital inputs in the production process. As long as a country imports wholesale production techniques from other countries, it is bound to import their associated downsides, including unemployment fallouts.
According to Protocol’s projection, globally, the ratio of electric cars to gas cars will gradually increase, such that by 2025, electric vehicle sales could comprise up to 20% of new car sales and by 2030, it could reach 40%; by 2040, electric vehicle sales could account for nearly all new car sales. As two analysts summed up the trend on the platform of the IEA in January 2022: “In the world of clean energy, few areas are as dynamic as the electric car market. In the whole of 2012, about 130 000 electric cars were sold worldwide; today, that many are sold in the space of a single week”.
As takeaway, the strongest points in favour of electric cars is that they are environmental friendly as they do not emit pollutants while at the same time lowering maintenance due to an efficient electric motor and better performance. But how does all this impact on the oil industry? This question featured in the work of Spencer Dale and Thomas D Smith where they averred that the emergence of EVs raises (at least) two big questions for the energy industry. First, just how quickly will EVs grow and penetrate the passenger vehicle market? Second, as they do, what implications will EVs have for the global energy system? The reader can easily see that their summary questions strike at the core of our theme.
Electric vehicles and oil
Under the consumer theory in economics, there is the substitution effect which tells us that if there is a drop in sales for a product, it can be due to buyers moving to cheaper alternatives as the price of the product increases, comparatively. As illustrative relevance to our theme, I refer to the 2021 work of Archi Arnob- School of Business and Economics State University of New York at Plattsburgh-on: “Effect of electric vehicle sales on the price of oil”, specifically the observation that, “there are new electric vehicles which are selling in the range of 30,000-40,000 USD. Whereas Tesla’s first vehicle was more than 100,000 USD, right now they are launching vehicles at 35,000 USD”. In this vein, there are empirical studies establishing a negative relationship between the retail gasoline price and sales of electric vehicles.
While EVs still account for a small share of global vehicle sales, they are poised to lead the transportation space in the coming years, because, logically, as the world moves towards the electrification of the transport sector, demand for oil will be replaced by the demand for electricity. Rimmi Singhi, in the April 12, 2023 piece, “Does the EV Revolution Pose a Serious Threat to the Oil Industry?” noted how the rise of EVs presents a threat to the oil industry as EVs do not require oil as their primary fuel source-citing informed sources, reported that:
Some industry watchers and economists view EVs as the arch nemesis 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.”
According to the International Energy Agency, transportation accounts for around 60% of global oil demand, and the rise of EVs could significantly reduce this demand. 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. Fully electric vehicles don't have an internal combustion engine, which means they don't rely on oil to cool, lubricate, or protect the engine. Tesla vehicles require no traditional oil changes, fuel filters, spark plug replacements or emission checks; even brake pad replacements are rare because regenerative braking returns energy to the battery, significantly reducing wear on the brakes.
The basic message to take from all the foregoing is that the EV revolution does present a threat to the oil industry, as it could lead to a decline in oil demand and prices. Indeed, the World Economic Forum has predicted that the EV revolution will eliminate the demand for 2 million barrels of oil a day by 2025. As a pointer, in many parts of the world, especially Asia and India, 2- and 3-wheeled bicycles, mopeds, scooters, and motorcycles have gone electric in a big way. The projection by World Wide Fund for Nature (WWF) is that by 2025, electric vehicles will be cheaper to own-leading to a 100% electric vehicles’ penetration rate in China by 2045. At this point, the work of Marianne Kah of the Center on Global Energy Policy, Columbia University, titled: “Electric Vehicles and their Impact on Oil Demand: Why Forecasts Differ”, published in July 2018, albeit with focus on passenger vehicles, registers for citation given its cautious, balanced offer, as it concludes after an extensive literature review that:
Miles driven by EVs versus conventional vehicles have a large impact on oil consumption. For example, if EVs are used only for short commutes and if conventional SUVs are used for most other miles driven, then EVs won’t reduce oil demand much. Alternatively, if EVs are used for a disproportionate amount of the miles traveled, then they will have a large impact on oil demand
Instructively, at the headquarters of global capitalism-the USA- oil groups are fighting in Congress to oppose tax credits for electric vehicles, pushing lawmakers to increase electric vehicle fees. Of course, the motivation for the lobbying push stems from an existential threat facing the global oil sector in the rise of the electric vehicle. What registers from all this is that the march of EVs is unstoppable but the total displacement of oil may happen somewhat slowly given the constraints to their sustainable operation in some regions of the world, especially Africa.
Lessons and options for Nigeria
As the American Energy Department acknowledged, it’s hard to tell where the future will take electric vehicles, but it’s clear they hold a lot of potential for creating a more sustainable future. Meanwhile, in order to produce the batteries for EVs, a significant quantity of lithium, nickel, cobalt and graphite are required, alongside several rare earth minerals and a host of other so-called “critical minerals.” In short, the rise in EV production entails a massive expansion in battery and thus critical mineral production. This helps to explain, as the New York Times is quoted by Gabriel Black on May 26, 2023, why U.S. officials have begun negotiating a series of agreements with other countries to expand America’s access to important minerals like lithium, cobalt, nickel and graphite.
An important consequence of the foregoing is the central feature of a growing scramble for critical minerals and the resurgence of inter-imperialist rivalries and conflicts. As noted in the cited piece above from wsws platform, the war in Ukraine plays a key role in the effort of the American ruling class to acquiring critical minerals. In particular, “the eastern expansion of the US-led NATO alliance has always had as its primary goal subduing or even breaking apart Russia, with a particular eye to controlling its natural resources”. In other words, the implications of the EV revolution and the new scramble for critical minerals are far-reaching. This points to the unwritten signal: mineral rich country, beware!!
Now we know that across proactive oil producing nations, 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. To be specific, in February 2023, BP PLC announced plans to invest $1 billion in EV charging stations across the United States by 2030. The good news as shared on the platform of Nairametrics through the pen of Omono Okonkwo, is that, in Nigeria, Oando Clean Energy Limited announced that it had taken delivery of some mass transit buses made by the world’s largest electric vehicle manufacturer, China-based Yutong. Both companies partnered to roll out over 12,000 electric buses over the next seven years in Lagos State, without doubt the basis for the triumphant declaration by the governor as highlighted in the opening paragraph of this piece.
More generally, as the world continues to shift towards sustainable energy sources, the oil industry's ability to adapt will determine its future success. The legitimate question is: how is Nigeria organising her house in a more formal and strategic way beyond the reported effort of Oando Plc and the lofty dream of a university Vice-Chancellor? The pertinence of our question is underscored by the reality of the African context as highlighted in the report that “Mordor Intelligence data suggests that Africa’s electric vehicle market was valued at $11.94 billion in 2021 and is projected to reach $21.39 billion by 2027. However, the market has constraints such as a lack of charging infrastructure, which may hamper the market growth”.
It is somewhat cheering that in May 2023, the Nigerian government adopted its National Automotive Industry Development Plan (NADIP) to increase local production of vehicles and promote electric vehicles-with a set target to reach 40% local content and 30% locally produced electric vehicles by 2033. However, informed analysts have pointed to specific challenges to the realization of the stated targets to include lack of electricity access, infrastructure, and public awareness about electric vehicles. Meanwhile, the Hyundai Kona is the first locally produced electric vehicle in Nigeria as displayed in Abuja on February 9, 2023, manufactured and assembled by Stallion Group. In reaction, the then Nigerian Minister of Industry, Trade and Investment, Otunba Niyi Adebayo, promptly congratulated Stallion Group and its subsidiary, Hyundai Nigeria for their novelty. Statista projects that the unit sales of electric cars in Nigeria will increase from 7.11% in 2022 to 9.61%, 13.10%, 17.78%, and 23.82% in 2023, 2024, 2025, and 2026 respectively.
For the purpose of comparison, not surprising, South Africa is ahead of Nigeria, as it has the most advanced e-mobility market in Africa, with about 1,000 electric vehicles (EVs) as of 2022. Moving to the Middle East, we see that Saudi Arabia plans to ensure that 30 percent of the vehicles on the roads of Riyadh are electric by 2030. In pursuit of this goal and wider economic diversification, The Kingdom plans to produce 150,000 EVs annually. As published in Arab News on November 27, 2022, offering a comprehensive nationwide charging infrastructure to precede the introduction of EVs in the Kingdom is taken as paramount. This strategic plan points to a proactive approach by that country, a score on which Nigeria has performed poorly, historically. Let us remind ourselves that, 3000 years ago Socrates said: "The secret to change is to focus all of your energy not on fighting the old but on building the new." I come in peace, please.
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