McKerracher: BP’s Energy Outlook and the Rising Consensus on EV Adoption

By Colin McKerracher
Strategic Lead for Transport 
Bloomberg New Energy Finance

BP’s 2018 Energy Outlook, published this week, is a thoughtful look at how the world will produce and consume energy over the next 20 years. These big integrated exercises are difficult. They require extensive modelling, industry knowledge, collaboration and invariably some late nights as the deadline approaches – at Bloomberg New Energy Finance we publish an annual New Energy Outlook and Electric Vehicle Outlook. The contrasts and similarities between such long-term outlooks can be enlightening.

My team at BNEF looks very closely at electric vehicle technologies and markets, and BP did as well this year in a section that runs to 10 pages. This is pretty remarkable for something that wasn’t even in oil company outlooks just a few years ago, and shows just how fast the technology is moving. BP walks through several different scenarios. Their main one – called ‘Evolving Transition’ – sees the total number of EVs on the road rising to more than 300 million by 2040, from around 3 million today.

By comparison, BNEF’s EV Outlook sees over 530 million EVs on the road in 2040.  BP’s EV adoption forecasts have increased over time and indeed, so have ours:

How Electric Vehicle Fleet Size Forecasts Have Changed Over Time

Source: Bloomberg New Energy Finance, BP, Exxon, OPEC, IEA.

Like us, BP sees EVs becoming the vehicle of choice for shared rides and autonomous driving. So even though the company expects EVs to represent only about 15% of the vehicle fleet in 2040, it expects them to account for closer to 30% of all passenger kilometers driven. BP forecasts a lesser role for EVs in trucking but still has them accounting for 15% of all kilometers driven by 2040.

So what explains our different view on EV adoption?

  • We see battery prices falling further and faster than most forecasters. Battery prices have dropped 79% since 2010, and we’re expecting cost parity between internal combustion engines and electric vehicles in the latter half of the 2020s. This also means pure electrics dominate our EV forecast, while BP expects plug-in hybrids and pure electrics to take a roughly equal share.
  • BP sees very dramatic improvements in average internal combustion engine efficiency, equivalent to a gain of about 2-3% per year – well above the historical average. We also expect ICE vehicles to get much more efficient during this period, but we see the escalating costs of delivering these improvements driving more automakers toward adding plugs to their cars instead. In our view, the R&D pie is limited, and automakers are more likely to chase growing segments than throw money after declining ones once the trajectory becomes clear.
  • BP also sees a much bigger global vehicle fleet in 2040. They see 2 billion vehicles on the road versus BNEF’s expectation for 1.6 billion, compared with about 1 billion today. We think sharing and autonomy cut deeper into the growth forecasts, and that congestion becomes a real limiting factor. This also means we see EVs reaching 15% of the global fleet in the early 2030s instead of BP’s 2040 forecast.

Ultimately though, we agree on more than we disagree. Like us, BP now expects some mass adoption of EVs and sees a growing role for sharing and autonomy. Like BP, we don’t expect autonomous driving to have a meaningful impact on global energy markets until after 2030.

BP is right to point out that these transitions take time. The global vehicle fleet turns over slowly and certainly in the next 10 years, fuel economy regulations are likely to have a bigger impact than EVs on overall energy demand. There are definitely positive signs, but decarbonizing transport in a meaningful timeframe is still a herculean task. Policy makers will have to push hard if they want to accelerate the timelines.

Over the next year, we will see many more corporate announcements and initiatives on electric trucks and commercial vehicles. BP sees energy demand from this segment growing strongly out to 2040, and my sense is that this is where the real battleground will be.  Today, electric buses already use a similar volume of batteries as all passenger electric vehicles globally, and groups like Daimler – the world’s largest truckmaker – are investing heavily in electrified options. This segment might take longer to get going, but it will move quickly towards zero-emission technologies once it does.

BNEF clients can see both the full New Energy Outlook 2017 report on the Terminal or web and the Electric Vehicle Outlook 2017 on the Terminal or web. If you would like to learn more about becoming a client, please contact us.

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