You probably saw the news articles in September reporting that China may lay out a timeline for automakers to end sales of fossil fuel vehicles, possibly by 2030 or 2040. This follows an announcement by the United Kingdom in July that it will ban sales of diesel and gasoline fueled cars by 2040, as well as similar pronouncements by other governments in Europe.
Why is this happening now? There are most likely several contributing factors, including the individual nations commitments to the Paris accord on climate change, strategic and political desires to reduce reliance on oil, and belief that the technology is available to facilitate the change. In the case of China, there are some additional driving forces such as the need to reduce serious pollution problems, as well as the desire (expressed in their Made in China 2025 strategy) to become self-sufficient in certain critical technologies and industries, including electric cars.
One may question the contribution to lower pollution that will ensue without changes to the fuel used for electric power generation; clearly that is a logical next step in the process. In general, the global trend can be seen away from use of coal for power generation and toward cleaner fuels such as natural gas, as well as renewables such as solar, hydroelectric and wind.
Why is Chinas pronouncement important to those of us in the lubricants industry in the United States? It signals an important shift in the global industry that is likely to have implications for original equipment manufacturers, base oil manufacturers, lubricant companies and additive companies. The pace of the change is hard to predict, but it perhaps will be faster than some had anticipated. China in particular, with its centrally planned economy, has the ability to implement change more rapidly than the free market economy in the U.S. Chinas position as the largest car market will make it the one to watch as its policies toward electrification get clearer over time.
The key impact of increasing the electric car share of the market will be reduced demand for gasoline and lubricants. However, there are other impacts that should be watched for, including:
Changes in the relative influence and market position of the various auto manufacturers. In particular, relative newcomers such as Tesla and Chinese company BYD should be monitored, as should the relative positions of the more traditional OEMs, all of which have plans in the electric or plug-in hybrid arena. It is conceivable that new partnerships or even consolidations may emerge.
Changes in focus for the OEMs as they turn more attention and resources to electric vehicles and growing markets in China and India. They will likely have to reduce investment in new combustion engines. Possibly, we could see reduced need for new passenger car motor oil specifications over time.
Shifting focus of oil companies over time, with more investments in natural gas for electric power generation or investments in green technologies such as carbon capture. Consolidation could occur over time. There could be higher scrutiny of investments and focus on efficiencies, including base oil manufacturing.
Changes in additive company planning for future investments in plant capacity and technology.
Of course, there remains a large parc of internal combustion automobiles that require lubricants. You can access in the public domain various projections for the possible penetration of electric vehicles by 2030. I have seen forecasts of as low as 4 percent and as high as 18 percent globally, and these scenarios would have very different impacts on all of the industry players. There is a heightened need to watch this space for more clarity on the timing and degree of government intervention and incentives, and the associated impacts on industry participants. Developments toward electric trucks should also be monitored. Cummins has introduced its Aeos electric heavy-duty truck, and Elon Musk intends to unveil Teslas electric semi-truck this fall.
There are some significant factors that could slow down the penetration of electric vehicles, such as:
Reduced government subsidies, incentives and investments in this space.
Delays in building up the necessary infrastructure for charging electric vehicles.
Insufficient power generation or distribution infrastructure to keep pace with demand.
Poor customer reaction to electric vehicles due to quality issues, insufficient range, cost, driving experience, inconvenience of charging, etc.
There are also some factors that could accelerate the move to electric, or facilitate its implementation. These include improved battery technology with lower costs, acceleration of the move to autonomous vehicles and customer demand.
When you do your next strategic planning exercise, it might be a good idea to think through a few long-term scenarios with different levels of penetration of electric cars. This type of scenario planning might lead you to investigate some new or out-of-the-box ideas that you might otherwise not even consider, such as the following:
Are there any options for investing in new services related to autonomous vehicles or electric vehicles?
Are there any facilities changes you may want to invest in early, such as creating more flexible or more cost-effective facilities?
Are there any changes you may want to consider related to longer-term investments in production or technology?
Are there any partnerships, mergers, divestments or alliances that should be considered?
The possible changes in our long-term landscape can be a threat, but they can also be an opportunity if you can get ahead of them and ahead of your competitors. Even if electric vehicles do have a significant impact on demand, they may open up new opportunities for profit growth.
Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. Email her at saralefcourt@gmail.com or phone (908) 400-5210.