The Great Peril of the Electric Car

Contrary to what was often cited just five years ago, the stunning growth of the electric vehicle market is now irrefutable – or almost. In 2010, Jonathan Welsh wrote in the Wall Street Journal NOTE - This link will open in a new tab. that this market was often perceived as "quirky niche product which, while appealing to a few early adopters, will never gain broad acceptance in the mass market".

Dissonant opinions like this one are becoming increasingly rare, and if they come from credible sources, we must admit that the arguments put forward are, to say the least, rather unconvincing. The dizzying drop in battery prices – some Chinese retailers expect to cut their prices NOTE - This link will open in a new tab. by 30% to 40% in 2017 alone – makes the electric storage market very competitive. The so-called "Gigafactory", a joint venture between Tesla and Panasonic, opened its doors with much fanfare at the end of 2016 in Nevada, and will contribute to significant economies of scale.

While global sales have grown by 500% since 2012, the electric vehicle is gaining an important place in the field of urban mobility. This growth is far from reaching its full potential. In Norway, for example, where the state has strongly encouraged residents to make the leap to electric vehicles, these vehicles now account for more than 2% of the nation's fleet. And in 2015, a quarter of new vehicles sold in Norway NOTE - This link will open in a new tab. were electric. Globally, this ratio is already more than 1%.

Vox magazine examined the growth rate of this type of car and its impact on oil, automotive and energy markets. Although it is exceedingly difficult to accurately predict the level of penetration of this technology, the question is no longer whether the electric vehicle will prevail, but when. In its annual report, BP 2017 Energy Outlook NOTE - This link will open in a new tab., the British oil company predicts that electric vehicles will account for 6% of the global market by 2035. Others, such as Bloomberg NOTE - This link will open in a new tab., predict an incredible 35% of the global market by 2040.

Regardless of the scenario, a shift of only a few percentage points will drastically reduce aggregate demand for oil. This change will make certain deposits – including a significant part of Canadian deposits – too costly and thus unexploitable. Contrary to the "peak oil" theory, there would be a shock to demand that would eliminate a part of oil exploration.

The same holds true for auto manufacturers, some of whom are definitely behind in terms of developing technologies required for charging, propulsion and safety of electric vehicles. In the US, GM seems to have overtaken Tesla with the 2016 launch of the Chevrolet Bolt NOTE - This link will open in a new tab.. While the Tesla Model 3 NOTE - This link will open in a new tab. was slow to arrive on the market, the Bolt could very well become the best-selling electric car of 2017. Other American manufacturers, and especially German and Japanese manufacturers (which have placed major bets on hybrids and fuel cells NOTE - This link will open in a new tab.), may be completely out-classed if the trend continues.

Although this transition appears to affect many firms and large parts of the industrial economy (think specifically of parts manufacturers ...), it is energy companies that are likely to have the most large scale winners and losers. Public and semi-public companies such as Hydro-Quebec are well positioned to go along with this "electric revolution".

While the electric vehicle market has changed dramatically over the past five years, these changes have been imperceptible to economists who are interested in major macroeconomic transitions and investors who prefer secure stocks. It is a safe bet that if the observed growth rates continue for a few years, the electric vehicle will continue to be a topic of discussion and become a source of investment, both because of its contribution to a more energy-efficient and sustainable world and for its financial performance.

The author

Francis Gosselin

Francis Gosselin

President, FG8 Conseils