By Deborah Lawrence
Prior to Tesla, when we thought of electric vehicles (EV’s) it often conjured up images of Jetson flying cars or funky looking contraptions that were really glorified golf carts. They were anomalies that might have made you smile when someone drove past. That is not the case anymore. Tesla took care of that once and for all. We now have a sexy, powerful automobile with zero emissions that will take your breath away the moment you touch the accelerator.
They also cost $100K and are clearly out of reach for most of us.
There is, however, an underlying current which is swelling and could potentially disrupt the transportation markets and thereby strand crude oil assets. No, we are not all going to get super wealthy and be able to buy a Tesla. Tesla will come to us. So will BMW…and Google.
A great deal of speculation is occurring at the moment about Google’s self drive car, the possibility of Apple entering the auto market and the fact that in August 2014 BMW sold more electric cars than Tesla. So why are all these large companies suddenly so interested in the electric vehicle market? It is really quite simple. Potential growth and thereby potential profit.
When speaking of wind or solar power, one is of course talking about electricity generation so we naturally think of coal or natural gas as competitors. But crude oil, because of its use as our primary transportation fuel, is also at risk.
Wind and solar are now cost competitive with both coal and nat gas in many parts of the world. Solar costs are expected to further drop by half in the next 18-24 months which will open solar up to significant market share. That means power generation costs will be cheapest if we use renewable energy which in turn makes hydrocarbons the high cost alternative. A notion which is mind boggling in itself.
And there’s more.
Electric vehicles (EV) are already cheaper to run than internal combustion engines. For instance, before the drop in crude prices, it cost about 15 cents/mile to drive a gasoline powered car as opposed to about 4 cents/mile for an EV. Now crude has plunged approximately 50%. Still it is cheaper to drive an EV. Further, while EV’s are expensive to build because of the currently high cost of the batteries, the costs here too are expected to fall precipitously over the next few years making an EV potentially cheaper than an internal combustion engine to build. And all of this is expected to occur in less than ten years.
And there is still more.
Tesla recently announced home batteries. This will allow us to store energy from our roof top solar panels for use later. But roof top solar combined with home batteries combined with EV’s means cheaper electricity, cheaper transportation and the ability to make each of our homes a virtual power station. All of these technologies feed off one another and make a symbiotic whole or what economists refer to as a virtuous circle.
According to UBS, a large European investment bank:
“Our proprietary model shows it is the combination of the three that makes solar fully competitive and that has the potential to bring disruptive changes to the electricity sector. Here are the maths: One can leverage the EV purchase with an investment in a solar system and a stationary battery. By doing so, one can optimise the self-consumption of solar power and minimise the “excess waste” of solar electricity…The combination of an EV + solar + battery should have a payback of 7-11 years, depending on the country-specific economics. In other words, based on a 20-year technical life of a solar system, a…buyer should receive 12 years of electricity for free (purchase in 2020).”
This model would, of course, be highly disruptive for crude oil used in transportation. And it is all based on simple economics that state it will be cheaper for all of us to use electricity to power our homes and power our cars. The added benefit is low to zero carbon emissions. Please note also that there has been no mention of climate change and draconian forced regulation. It is simply more cost effective for us to change. And again, both wind and solar and EV’s are already competitive with the status quo but none of the these new technologies have yet reached scale. Costs will plunge when they do making these scenarios even more likely and more competitive.