Highly optimistic forecasts of EV market penetration have drawn scrutiny in the past, so it’s worth considering, what, if anything, has changed in the market which will put Woodmac’s projections closer to reality.
Consultancy Wood Mackenzie made headlines this week with its outlook for electric vehicles, saying that they could slice gasoline demand by as much as 20 percent, or 2 million barrels per day, by 2035. With the growing popularity of models such as the Tesla Model 3, the Chevy Volt, and the Nissan Leaf, and other automakers planning to roll out more EVs in the coming years, this trend could significantly alter the global oil markets. Even in its less optimistic scenarios, Woodmac sees EVs cutting gasoline demand anywhere from 5-15 percent, or 350,000 b/d to 1 mbd.
However, highly optimistic forecasts of EV market penetration have drawn scrutiny in the past, so it’s worth considering, what, if anything, has changed in the market which will put Woodmac’s projections closer to reality. While the Model 3 could be a harbinger of things to come in the EV market, helping them move more into the mainstream, EVs currently represent less than 1 percent of total vehicles on the road in the U.S. Furthermore, the success of the Model 3 and others is occurring alongside a counter trend—low oil prices have undercut the urgency to transition to alternative vehicles and the full economic benefits of purchasing EVs. Any optimistic outlook on EVs should be taken with a grain of salt, given that past predictions have not come to fruition (see graphic below). That doesn’t necessarily mean Woodmac’s prediction won’t be realized, but rather for true mainstream adoption to occur, a confluence of factors is needed in terms of consumer education, fuel prices, vehicle choices, and political support.
With oil prices low and consumers concerned—rightly or wrongly—about higher sticker prices, battery performance and costs, charging infrastructure, and environmental impacts, it’s unlikely Woodmac’s forecast will come about unless government action is taken to increase EV penetration. As of now, there’s a $7,500 purchase tax credit for EVs in the U.S., but the credit only applies to the first 200,000 vehicles sold per manufacturer. Some states provide additional incentives in the form of state tax credits, infrastructure incentives, access to HOV lanes, and other sweeteners.
Government action needed
With gasoline consumption rising amid low prices and crude imports back on the rise, it’s important that alternative vehicles sources such as EVs start to gain traction.
Adjusting the federal tax credit can expedite adoption, help realize the economic and national security benefits of EVs sooner rather than later, and bring Woodmac’s projection closer to reality. Securing America’s Future Energy (SAFE)’s recently launched National Strategy for Energy Security recommends restructuring the federal tax incentive for EVs so that it removes the manufacturer cap, and then start to phase down beginning in 2021. Another step the government could take is reduce the value of the federal EV tax credit for vehicles over $40,000 while removing it completely for vehicles over $55,000. This could open the market for more consumers who would otherwise be turned off by the high price of EVs. The recommendations on their own won’t bring EVs into the mainstream, but can provide much-needed support.
With gasoline consumption rising amid low prices and crude imports back on the rise, it’s important that alternative vehicles sources such as EVs start to gain traction. It’s uncertain, however, when they’ll be widespread. Woodmac may be a bit too optimistic, as other forecasts have been in the past, but smart policy can make bullish projections a reality.