This is the second in a series of columns exploring the potential impact of electric vehicles on oil consumption.
Imagine if we woke up tomorrow and read the headline, “GLOBAL PACT: ALL COUNTRIES AGREE TO BAN THE SALE OF INTERNAL COMBUSTION ENGINES.”
And then imagine that we wake up in 2040 and learn that every country actually kept to their promise. In 23 years all new vehicle sales—everywhere—would be electrically-powered.
I call this scenario “GB40” – a global ban on the sales of internal combustion engine (ICE) vehicles by the year 2040.
For reference, the GB40 market penetration of electric vehicles (EVs) would exceed the projections of even the most aggressive analyst forecasts today.
Yet, GB40 is an interesting thought experiment. I always like to think about the future at the margins of realism and work my analysis up or down from there. Stress-testing extremes, like a universal ban, helps to understand the assumptions needed to project the future. And more importantly question the assumptions behind the assumptions.
Why Do We Need to Ban the Internal Combustion Engine?
Why are countries like Norway, UK, France, India and China announcing plans to ban ICE vehicles?
Of course, there is the pressing matter of arresting green-house gas (GHG) emissions from a billion tail pipes. So, one reason is to accelerate the development of the nascent EV industry.
But the other reason says much about consumer decision-making. In the absence of government regulation, would a car buyer choose an entrenched mode of transport (the ICE vehicle), or a radical new mode (even assuming that future EVs achieve lower costs)?
For fun, let’s go back in time and think about the choice between a Model T Ford and a horse-and-buggy.
To be honest, I’m getting a little tired of all the horse-and-buggy analogies. You may be familiar with the narratives I’m talking about. Imagine a photo of a New York street in the early 1900s, jammed with horses and buggies, clippety-clopping through manure. Click: The next photo, less than 10 years later, is the same street jammed with Ford Model Ts and early Chevrolets. Like a Where’s Waldo game, we are then challenged to find the lone horse.
On the surface, it’s a compelling analogy. Everyone understands the parallel: Ford clobbered the horse industry, therefore Tesla and the emerging EV industry will easily put pistons into a museum. Then the impact ripples upstream and puts everyone operating a pump-jack out of business too.
I get it. Yet there is something bothersome here: Nobody banned the horse-and-buggy back in the early 1900s.
If EVs are expected to be so compelling, why do we need to ban the ICE? Like tossing a slide rule, aggressive substitution should just happen.
What the Ford Replaced
A century ago people readily bought Ford’s miracle product without government intervention. To understand why sales were so rapid, I went to my personal collection of vintage magazines and pulled out a copy of Ford Times, published in April 1914.
Ford Times was a house-organ publication that shilled the virtues of owning, not surprisingly, a Ford automobile. Back then the rage was the now-iconic Model T.
Promotional pull quotes like “Play it safe—buy a Ford” or “Less than a two-cent stamp is the cost per mile of Ford travel” were splashed throughout the 45-page monthly volume.
My attention was caught by a corny, pencil-drawn cartoon. A dilapidated stage coach with bent, rickety, wooden wheels is being pulled by a team of two geriatric horses. The somewhat smug caption underneath firmly says, this is “What the Ford replaced.”
Source: Ford Times, Canadian Edition, April 1914, No. 9, Vol. 1.
Details in the accompanying story inform a potential Ford buyer that a 20-horsepower Model T can beat a stagecoach on any dimension of utility: Range, speed, durability, power, comfort and so on. The contrast wasn’t narrow. A Model T was 20 times more powerful and it could do it all at a much lower cost. Of course people and coach operators were going to buy a Ford instead of a horse and buggy!
What the Tesla Replaced
Fast forward to today and tomorrow. Will an EV be 20 times better than an ICE vehicle?
As a Tesla owner, I’m a champion that extols its virtues. I also know that EVs will get better and cheaper over time. But will they become multiple times better than an ICE vehicle, on every dimension of utility, for every class of vehicle, in the simple task of taking passengers from A to B?
For example, will the utility contrast between a Chevy Bolt and a Honda Fit in 2022 be as dramatic as between a Model T and two nags pulling a wooden carriage?
I’ll leave that question open to debate. But if the answer has any hint of “no,” then we can understand why countries are starting to ban the ICE. It’s because a significant number of car buyers may be reticent to switch to a new product that might not be sufficiently differentiated in utility and cost to justify change.
Which brings me back to the GB40 scenario. It’s a short, 23 year, worldwide vehicle penetration scenario that’s far faster than Fords and Chevrolets over horses. Note that cities like New York were lead adopters of cars over horses. Yet by the time the rest of the world had adopted cars to 90% penetration, 80 years had gone by. In other words, “peak horse” took a lot longer in other regions.
GB40 by the Numbers
What does the pattern of a GB40 market penetration look like? What do other scenarios look like? What will be the influences of things like autonomous vehicles, ride sharing, distributed power generation and so on? And finally, how will it all affect future oil demand?
I’ll take you through the assumptions and the numbers over the course of this series.
Spoiler Alert: You may be surprised to learn that more EV sales do not directly equate to less oil usage in transportation. Peak oil demand has more to do with how many ICE vehicles accumulate and remain in the global fleet, and less to do with how many new EVs are brought in.
To be continued next week…