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In its report titled ‘Big Ideas 2023‘, ARK Invest forecasts a decline in global oil demand more pronounced than that of the International Energy Agency (IEA). In fact, the popular investment fund manager predicts up to a 30% drop in demand by as early as 2030. The primary reason? Electric Vehicles (EVs).
It should be noted that its lofty prediction of a 30% drop is predicated on the rise of not only EV's, but widespread use of autonomous ride-hailing services. Even so, without taking this ancillary industry in to account, EVs could still account for a 5% drop by 2030, and 10% drop by 2035.
Manufacturers and Innovators
Before we take a closer look at why a future decline in oil demand is expected, the following are a few companies which may be of interest to investors looking to capitalize on this trend. These are not recommendations for investing, but rather examples of companies directly involved in the transition from fossil fuels to more sustainable alternatives.
From healthcare, to automation, and energy solutions, Siemens AG is a massive technology company. Among its various divisions is its ‘Smart Infrastructure' segment, which is tasked with the development and deployment of new technologies meant to facilitate the worlds transition towards sustainable energy sources from fossil fuels.
Siemens AG was founded in 1847, and is based out of Bavaria, Germany. The company boasted revenue in 2022 totaling $71.98B, and has seen its shares (SIE) rise 12% on the year, at time of writing.
Beyond its more public facing products like consumer electronics, Panasonic boasts various divisions that focus on the R&D and manufacturing of technologies like EV batteries. In fact, Panasonic is a major manufacturer and supplier of the battery packs used in many Tesla vehicles. A true giant, Panasonic boasted revenue of $7.39T in 2022.
Panasonic Holdings Corp. is based out of Osaka, Japan, and employs over 240,000 globally.
Although Tesla may rely on third parties to actually manufacture its battery packs, the demands and needs of the company have single-handedly been responsible for much of the innovation within the EV sector over the past 20 years.
While 2022 saw a sharp decline in TSLA stock, the tides have turned, with 2023 marking an impressive turnaround of +60.42% YTD at time of writing. Despite a rough 2022, the company was still able to boast a revenue of $81.46B over this time.
Tesla is based out of Texas, United States.
EV Beats ICE – Why a Transition Away from Oil is Underway
The shift towards EVs over their Internal Combustion Engine (ICE) counterparts is already well underway. This is in large part due to advancements in technology that has allowed for the former to provide better performance, convenience (where infrastructure supports it), and reaching near parity on range. However, what are some other reasons for this that will result in such a major drop in oil consumption?
Accessibility to Sustainable Power Sources
Part of why EVs are on the rise is a concerted effort by many to promote and use sustainable energy sources. For the everyday consumer, the easiest and most obvious way of doing so it by migrating away from fossil fuels and towards electricity through use of EVs.
While much of the electricity we generate today still comes from sources like coal, major electricity service providers have been transitioning to relying on wind turbines, tidal power, hydroelectricity, etc. for years now. As this trend continues, global reliance on oil will continue to drop.
Autonomous Ride-Hailing Services
As stated, a shift towards EVs over their ICE counterparts is already well underway. Building on this is the potential for autonomous ride-hailing services. Such services stand to change the way we approach travel, and bring new efficiencies to the sector.
If correct, ARK Invest forecasts that the ‘capacity utilization' of autonomous vehicles “…could be 10x higher than that for personally-owned cars”. This adoption is set to take place as autonomous vehicles reduce the need for short flights, replace taxi services, and more.
Usage of fossil fuels by the end consumer is not the only area in which there are environmental concerns. From the moment such products are extracted from the Earth, they pose a danger – just look to major disasters like the BP oil spill in the Gulf of Mexico in 2010.
Furthermore, the vast majority of nations either do not have, or do not have access to fossil fuels. This results in vast quantities of such products being shipped around the world as nations import them for use. This is a costly, time consuming endeavour that only introduces more risk to the process.
With increasing accessibility of sustainable power sources, nations are beginning to decrease their reliance on fossil fuels, and tapping in to local energy supplies instead.
Even in developed nations rich in oil, like the United States and Canada, oil prices can fluctuate greatly. Whether this be due to a lack of refineries, diminishing reserves, or something else entirely, ICE users typically can not count on fuel prices maintaining within a certain range.
For one of the most egregious examples of this, just look to Atlantic Canada over the past year. In this region, it was routine to see Diesel prices fluctuate overnight by as much as $1.65 per Gallon ($0.6CAD per Litre). At its peak in 2022, Diesel reach as high as $7.45 per Gallon ($2.68CAD per Litre)
While those fueling up an ICE vehicle are at the whims of those who put a value on oil, EVs ‘fuel-up' at an electricity rate which in most regions rarely changes over short periods. This stability is yet another appeal of EVs playing a role in their increasing popularity, and our shift as society away from such reliance on fossil fuels.
Advancements in Material Sciences
Usage of fossil fuels goes well beyond just the automotive industry, and are widely used in the creation of plastics. While nations like the United States and Canada have moved away single use plastics, and towards alternative sources such as natural gas derived from fracking (which are arguably just as harmful to the environment), many nations still manufacture plastics through use of petroleum products.
Much like EVs, this transition away from our reliance on fossil fuels in plastics manufacturing is only increasing. The push towards plastic alternatives already occurring and set to only intensify in the coming years.
The bottom-line is that a shift away from oil is a must due to more than just the above reasons. There is a finite supply of oil available, and it is running out in the coming decades. Consider this, combined with an increasing amount of governments imposing pending restrictions on the manufacturing of ICE based vehicles, and all of a sudden predictions such as those being made by ARK Invest do not seem quite a lofty.