Big Oil and how elec­tric cars can cre­ate the big­gest dis­rup­tion since iphone

The rise of Tesla and ri­vals could be turbo-charged by par­al­lel ser­vices

The East African - - OUTLOOK - A JOINT RE­PORT Bloomberg

It’s 10 years since Ap­ple un­leashed a surge of in­no­va­tion that up­ended the mo­bile phone in­dus­try. Elec­tric cars, with a lit­tle help from ride-hail­ing and self-driv­ing tech­nol­ogy, could be about to pull the same trick on Big Oil.

The rise of Tesla and its ri­vals could be turbo-charged by com­ple­men­tary ser­vices from Uber Tech­nolo­gies and Al­pha­bet Inc’s Waymo unit, just as the iphone rode the app econ­omy and fast mo­bile In­ter­net to dec­i­mate mo­bile phone giants like Nokia.

The cul­mi­na­tion of th­ese tech­nolo­gies — au­ton­o­mous elec­tric cars avail­able on de­mand — could trans­form how peo­ple travel and con­found pre­dic­tions that bat­tery-pow­ered ve­hi­cles will have a lim­ited im­pact on oil de­mand in the com­ing decades.

“Elec­tric cars on their own may not add up to much,” David Ey­ton, head of tech­nol­ogy at Lon­don-based oil gi­ant BP, said. “But when you add in car shar­ing, ride pool­ing, the num­bers can get sig­nif­i­cantly greater.”

Most fore­cast­ers see the shift away from oil in trans­porta­tion as an in­cre­men­tal process guided by slow im­prove­ments in the cost and ca­pac­ity of bat­ter­ies and pro­gres­sive tightening of emis­sions stan­dards. But big eco­nomic shifts are rarely that straight­for­ward, said Tim Har­ford, the econ­o­mist be­hind a book and BBC ra- se­ries on his­toric in­no­va­tions that dis­rupted the econ­omy.

Rather than elec­tric mo­tors grad­u­ally re­plac­ing in­ter­nal com­bus­tion en­gines within the ex­ist­ing model, there’s prob­a­bly go­ing to be “some de­gree of sys­temic change,” he said.

That’s what hap­pened 10 years ago. The iphone didn’t just of­fer peo­ple a new way to make phone calls; it cre­ated an en­tirely new econ­omy for multi­bil­lion-dol­lar com­pa­nies like An­gry Birds maker Rovio En­ter­tain­ment or What­sapp. The fun­da­men­tal na­ture of the mo­bile phone busi­ness changed and in­cum­bents like Nokia and Black­berry were re­placed by Ap­ple and mak­ers of An­droid hand­sets like Sam­sung.

One key ad­van­tage of elec­tric cars is the lack of me­chan­i­cal com­plex­ity, which makes them more suit­able for the heavy use al­lowed by driver­less tech­nol­ogy, Francesco Starace, chief ex­ec­u­tive of­fi­cer of Enel, Italy’s largest util­ity, said in an in­ter­view.

Af­ter dis­as­sem­bling Gen­eral Mo­tors’s Chevro­let Bolt, UBS Group con­cluded it re­quired al­most no main­te­nance, with the elec­tric mo­tor hav­ing just three mov­ing parts com­pared with 133 in a four-cylin­der in­ter­nal com­bus­tion en­gine.

“Com­pet­i­tive­ness very much de­pends on the util­i­sa­tion of the car,” Las­zlo Varro, chief econ­o­mist at the In­ter­na­tional En­ergy Agency, said. The av­er­age Uber ve­hi­cle cov­ers a third more dis­tance than the typ­i­cal mid­dle­class fam­ily car in Europe, am­pli­fy­ing the ben­e­fit of lower run­ning costs to the point that “the oil price at which it makes sense to switch to elec­tric is $30 per bar­rel lower,” he said.

The to­tal cost of own­er­ship of elec­tric and oil-fu­elled ve­hi­cles will reach par­ity in 2020 for shared-mo­bil­ity fleets, five years ear­lier than for in­di­vid­u­ally-owned ve­hi­cles, ac­cord­ing to Bloomberg New En­ergy Fi­nance (BNEF). Al­ready in Lon­don, Uber plans for its Uberx ser­vice to be hy­brid or fully elec­tric by the end of 2019. Its ri­val Lyft aims to pro­vide at least one bil­lion rides a year in au­ton­o­mous elec­tric ve­hidio cles by 2025, say­ing they can be used much more ef­fi­ciently than gaso­line-pow­ered cars.

This com­bi­na­tion would be “the Uber model on steroids,” Steven Martin, chief dig­i­tal of­fi­cer and vice pres­i­dent of Gen­eral Elec­tric Co’s En­ergy Con­nec­tions unit, said in an in­ter­view.

The tran­si­tion to fully au­ton­o­mous fleets may not match the speed of the smart­phone rev­o­lu­tion be­cause of the many reg­u­la­tory, le­gal, eth­i­cal and be­havioural hur­dles. Self-driv­ing tech­nol­ogy should be­come avail­able in the 2020s, but won’t be widely adopted un­til 2030, BNEF says.

Even so, the shift to elec­tric cars could dis­place about eight mil­lion bar­rels a day of oil de­mand by 2040, more than the seven mil­lion bar­rels a day Saudi Ara­bia ex­ports to­day, the Lon­don-based re­searcher says. That could have a sig­nif­i­cant im­pact on oil prices.

Even if elec­tric ve­hi­cles do grow as rapidly as BNEF fore­casts, the world cur­rently con­sumes 95 mil­lion bar­rels a day and other sources of de­mand will keep grow­ing, said Spencer Dale, BP’S chief econ­o­mist. The Lon­don-based en­ergy gi­ant ex­pects bat­tery-pow­ered cars to re­duce oil de­mand by just one mil­lion bar­rels a day by 2035, while also ac­knowl­edg­ing the po­ten­tial for a much larger im­pact if the in­dus­try has an iphone mo­ment.

The sheer breadth of the po­ten­tial dis­rup­tion makes it hard to pre­dict what will hap­pen. When Steve Jobs un­veiled the iphone, few peo­ple an­tic­i­pated that it meant trou­ble for mak­ers of ev­ery­thing from cam­eras to chew­ing gum.

“The smart­phone and its apps made new busi­ness mod­els pos­si­ble,” said Tony Seba, a Stan­ford Univer­sity econ­o­mist and one of the founders of the think tank Re­thinkx. “The mix of shar­ing, elec­tric and driver­less cars could dis­rupt ev­ery­thing from park­ing to in­sur­ance, oil de­mand and re­tail.” By Jes­sica Shankle­man and Hay­ley War­ren

The shift to elec­tric cars could dis­place about eight mil­lion bar­rels a day of oil de­mand by 2040.” Bloomberg New En­ergy Fi­nance

Pic­ture: AFP

The Tesla show­room at El Corte In­gles store in Lis­bon, Por­tu­gal.

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