When I bought ExxonMobil I agreed to address electric cars and the long term need for fossil fuels. Throughout this blog we discuss buying “forever” companies. Essentially, how will the widespread adoption of electric cars affect global oil demand? After all, fuel for the internal combustion engine accounts for the majority of oil usage. And XOM has had a stellar track record in this area. However, given these concerns, are companies like XOM really what we refer to as “forever” stocks?
There are a wide variety of studies online. Here is a good one from BP. According to this study, the number of electric cars will rise from 1.2 million today to around 100 million by 2035. This is a steep increase but only accounts for 6% of the global fleet. They then explain how infrastructure development and an expanding middle class in emerging markets will cause oil demand to rise. The global car fleet is expected to go from 900 million today to 1.8 billion by 2035. This makes sense considering the rapid growth in places like India and China. As their economies expand so will their need for energy!
In addition, there’s a chance electric cars won’t be all that necessary. First off, the infrastructure and costs related to building charging stations remain high. Second, traditional vehicles are expected to become more and more fuel efficient. Even the 6% electric car figure in the study includes hybrid vehicles; running on a mix of both electric power and oil. Finally, there are already concerns about a lithium shortage. Lithium is a core component of electric batteries and there aren’t nearly enough mines. Even worse, battery production and disposal are causes for concern. These batteries could be even more detrimental to the environment than fossil fuel emissions.
Electric cars are a cool concept, never needing to hit up a gas station. The problem is they are simply impractical. As mentioned earlier, traditional vehicles will become much more fuel efficient. Others will be hybrids of some sort. Also, the infrastructure isn’t nearly there yet. We don’t have enough lithium mines and charging stations are nowhere to be found. And of course there are climate and environmental concerns surrounding lithium batteries. These factors will dampen demand for the less cost effective fully-electric vehicle. At the same time, the middle class will expand dramatically in emerging economies. Overall, oil demand is expected to rise and companies like XOM have seemingly bright futures.
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