Author: EIC | Economic Intelligence CenterPublished in Bangkok Post/Asia In Depth: Asia Focus section, 3 October 2016
In 2015, the number of Electric Vehicles  (EVs) on the world’s roads passed the one million threshold for the first time in history. Although still small, the EV market is growing exponentially at present. Annual new EV registrations grew from almost nothing in 2003 to around 550,000 vehicles in 2015. Major supporting factors can be attributed to environmentally-friendly trends to reduce air pollution, the desire to curb reliance on fossil fuel consumption, the rapid development of EV infrastructure, and the advancement of EV battery technology, which has helped cut the cost of batteries by 65% over the past five years.
From a consumer’s perspective, EVs consume far less energy than gasoline-powered cars and generally cost about a third to run. Electricity prices are also more stable than gasoline prices, and EVs often have lower maintenance costs. Moreover, EVs operate quietly and many models are now a pleasure to drive. If the number of gasoline-powered cars in use keeps declining, the impact on the global oil industry will be inevitable. But will it impact Thailand?
To be sure, so far only a handful of countries have substantially adopted the use of EVs. The most notable examples include the US and some European countries such as Norway and the Netherlands. Thailand, on the other hand, has registered only about 100 EVs so far, a mere 0.001% of the total number of motor vehicles in the country. EVs therefore will not negatively affect the domestic oil sector in the short to medium term.
However, from a regional perspective, it is worth noting that China and Japan are the top two countries in Asia in terms of EV use. Both countries also happen to be key oil importers. The issue is whether this will impact the oil sector in Thailand and other ASEAN countries that have been exporting oil to China and Japan.
With China and Japan only able to produce about 39% and 0.3% of their domestic oil demand, respectively, EVs are considered a disruptive technology to address the oil issue. In 2015 China surpassed the US as the biggest EV market in the world. There were around 200,000 EV registrations in China during the year, making the total EV stock around 310,000 units, or approximately a 1% of the market in the country. Japan has the second biggest EV market in Asia, with an EV stock of 130,000 units, or 0.6% of the market.
These two markets in Asia are heavily supported by their governments’ policies. The governments of both countries employ different measures to incentivize the use of EVs, including a subsidy of up to 25% of the sale price, free license plates for EVs (a plate for a gasoline-powered car can cost up to USD 12,000 in Shanghai) and free parking spaces. Moreover, the governments are also pushing for more charging stations and extending them across highways and local roads and in smaller cities. The latest figures from June 2016 report that there are now 85,000 charging stations in China, a 65% increase compared to 2015, and the number of EV charging stations has outgrown the number of petrol stations in Japan.
EIC believes that all the key factors, including technological advancement, climate-change mandates, and EV purchase incentives, will help enhance the continuous high growth of the EV markets in China and Japan. Assuming 50% annual sales growth, EIC projects that EV sales in the two countries will reach 1.8 million in 2020, bringing the combined EV stock to 5 million. This would reduce oil consumption by 400,000 barrels per day, or about 3% of total oil consumption in the two countries, which will increasingly put pressure on the oil industry as EVs gain market share.
Yet, EVs are not an absolute oil killer. In the long run, EIC believes that oil consumption will still dominate especially for long-haul transport, which exceeds EV battery range and for which finding charging stations would prove too troublesome. Major players in the oil sector don’t seem too concerned with the growth of EV markets, with BP projecting that EVs will make almost no difference to the transportation sector until beyond 2035, while OPEC maintains that EVs will make up just 1% of global cars in 2040.
In fact, declining oil prices have posed a threat to the widespread adoption of EVs. Gasoline prices are one of the major factors influencing consumer decisions on whether to buy a gasoline-powered vehicle or an EV. Considering that total U.S. car sales hit a 15-year record of 17.5 million vehicles last year as cheap gasoline lifted auto demand, the number of EVs as a percentage of cars sold actually fell. In Asia, new EV registrations jumped by 183% in China last year amid low gasoline prices. This, however, was still lower than annual growth of over 200% in 2013-2014 when gasoline prices were still high. Likewise, new EV registrations in Japan contracted by 24% last year, compared to annual growth of 15% in 2013-2014.
Nevertheless, the rise of EVs in Asia will have some negative impacts on ASEAN countries as crude oil and petroleum products exporters. Growth of EV sales in China and Japan stemming from such supporting factors as more affordable EV prices, a larger selection of models, and improved performance, as well as the increasing number and location of charging stations, would slow down the two countries’ oil demands. This is especially true for China, which has set a policy to reduce oil imports and eventually become an energy self-sufficient country. As such, the Chinese economy’s oil demand has decelerated from 9% growth in 2010 to only 3% in 2016. For Japan, oil demand is projected to actually contract by 3% in 2016. This is partly due to the slowdown of the economies of the two countries, which will negatively impact ASEAN countries, namely Indonesia as a main crude oil exporter and Thailand, Singapore, and Malaysia as petroleum product exporters to China and Japan.
Thailand has a refinery capacity of around 1.3 million barrels per day, which is enough to cover domestic demand and export. China is Thailand’s main petroleum products importer, accounting for 11% of Thailand’s total petroleum products exports in 2015. The share however has decreased from 15% in 2013. As a result, Thai oil companies have to expand their export markets to new destinations, such as the CLMV countries, which are projected to see oil demand growing 15% annually between 2016 and 2020. Moreover, import duties on gasoline from ASEAN countries will potentially be removed from 2018 onwards.
While EVs might pose a threat to the oil industry, it will open up business opportunities for other industries in the energy sector, including investments in power plants, EV charging stations, and battery enhancement, corresponding with the growing EV markets in China and Japan. The increasing demand to charge EVs will offer investment opportunities in developing quick charging stations and power plants, particularly solar power plants in China, or solar rooftop technology in Japan. Nevertheless, investors need to be cost efficient as the two countries already have competitive bidding schemes in place. As automakers expand their EV lineups, opportunities to become EV battery cell and module manufacturers and exporters are also present, but this requires innovative R&D to produce high-quality, long-lasting, and ultra fast-charging batteries.
No matter how fast or slow the EV boom arrives, electric cars are becoming increasingly common. They are here to stay. Past examples like Kodak or Nokia help remind us not to resist change, but instead embrace it, adapt to new trends, and always look out for business opportunities that may come in any shape or size.  EVs in this article are limited to battery and plug-in hybrid electric vehicles