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Electric vehicle growth in China set to shrink oil demand

Staff Writer | December 12, 2016
A new WWF-Hong Kong report reveals that electric vehicles (EVs) will become a cost-competitive alternative to internal combustion engine-powered vehicles (ICE vehicles) by the mid-2020s.
Electric car China
Green cars   EV sales in China expected to double in 2016
This is set to have a huge impact on demand for oil, thus devaluing oil companies.

In view of this trend, WWF-Hong Kong believes that Asian institutional investors should take prompt action to establish a prudent carbon risk exposure policy, de-risk their oil and other fossil fuel-related assets in their investment portfolios, and hedge their risk where necessary.

This newly-published report, titled No Middle Road: The Growth of Electric Vehicles and their Impact on Oil, estimates that due to continued improvements in battery technology, the cost of EV batteries will drop and their performance will increase significantly.

As a result of these developments, EVs are expected to become cheaper to own and operate than ICE vehicles by the mid-2020s, and that their uptake will be rapid. Currently there are 1.3 million EVs in use around the world. One-fourth of these can be found in China.

With EV sales in China expected to double in 2016 to 700,000 units, the report forecasts that it will take between 10 and 20 years for EVs to reach 100 per cent penetration in China.

The report also estimates that by the late 2020s, the decline in the use of fossil fuels will lead to one million barrels of crude oil being displaced per day. This figure will further decline to between two and four million barrels per day by 2035 on the back of EV growth.

This can directly affect the valuation of oil companies, who currently have oil assets listed on their balance sheets that may never be realized and therefore will need to be written down.