Car-sharing industry to sink oil sector?

 By Chris Dalby

The oil industry is being progressively phased out in many areas. But the rise of one sector has taken such a scale that it is giving the oil industry extra lease of life…

The car-sharing phenomenon has exploded from the U.S. to China, with IHS Markit expecting it to be a trillion-dollar-industry by 2040, especially in regions in India and Africa, where mobility has traditionally put a crimp on economic development.

Car-sharing’s electric boom

China, as a leader in the sharing economy, is giving a huge boost to electric cars. Uber rival Didi Chuxing has helped develop the country’s recharge station network, building its own stations, with China now having 234,000 electric cars, as opposed to 140,000 units in the U.S.
However, oil remains the net beneficiary. With transportation accounting for 55 percent of oil use, the explosion of ride-sharing has put it in good stead. While an argument can be made that people relying on car-sharing will not buy their own vehicles, the total number of trips is far higher. Through smartphones, customers are increasing the miles travelled and the oil consumed.

Uber rival Didi Chuxing has helped develop China's recharge station network, building its own stations (iphonedigital, Flickr)

Another advantage for the oil industry is that the awaited tipping point toward electric vehicles appears to yet be far off. While a number of car companies are pledging to make all their vehicles electric or hybrid, it is no secret that Tesla, for all its trailblazing PR and association with other innovations such as power storage, has not yet turned a profit. In October, it fell far short of its Tesla 3 model production for 2017, only producing 260 of a planned minimum of 1,600 by September. While this is not necessarily critical time yet for the groundbreaking automaker, it does hint at the realities of why the electric car market is not threatening oil just yet, even with car-sharing.

Electric cars not yet sustainable

While renewable energy has seen price drops and mass adoption progressively wean it off government incentives, electric cars have not followed suit. Tax breaks for electric car manufacturers and incentives for customers to buy them remain absolutely critical. The country is very generous to those buying electric cars, removing all purchase tax and VAT on such a purchase, giving companies a 50 percent discount when adding electric cars to their fleet, and significantly slashing the road tax as opposed to petrol vehicles.
But as Norway begins to mull reducing such subsidies, neighboring Denmark provides a sobering reminder of what happens when the electric car market is no longer propped up. Until 2016, Denmark had spared electric vehicles its very high 180 percent import tax on petrol vehicles. However, once it removed these favorable terms, the market plummeted. In the first quarter of 2017, electric car sales had fallen by 60.5 percent year-on-year. This suggests that while some car owners are moved to make an environmental gesture by buying an electric vehicle, most are still motivated by a far more common motive when choosing a ride: their wallets.

In October, Tesla 3 model production for 2017 fell far short, only producing 260 of a planned minimum of 1,600 by September (Steve Jurvetson, Flickr)

Peak oil finally reached?

Peak oil has been in turn a promise for environmental activists, a bogeyman for oil executives and a fantasy for economists. As new discoveries push the date of peak oil further and further back, there remains speculation that car-sharing and the arrival of autonomous vehicles could actually accelerate its arrival. A different IHS Markit study, “Reinventing the Wheel” found that an increase in driverless vehicles, coupled with the ride-sharing craze, could bring about a peak in global oil consumption.
Among the top forces shaping the future of the car industry, IHS Markit finds that “driverless technology is the major disruptive force because it can lower mobility costs, increase access to mobility, reduce road deaths and injuries, and amplify the impact of electric vehicles.” This might seem counter-intuitive since this would surely reduce the total number of cars on the road. However, the study found that this combination would open car-riding to segments of the population with limited access to such transportation options, including the elderly, the disabled and those living remotely. As a consequence, the total amount of miles driven could skyrocket. Jon LeSage, a journalist at OilPrice, finds that “access to affordable, versatile mobility options — all at the touch of a smartphone — could mean substantial growth in… the volume of petroleum needed to make it happen. Electric cars would have to grow by leaps and bounds to have any real impact on the future of gasoline and diesel consumption in key global markets.”

China to the rescue?

The future of mobility services will largely be determined by China, with 28 million new vehicles set to have been sold there last year as opposed to 17.1 million in the U.S., the first fall since the Great Recession.
This reveals the differing views of driving in both countries. In the U.S., driving retains much of its appeal, much of the country’s image appealing to hitting the open road behind the wheel of your own car. In 2017, McKinsey found that 67 percent of Americans prefer driving their own cars over ride-sharing options, and 63 percent would not trade their vehicles for a ride-sharing option, even if the latter were free of charge.
Ride-sharing companies are openly trying to encourage a switch to electric. Uber has launched a major campaign to get drivers to shift to electric, through its Xchange Leasing subsidiary. Didi Chuxing also has a partnership with NEVS, a Swedish firm building an electric car factory in Tianjin, China.
However, the earlier point stands. In markets where the government is willing to spend years artificially disrupting competition like Norway, the adoption of electric vehicles can be precipitated. Even China is spending $15,000 on each electric vehicle purchased to lower its price.
In most markets, on the other hand, where the entry of driverless and electric vehicles will be slower, either by love of traditional driving or because of lack of access, oil seems likely to remain undisturbed for quite some time. Driverless vehicles are on the ascendancy. A reckoning is nigh for the oil industry. But not yet.

READ MORE: Is the death of the diesel car imminent? by Mike Scott

about the author
Chris Dalby