by Doug Chambers, B.A.Sc., P.Eng., MBA, CIM Director, Branch Manager, Portfolio Manager
and Kwame Boateng, CFA Associate Portfolio Manager, Investment Associate at Odlum Brown Limited
It suddenly feels like electric vehicles are everywhere. Rather than rushing to sell every oil company and buy lithium, we think it’s important to reject “conventional wisdom” and think analytically about the implications should electric vehicles become mainstream.
By the end of 2016, there were an estimated two million electric vehicles worldwide, roughly 0.2% of the vehicle population. More importantly, consumers purchased about 760,000 electric vehicles in 2016, equivalent to just 3% of new cars. Most of these cars were sold in China, where electric vehicle prices have fallen below US$20,000 and government has prioritized their adoption, but many European nations have similarly begun setting aggressive targets for complete elimination of new combustion-engine cars. Major automakers have announced new electric and hybrid models over the next several years, while outsiders like Dyson have also invested heavily in electric vehicle platforms.
Electric vehicles will likely gain market share as new models become available, but it will take many years to impact overall oil consumption. Vehicles last a long time between replacement intervals. Commercial vehicles, which consume more fuel, appear likely to lag passenger cars in the transition to electric. Furthermore, transportation accounts for just 40% of current oil consumption. All of this suggests that oil consumption is unlikely to be facing imminent collapse.
The shift to electric vehicles will, however, have more profound impacts on other sectors. Demand for battery commodities like nickel and cobalt would be expected to soar, while component demand for fuel injectors, exhaust systems, engines and radiators will likely be eroded. It remains unclear whether incumbent automakers will succumb to upstarts or dominate the new electric platforms.
While identifying investment risks and opportunities is important, there are many variables that will determine how the electric vehicle trend plays out over the long term. Keeping a critical eye on where things are going rather than jumping to conclusions is prudent with any new and exciting innovation.
The information contained herein is for general information purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Many factors unknown to Odlum Brown Limited may affect the applicability of any matter discussed herein to your particular circumstances. You should consult directly with your financial advisor before acting on any matter discussed herein. Individual situations may vary. Member-Canadian Investor Protection Fund.