Chart of the week

A case study on electric vehicles’ impact on fossil fuel consumption

A narrative around the push and subsidy for electric vehicles is that they will reduce greenhouse gas emissions and demand for fossil fuels. This seems intuitive, but Norway serves as an interesting case study demonstrating that it might not be that simple. 

From 2010-2021, EV sales in Norway grew from zero to 90% of total auto sales. Despite this feat, demand for transport fuel has declined by only 0.3% annually. Instead of Norway’s subsidy for EV’s serving to accelerate the replacement of existing internal combustion engine (ICE) vehicles, two-thirds of families simply supplemented their existing car fleets. The end result was that families only drove 40% of their post-purchase road miles with their new EV. This can likely be attributed to a combination of range anxiety and familiarity with their old trusty ICE vehicles.

Given that the transportation sector accounts for ~27% of greenhouse gas emissions in the United States, it’s a big target in need of a solution. Despite the hype and subsidy for EV’s, the United States has one of the lowest EV penetration rates globally. A notable impediment to EV adoption is Americans preference for SUV’s and light trucks which account for 75% of US light vehicle sales. This category of vehicle lacks an EV substitute at a comparable price point. It’s clear that the road ahead in the U.S. for EV product innovation and charging infrastructure will be challenging and the impact on oil demand will be uncertain. I think it’s fair to say we are far from peak oil.

Data Sources - Michael Cembalest, Bernstein Research, Lawrence Hamtil