By Shoeb Mohammad
Pandemic and disruptions are old. When the world grappled with Spanish flu in 1918 and impact of the World War-I, two new industries – oil and automobile – emerged. Within 10-20 years all the horse-drawn- carts and carriages disappeared from roads in New York and other big cities. This was a major disruption in the transportation. Horses used move carts were used as meat, a new source of food in the consumption chain.
Disruption is a situation when a new product helps create a new market and significantly diminishes, transforms, or destroys an existing product. For instance, mobile phone caused a major disruption in the telecom companies providing fixed line phones. Disruptions are unprecedented and so fast that industry experts often fail to estimate the real impact new products and services inflict on existing products and incumbents.
In 1985 telecom giant AT&T hired a consulting firm to forecast the level of disruption Nokia cell phone would cause to its business by 2000. The consulting firm had said Nokia will have 900,000 subscribers over 15 years. The number had really grown by 109 million. The estimate was off the target 121 times.
Impact of electric cars
The projections we have today on the impact of electric cars and solar power on traditional industries may not give the real picture 10 to 15 years later. Technology adoption curves are accelerating and Covid-19 will work as a catalyst. The situation will transform more quickly and significantly than current estimates.
The convergence of technology companies will create infinite possibilities. For instance, the convergence of technologies developed by Google (Alphabet-now Google’s parent company) and Apple, enabled establishment of world’s leading retail companies such as Amazon.com, Alibaba, and prominent ride-hailing firms like Uber, Didi, Lyft, and Ola.
According to market analyst and researcher Tony Seba, the author of ‘Clean Disruption of Energy and Transportation’, ‘Solar Trillions’ and ‘Winners Take All’, the demand for oil and cars already peaked in 2019. They face major disruptions and collapse soon. Sales of cars in many countries have started falling. “This will have swift, non-linear, and disproportionate financial impact,” says Seba.
With the outbreak of the pandemic, many people now work from home. Their fuel consumption has declined by nearly three quarters. Companies with investment exposure to fossil fuel, or power generation, are hit hard. The market values of many such companies have declined by double-digits. For some companies it is up to 70 to 80 percent. For example, GE’s market value declined by 74 percent in 2018 after it increased its investments to fossil fuel based companies.
Seba findings suggest the notion that technologies related to solar and Lithium-ion (Li-ion) battery will impact the oil and automobile (ICE) industry by 2040, or 2050, is a “fallacy”.
Even top officials from energy agencies acknowledge that solar energy and EVs are no longer a romantic story. They are competing without subsidies. This is all happening due to technological advancement and convergence.
Now we can imagine what will happen over the next decade with the convergence of some key technologies such as Machine learning, Blockchain, Robotics/automation, Solar PV, Li-ion battery, IoT (Internet of Things), AI (Artificial Intelligence), 3D printing and 3D visualization, Nano Satellites, UAVs (unmanned aerial vehicles), Big data/open data computing, Precision Biology, and other cutting-edge technologies. This has the capability of disrupting all industries.
Most disruptive decade
“The decade of the 2020s is going to be the decade of the most disruptive decade in history. On the technology front we are going to see massive disruptions,” says Seba. He highlights four key technologies – solar, Li-ion batteries, EV, and Autonomous Vehicles (self-driving) are going to have clean disruption of energy and transport. Their convergence is going to cause “super disruption” to these two industries. All this will happen for economic reasons.
The cost of Li-ion batteries has been on the declining curve. It has come down from $500/kWh in 2014 to $250/kWh in 2018, which is projected to fall further below $100/kWh by 2023 due to huge investments and economies of scale. Between 2010 and 2019 the cost curve accelerated to 20 percent per annum. The number of mega-factories manufacturing Li-ion batteries in 2014 were only three, with the installed capacity of 50Gwh. In February 2020 there were 121 such factories that will manufacture Li-ion batteries with the total capacity of 2,200Gwh.
Disruptions will not be limited to one-to-one industry. As the convergence of different technologies into smartphone enabled the establishment and unprecedented growth of ride hailing companies and online retailers, which led to the peak demand for private cars (ICE) and oil. This happened before Covid-19 which further worsened the situation. Most car dealers and showroom owners are resorting to different tools and innovative ideas such as virtual showrooms to boost sales, but with not much success.
Small market disturbance by new products and technology can have rapid, pervasive and disproportionate impact on revenues, profits and market valuation of incumbents causing market trauma.
For instance Tesla’s 100MW Hornsdale grid-connected battery storage plant in South Australia made nearly A$1m ($800,000) over two days in wholesale market. The plant accounted for just 2 percent of frequency control, but wiped out 90 percent of the revenues of the incumbent industry.
Let’s take another example of electric vehicles. They are 5-10 times cheaper to drive per mile basis compared to petrol prices depending on the country. In terms of lifespan, EVs have much longer life than an ICE car. EVs have fewer moving parts, may be just a few dozen compared to 1000s in ICE cars. EVs are not only 10 times cheaper to maintain, but have 2-3 times more lifespan. If it’s a Tesla EV then it can run 1 million miles (1600,000 kms), which is nearly seven times longer than an average ICE vehicle. If a person drives 20,000km per year, s/he needs nearly 80 years to drive that car.
Further, the costs of EVs are falling significantly every year. Now buying a certain EV is already cheaper than buying an ICE car. It is estimated that by 2025 the average price of an EV (200,000 miles) will fall to $12,500, which means by that year every new car sold will be an EV purely for economic reasons.
RIP combustion engine
EVs will diminish the resale value of ICE cars. The monthly installments of new cars will increase creating further pressure on the ICE vehicles market. Fleet companies using vehicles intensively will prefer EVs. For instance, Amazon, the leading retailer, has ordered 100,000 EVs from the Michigan-based start-up Rivian. The first van will hit the road by 2021, and all the 100,000 vans will be on the road by 2024.
According to Rivian CEO, the vans will run 400 miles (640km) on a single charge. The vehicles will accelerate to 100km speed in just 3 seconds, and eventually they will drive themselves.
It is not only the cost efficiency, long-life and environmental benefits that people will be buying EVs. EVs are also going to work as power backup for their homes. For example an EV of 200,000 miles will have a capacity to power an average home for two days.
At macro level if all vehicles in a city are EVs, they can save up to 70 percent of daily electricity demand.
The self-driven vehicles will create other kind of disruptions such as eliminating jobs of millions of drivers. Dozens of corporations are investing billions of dollars in autonomous technology.
Media reports that claim self-driving cars are unsafe are not true. Self-driving cars are already 6.4 times more efficient than an average driver. According to Tesla, if all cars are autonomous the world can save about 900,000 people out of the 1.3 million who are killed in road accidents every year.
With the rapid advancement in technology everything on wheel is going to be autonomous: from delivery of food to medicine, groceries and other. The Covid-19 measures and lockdown have already accelerated the process. Thousands of companies have been established since December 2019 to deliver packages. The convergence of EVs with autonomous technology and on-demand transport service is going to cause yet another big disruption.
A private car owner drives only four per cent of the time and 96 percent of the time the car remains parked. This is huge asset inefficiency. With convergence, fleets providing Transport-as-a-Service (TaaS), a vehicle’s driving time will increase 10x (times) to 40 per cent. Didi Chuxing, the world’s largest ride hailing company, has more than 600,000 EVs on its platform, which is likely to increase to one million by the end of this year.
Experts suggest that as soon as the autonomous technology gets approval from regulators (due next year), the cost per mile will be 10x cheaper than owning a car. So the day TaaS become available in big cities, people start subscribing transport service at around $100-$200 like Netflix, instead of spending thousands of dollars to own a car.
Nearly 95 percent of passenger miles will be TaaS (by autonomous EVs) by 2030. This will have tremendous implications. Annual demand for new vehicles will shrink by 70 percent. By 2030 about 60 per cent of cars essentially will be fleet and 40 per cent individually owned. The real difference lies with the use of vehicles. Fleets will drive 100,000 miles per year, while individuals will drive just 10,000 miles, which means 95 per cent of passenger miles will come from fleets.
This wide spread use of fleet services (TaaS) will have huge implications. As the number of private cars will decrease, there will more free land in cities for other developmental works and real estate projects, more green space, public parks and affordable housing. Many cities may have to be redesigned. This is in addition to huge financial benefits. For instance an average household in the US will save over $5,600 every year, which means a significant increase of $1 trillion in disposable income per year in the US alone. This will give further boost to productivity of about another $1 trillion, in addition to environmental benefits as energy consumption is also likely to decrease by up to 80 per cent. CO2 emissions are also likely to decrease at least by the same ratio.
Impact of Taas on oil
What will be the impact of TaaS on oil industry? Oil demand, which already peaked to 100 million barrels/day in 2019-20, will decrease to 70mb/d by 2030. This will create further pressure on oil prices, and many companies which cannot compete will go out of business. The oil demand already went down to 70mb/day because of Covid-19.
The constant fall in solar power is going to create another disruption almost all over the world, including countries with colder climate. The utility scale solar is already cheaper than power produced by coal, nuclear and natural gas.
Experts had suggested that China may have to wait for decades for the solar power to achieve grid parity. But it has already happened. Commercial and industrial rooftop solar is cheaper than grid electricity without subsidy in nearly 350 cities across China, and many other parts of the world.
According to Price Water Cooper nearly 69 per cent of corporations are actively pursuing solar purchases purely for economic reasons. Dow Jones US Coal Index (DJUSCL) market value collapsed by 99+ per cent, which declined from 741.46 in March 2008 to 6.41 in April 2020, which speaks volume about the future of coal.
Even in energy-rich countries solar is competing with other sources of energy without subsidies. The cost of solar in Qatar is 1.56 cents/kwh, the lowest among all GCC states, Dubai 1.69 cents/kwh, and Saudi Arabia 1.78/kwh, which is expected to go down further.
A recent headline (in March this year) “Solar Plant Starts Feeding Power to Oil Companies in Oman” says a lot about the stress faced by the fossil fuel companies. The 100-megawatt Amin solar power facility, built partly by Marubeni Corp, will supply electricity for PDO’s operations. PDO targets producing 30 percent of its electricity from renewable resources by 2025.