The rise of electric vehicles: what can it lead to?

GUEST POST by Rhys Walker, cost estimator, Glenmore Investments

According to the latest predictions, the cost of electric vehicles is likely to be the same as their internal-combustion counterparts by 2022, while by 2040 this price is predicted to become even lower.

Skeptics would say that predictions should not be taken too seriously as they are always to some extent based on merely subjective opinions. This is absolutely right, just like is the fact that electric car sales continue to increase.

Statistics say that global sales increased by approximately 80% in 2015 compared to 2014, from 315,519 to 565,668, while by the end of 2016 the number of electric cars on the world’s roads is expected to exceed 2 million.

By 2040, for instance, electric vehicles would account for 35% of all new vehicle sales. What this implies is that even if some years or numbers in such sort of predictions may be inaccurate, the tendency of sales growth is definitely strong and cannot be doubted.

What economic impact may it have? One of the most obvious consequences of the rise of electric cars is that oil demand and therefore price may noticeably drop in a certain amount of time.

What is more, this tendency may become indeed devastating in the longer term. In order to understand what it means it is necessary to take into consideration the role of oil in global economy.

This is definitely one of today’s most important raw materials, while most countries are significantly affected by changes in the oil market, no matter whether they producers, customers, or both.

What it means is that in case the oil price drops, oil-rich countries and billionaire oil barons will suffer significant losses, while certain economies, particularly those of the European Unions (EU) and the US, will considerably benefit.

Looking at the EU, it was calculated that oil costs its members (including Great Britain) approximately €525 million in cash each day, which is about €200 billion per year and 1-1.5% of European gross domestic product.

Of course, it does not mean that Europeans will pay less even if they switch to electric transport – after all, they would need to pay for electricity.

At the same time, it should be take into account that electricity may be generated locally or regionally, which means that the consumers’ money could theoretically be spent on national or regional needs, enhancement of infrastructure, and various social issues.

For obvious reasons this is better than simply paying to Russia, Saudi Arabia, Nigeria, and other oil suppliers. When it comes to the US, the daily cost for imported oil is approximately $425 million, even despite the amount of oil it exports.

In total, this is about $155 billion a year and almost 1% of American GDP, which means that the situation resembles the one in Europe.

Apart from this, by the way, the US spends about $75 billion a year on the military to ensure access to foreign oil sources and keeps the supply routes open.

It should also be taken into account that overreliance on oil-based fuels is one of the main causes of air pollution, which, in turn, costs Organisation for Economic Co-operation and Development countries approximately $1 trillion a year in negative health effects.

Finally, car emissions greatly contribute to climate change and global warming, which may have catastrophic consequences for global economy.

Switching to electric transport, in turn, could become one of the steps to reduce spending and improve the environment. Finally, an interesting question is what would happen to some of world currencies if the price for oil once dropped.

Naturally, this would be a bad news for countries that heavily depend on oil exports. This, for instance, would substantially affect rouble as Russia currently produces approximately 12% of the world’s crude oil supply.

Canadian dollar is likely to weaken too as oil comprises 14% of all Canadian exports. The same situation is likely to happen to Norwegian krone as petroleum sector is this country’s most important industry.

Colombian peso and Brazilian real are likely to be affected too: 45% of all exports in Colombia depend on oil and gas products, while Brazil, even though this country is by far not one of world’s biggest oil suppliers, is likely to suffer losses because of the lack of economic diversity.

Changes in the value of the world’s currencies, in turn, open a variety of opportunities for business investors, beginning from venture capitalists to small-scale investors dealing with Forex or HF trading.

In such a way, the decrease in oil prices would definitely become a clear economic signal, which would be unwise to ignore. Of course, electric vehicles will not kill off oil demand in the nearest future.

Neither will they ever displace internal combustion engine cars completely. After all, electric vehicles have a series of disadvantages and may sometimes be quite impractical.

Their limited range and the need for frequent and especially unexpected charging often frightens away potential customers, even though many psychologists believe this is nothing more than a psychological barrier.

Another argument against electric cars is that their price is quite high at the moment. However, even in view of this, it would be unwise to assume that tomorrow’s electric cars would not become better and cheaper than today’s.

In such a way, it’s all about time. Don’t miss the moment!

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