28 Feb 18 Electric vehicles and their impact on oil marketing companies

In Auto Expo 2018, as expected, the key area of focus was “Go electric”.

Almost all automobile companies are planning to invest in developing electric vehicles (EVs). It won’t be too farfetched to say that the coming decade will see its last version of combustion engine-based vehicles.

In an interview, Maruti Suzuki’s CEO stated that electric vehicles are  the future, provided the cars are available within the common man’s grasp, i.e. affordable. As of now, it isn’t. However, if auto OEMs (and peripheral suppliers) actually invest in R&D for electric vehicles, sooner than later we shall have electric cars at Alto’s prices. Or close enough! Whenever this happens, there will be a huge inflection point – and car-makers are working to get there first.

In this context, the electric revolution may come sooner to the two-wheeler market (which is much larger). Heavy vehicles may be the last to give way, but it looks inevitable – only the time period is a big question mark.

With these disruptive developments changing the face of transportation, there are certain points that one has to ponder about.

Which industries will possibly be impacted?

If the demand of fossil fuels declines due to electric cars, what will be the future of oil exploration and oil marketing companies? Currently, around 57% of oil marketing companies’ business comes from the transportation sector. In that case, the revenues of the oil marketing companies might even halve, if nothing else is done. Of course, though we have no idea how long it will take and all projections are no more than guesses – oil marketing companies are still saying “Delhi abhi door hai”. They might have to re-think this casual attitude. Else they may, in a worst case scenario, cease to exist.

Indian oil and gas companies are expected to invest around US$ 40 billion over the next five years. What will happen to returns on this investment if EVs take off?