Is Tesla’s Model-S the Beginning of the End for Oil?
Why battery technology could drive the electric vehicle to new heights – and disrupt the fossil fuel industry in the process
The Tesla Model-S is one of the most beautiful and interesting automobiles to ever get made. It might also be one of the most dangerous. That’s because it’s managed to do something that no other electric vehicle has ever achieved: become an object of desire. Previous generations of electric cars, from the Nissan Leaf to GM’s famous (and infamous) EV-1, have tended to be high on cost and low on drivability. But the Model-S managed to bridge that divide, and as the reviewers at Car and Driver said in their review of the car, “it dispels conventional thinking about EVs – it’s a glimpse of the future.”
That future is at the core of The Powerhouse, a new book by Quartz journalist Steve LeVine that documents the race to build a better battery. It’s a race LeVine thinks could create a global battery market worth as much as $100 billion a year by 2030, and a global electric vehicle market that’s multiples of that. Given that most of those vehicles wouldn’t need much in the way of liquid fuels, that would have an obvious impact on the demand curve for oil – and the price upstream companies get for it. Creative disruption has already wracked most major industries, and it’s wrecked more than a few of them in the process. If it’s going to visit itself upon the fossil fuel industry, it’s almost certain to take the form of an electric vehicle. As LeVine’s book makes clear, that could happen a lot sooner than some people might want to think.
An excerpt from The Powerhouse: Inside the Invention of a Battery to Save the World
In February 2012, about a thousand men and women assembled at an upscale Orlando golf resort called ChampionsGate. There are two types of battery conferences – scientific gatherings that attract researchers and technologists attempting to create breakthroughs; and industry events, attended by merchants and salespeople. Orlando was the latter. A pall hung over the assembled businesspeople. Americans were not snapping up electric cars: GM sold just 7,671 Volts the previous year against a forecast of 10,000. There was no reasonable math that got you to the one million electric vehicles that Obama said would be navigating American roads by 2015, even when you threw in the Japanese-made Nissan Leaf, of which 9,674 were sold in 2011.
That became even clearer when just 603 Volts sold in January 2012. No one seemed consoled that China was doing even worse, selling just a combined 8,159 across the country, fewer than half the American number. Nor especially when, in a conference session, they witnessed the following exchange between a Japanese presenter and an American salesman:
“Do you have any advice for us new entrants into the business?”
“Get a new job.”
The Japanese believed the race was already over. They – and their Prius – had won. Toyota was nearing four million cumulative hybrid sales worldwide, including 136,463 Priuses in the United States alone – the world’s second-largest car market behind China – in 2011. The Japanese themselves bought 252,000 Priuses. There could eventually be the type of market shift that both Obama and Wan Gang had forecast. But it would not be in the current decade. Until at least the 2020s, electric cars would remain at best a niche product. That would be late for most of the Westerners at ChampionsGate. Unlike the Japanese and the South Koreans, few if any had budgeted for a long struggle. The fever of the prior two or three years began to evaporate.
About this time, ExxonMobil released a 51-page outlook of the world of energy in the year 2040. Such great stabs at the future could not be entirely accurate, particularly in the years furthest out; companies such as ExxonMobil made adjustments along the way. But the forecasts were necessary given the multibillion-dollar cost of oil and gas projects, in which even successes take decades to pay off. They helped the companies form a general picture of the world to come so that they could make coherent investments.
The outlook made notable prophecies for batteries and electric cars. It started by forecasting that oil and gas would supply 60 per cent of the world’s energy a quarter century ahead. That actually represented an increase from 55 per cent in 2010. The prediction was almost categorical – the company foresaw no specific threat to this continued dominance. Biofuels, solar, wind, and other non-fossil fuels and technologies all seemed destined to remain permanently marginal. But batteries were a different matter. Perhaps recalling the company’s hasty surrender of lithium-ion to Japan three decades earlier, the ExxonMobil scenarists flagged batteries as one of the few wild cards with the potential to disrupt its world. ExxonMobil did not spell it out, but if researchers somewhere made a serious advance in battery technology, a jump in performance by a factor of four or five, they could grievously undermine oil. The car and truck fleet would require much less gasoline as consumers made economically driven choices to buy quiet electrics. The number of cars on the road around the world would still double to about 1.6 billion by 2040, but if many were electric, oil companies would have to become different animals, both smaller and sleeker.
In fact, ExxonMobil did forecast a shift to electrics of a sort – it thought that almost half the global fleet would be electrified in 2040. But most of these would be hybrids – glorified electrics like the Prius, with baby-size batteries that could propel a vehicle five or six miles with the engine shut off. Plug-in hybrid and pure electrics would capture 2.5 per cent of the market. That added up to around 40 million of them, a highly impressive number. But it paled next to the 680 million Prius-like hybrids that would be on the road. This was not a genuine electric picture.
It was a shift: at least two-thirds of all cars sold after 2025 or 2030 would be equipped with some form of electric technology. And you could reach your own conclusions as to why it would take place. One significant influence would probably be consumer taste. At some point, Americans would probably reject pure gasoline-fueled cars, just as they largely stopped throwing garbage from their car windows amid Lady Bird Johnson’s Keep America Beautiful campaign in the mid-1960s. Only a narrowing niche would even contemplate a model unequipped with some form of gasoline-saving electric propulsion. Other factors would contribute, too, but the main idea was that motorists would make the shift. – The Powerhouse
Steve LeVine on existential threats, engineering breakthroughs and whether oil and gas companies have already missed the boat on electric cars
Alberta Oil: What’s the response been like to your book from people in the fossil fuel industry?
Steve LeVine: I was just at a dinner at the overseas press club in New York, and two Chevron guys both said they were reading the book – and enjoying it. I guess, for them, this is the one outlier that they worry about. They’re not worried about biofuels, and they’re not really worried about any of the renewables posing any kind of existential threat. But if there is a big breakthrough in batteries, that’s something that would be a huge risk for them. So when someone comes along with a book that tries to look into it, then of course they’re interested.
AO: Is it fair to say that the race to build a better battery is one of the most important business and science stories in the world right now?
SL: I think it is. In terms of science and engineering, artificial intelligence is one. Genomics, of course, is another. But I don’t put those in the same area as batteries or electrochemistry, because this is something that could really change everything on Earth. These other areas are purely commercial. Now, I could be biased because I do have a book in this area, so obviously I do have an opinion on the subject. That said, I think I can make a very firm case that batteries are one of the single most important engineering and scientific pursuits currently going on. It’s the Holy Grail.
AO: Given the sheer volume of capital chasing that Holy Grail, is it safe to assume that the widespread adoption of electric vehicles is a matter of when rather than if?
SL: You cannot say flatly that the battery guys are going to make a big breakthrough in the near future. But my own thinking, having spent two years in the lab and knowing what’s going on around the world now and the commercial need for this big breakthrough, is that it does happen – and it does happen in the next few decades.
That said, it doesn’t have to happen in the way some people are imagining. A big breakthrough can happen by twinning a hybrid model of battery – a super capacitor with a battery, or a fuel cell with a battery. These are all different forms of electrochemistry. There can also be a partial breakthrough in batteries and a partial breakthrough in manufacturing that, together, get you to where you need to be on the cost curve to be fully competitive with combustion.
AO: You’ve said that the race to build a better battery isn’t restricted to automobile companies. Can you expand on that?
SL: Put aside the electric cars and just look at a big industry that already exists, and that’s electronic devices. The iPhone 7, when it comes out, and the iPhone 8, and various versions of the [Samsung] Galaxy that will come out, and all the electric devices and autonomous functionality in cars, they all have to have an equally revolutionary increase in the density, the capacity and the performance of batteries. They have to have this breakthrough, and this is why you have Apple hiring hundreds of battery scientists and why Google is in the race and why all the automakers have now established laboratories and their own VC firms in Silicon Valley. When you see these kinds of players that have a very, very respectable commercial record getting into batteries,
you know that there’s critical mass going after
AO: As you point out in your book, Exxon was the one that built the first rechargeable lithium ion battery. Could ExxonMobil or any of the other supermajors in the fossil fuel industry get into the battery business or did they miss the boat?
SL: They’re monitoring this very, very closely. Generally, the big incumbent companies tend to hold back and assume that when a new technology reaches the critical stage, it can swoop in and buy up anyone. I think that’s where they are. And it’s not just ExxonMobil that feels that way. Now, I don’t think you can say they’ve missed the boat. They think they can get on the boat. And they could – but it would be very expensive. The notion has been raised (I’ve raised it too) of Google buying Tesla. Google wants to market commercial autonomous vehicles, and it’s further ahead than anyone in the pure research into a self-driving vehicle. But it’s very expensive and it’s risky to actually make a vehicle. If it bought Tesla and then installed its autonomous technology into an already very cool car, that would be a powerful combination. But people who are a lot smarter than I am in the M&A field have said that it would cost $26 billion for Google to buy Tesla. It obviously has the cash in the bank, but it’s a big pile to spend. So could ExxonMobil or Chevron buy a battery company that made this big breakthrough? Yes. The question is, given shareholder value at that point, whether they would.
AO: It’s widely accepted that demand for oil in North America is in terminal decline, and that new demand growth will come from the developing world. Given the growing concerns about pollution and climate change there, not to mention the investments that China in particular has made in battery technology itself, is that a dangerous assumption to be making?
SL: I couldn’t have said that better. The oil and gas industry does have a lot on the line if it’s wrong. But what are you going to do? They’re under threat from so many quarters at the same time. This is why one of the arguments about what Saudi Arabia is doing is that it’s trying to monetize its biggest economic asset as fast as it can. A few months ago at a conference in Dubai, Ali Al-Naimi posed a rhetorical question: What if the Black Swan out there is that in 50 years demand for oil disappears? Demand for oil isn’t going to disappear. It’s going to be with us. It’s such a convenient and powerful and dense store of energy – even if every car on the planet was an electric car, for example, using fuel in jets is much more efficient than batteries will ever be. There’s going to be liquid fuel for a long time. But the demand for it could plunge. It could really plunge.