Impact of electric vehicles
The impact of electric vehicles on the lubricants industry will be different in Asia than in Europe and North America because parts of the former region face a number of challenges impeding the electrification of its vehicle parc, an industry expert said during a presentation at the ICIS Asian Base Oils and Lubricants Conference held here recently.
“Many developed countries have already announced their zero emissions goals, and their mandates include the transition to plug-in electric vehicles, not hybrids,” Emvolution Managing Director Eugene Tan told attendees at the conference. “Which means that the internal combustion part of the vehicle is going to disappear.
As a result of these initiatives, many Western car companies have completely stopped research and development on the next generation ICEs internal combustion engines and are focusing on electric vehicles instead. This is not the case in Asia, where auto manufacturers such as Tata in India are still looking at producing new vehicle models that run on ICEs.
Twelve countries in Western Europe and North America will phase out sales/registrations of ICE engines in the coming decade. In Southeast Asia, only Singapore has made this commitment, noted Tan, who is also chief executive of the Asian Lubricants Industry Association. Australia and Japan also have mandates. China has announced a goal of 40% battery electric vehicles for new registrations by 2030, while some Asian countries plan to offer incentives to promote the use of EVs. The total global number of BEVs is set to rise from 8 million in 2020 to 250 million in 2030, with ICE and hybrid vehicles to be phased out between 2030 and 2040 in countries that are members of the European Union and the Organisation for Economic Co-operation and Development.
The transition to electric vehicles will undoubtedly impact the lubricants industry since automotive ICE lubricants account for approximately 56% of total lubricants demand, according to Tan. However, BEV lubricant demand is far lower as it consists only of thermal fluids, transmission fluids and greases. As a result, automotive lubricant demand is expected to fall rapidly in countries and regions switching from ICE to BEV, starting now until 2030-2035 when most of the mandates go into effect.
“Even though automotive electrification is set to increase dramatically elsewhere, there are numerous challenges specific to the Asia Pacific region,” Tan noted. A lack of mandates aside, one of the biggest challenges in many Southeast Asian nations is a lack of infrastructure and reliable electricity supply.
Tan explained that around 65 million people in Association of Southeast Asian Nations countries do not have access to stable electricity, and in India, 660 million rely on biomass for cooking fuel. “Then, we ask ourselves: What has a higher priority?” he said. “Generating electricity so that the wealthy part of the population can have an electric car, or generating electricity so that the lower income population can have a fridge?”
He argued that confronted with this dilemma, governments will likely make it a priority to invest in electric supply infrastructure and grid upgrades to supply power for basic needs such as a fridge or a stove. As a result, electrification of mobility (especially BEV adoption) will likely be slower in Asia Pacific.
Furthermore, Tan emphasized that OECD/EU members offer BEV incentives of around US$7,000-15,000 to encourage adoption; using approximately $10,000 incentives to promote uptake, even moving only 20% of existing vehicles across ASEAN/India to electric by 2030, would cost governments around $1 trillion—an amount these governments cannot afford.
Given the type of vehicles that are on the road in many Asian countries, electrification is likely to progress at different speeds for different classes of vehicles (truck, cars, motorcycles), and there will likely be faster adoption for motorbikes and public transportation in main cities. Tan believes that the uptake of EV trucks for cross-country requirements is unlikely to materialize.
At the same time, electrification of PMDs (personal mobility devices) such as motorcycles is advancing at a faster pace because the batteries used for these vehicles also serve other purposes. Tan discovered that electric PMDs actually help breach a power supply gap, particularly in rural areas.
He explained that consumers would take their electric bike to the battery swapping station at the end of the day, swap their battery, go home, take out the battery and use it to provide enough electricity for the night. In the morning, these consumers would have enough power left to go back to the swapping station and get a fresh battery to use during the day.
Another major challenge is the way many of these Asian countries produce electricity. “In China alone, 65% of electricity generation is coming from coal. And 80% of new coal power plants under construction are in Asia. At these levels, does electrification of mobility reduce CO2 emissions? Should governments build coal plants to support EVs?” Tan pondered.
On the bright side, Asia will offer many opportunities for base oil and lubricant manufacturers, as lubricant consumption is expected to rise across Asia to match China’s growth over the last decade while falling in the West. This phenomenon may reflect steady global demand for lubricants, but a migration from West to East. Asia will represent a material percentage of new ICE vehicles registered as ICE/hybrid vehicle sales may be banned in EU/OECD countries by 2040.
According to Tan, an expanding middle class in many Southeast Asian countries means that more people will have access to personal mobility. Many of these nations’ GDP is growing fast, and car uptake increases exponentially when a country’s GDP reaches $5,000 per capita. India, Indonesia, Vietnam and the Philippines—with a combined population of 2 billion—are expected to reach this point by 2030. Despite prospects of increased automotive demand in these countries, the vehicle density in Asia is still behind Europe and the U.S. at less than 100 vehicles per 1,000 inhabitants. In the U.S., this number hovers at around 800 per 1,000, and in the EU at 600.
Tan seemed optimistic that there will be countless opportunities for base oil and lubricant companies to take advantage of the new industry trends in Asia, but recognized that different companies will have different perspectives about the challenges ahead and ways to invest. Multinationals may take a different approach than national oil companies or international independents, depending on factors such as accountability to NGOs, environmental shareholder pressure, proximity and pricing. In Asia, many OEMs will continue with R&D efforts into the next generation ICEs, whereas in the West, OEMs have ceased to develop new ICEs.
“Who is going to keep the relation with the Asian OEMs? Who is going to continue meeting their needs in terms of lubricants, additives, etc.? This creates a lot of opportunity, but also a lot of questions and challenges, and paints an interesting picture for the next ten years,” Tan concluded.
