Why Electric Vehicles are Disrupting the Lubricant Industry

With over 1.2 billion passenger cars across the globe, government bodies have become increasingly concerned regarding the impact traditional vehicles have on the environment. As global leaders gathered in Glasgow for the annual COP26 conference, much attention was paid to both petrol and diesel cars. Dubbed ‘Transport Day’ world leaders agreed to end the era of fossil fuel cars as they pledged to phase out new sales of gasoline and diesel cars by 2040.

“Together, we will work towards all sales of new cars and vans being zero emission globally by 2040, and by no later than 2035 in leading markets” (COP26)

As a result, electric and hybrid electric vehicles have been hailed as the just-in-time solution. Indeed, with programs such as the ‘Drive Electric Campaign’, the number of electric vehicles on the world’s roads has been growing rapidly.

Switching To Electric Vehicles

In 2018, the global stock of electric passenger cars passed 5 million – an increase of 63% from the previous year. By 2019, this number jumped again to 7.2 million. In 2021, just under 10% of global car sales were electric, making the total number of new electric cars on the world’s roads around 16.5 million, triple the amount in 2018. Today, over 699,708 new passenger plug-in electric cars were registered in May alone, a 55% increase on last year.

Indeed, the aftermath of COP26 triggered a long list of regulatory measures designed to curb emissions which caused EV sales to soar. This year, over 2 million electric vehicles were sold in the first quarter alone, up 75% from the same period in 2021.

Of course, some countries are adopting electric vehicles at a faster rate than others. Countries with the greatest number of electric cars on the road:

• 45% in China
• 24% in Europe
• 22% in the US
  

Despite this data, Norway is the global leader in terms of plug-in cars, averaging 56 electric cars per 1,000 people. Meanwhile, the Biden Administration made clear their thoughts on a fossil fuel-free future announcing an Executive Order to reach 50% electric vehicle sales by 2030 in the U.S.

There is no doubt that this trend is set to continue as global leaders across the world address environmental concerns. Both the UK and France have both announced plans to ban the production of petrol and diesel-run vehicles by 2040, largely down to concerns around air pollution and the associated health impacts, with poor air quality linked to around 40,000 premature deaths a year.

The UK government recently announced it will aim to bring this date forward to 2035 in order to achieve its target of emitting virtually zero carbon by 2050, and they are also now looking to ban hybrids, although many say this may not be achievable.

The increase in carbon emission regulations is also contributing to the rise in electric vehicles as car manufacturers are rethinking the new models they are producing. For example, Volvo has made the bold step of no longer launching new diesel cars with all new vehicles either hybrid or electric due to the costs associated with complying with legal regulations.

In addition, the number of charging points is now more than 45,000 in the UK and 46,000 in the US. Meanwhile, the distance vehicles can travel on a full charge is increasing, such as Tesla’s Model S reaching over 300 miles. These developments are making electric vehicles more attractive to consumers, a demand vehicle manufacturers cannot ignore.

Whilst it is clear the rise in electric vehicles is impacting automotive manufacturers, there are also widespread implications on the lubricant industry.

What Does This Mean For Lubricant Manufacturers?

As Battery Electric Vehicles (BEVs) do not have internal combustion engines, they do not need engine oil – a product that not only dominates lubricant demand but also provides a large source of revenue for many operating in the sector.

However, battery electric vehicles still need fluids to operate and there is plenty of opportunity for lubricant manufacturers looking to retain or grow market share. Whilst hybrid vehicles still have a combustion engine, factors such as differing engine temperatures means innovation is still needed to support these vehicles too. However, future long-term plans to ban hybrid vehicles could hinder the developments of this market.

Will EVs Cause A Significant Decrease In Revenue For Traditional Lubricant Manufacturers?

Whilst there are many different statistics on electric and hybrid car adoption, there is a consensus that there will be a very notable increase in the next 5-10 years.

Market research firm IHS Markit predicts vehicles using some form of electrification will hold a market share of roughly 40% by 2028, which will have a big impact on traditional lubricant sales. Having recently spoken with senior-level leaders in the UK and US automotive lubricant market, they have suggested over the next 5 years the overall demand for traditional automotive lubricants in the UK could decrease by 5% with the increasing usage of electric vehicles and e mobility lubricants.

According to McKinsey & Company, there is still room for total lubricant demand in 2030 to grow 1.5% p.a. to about 11 million metric tonnes in 2030 led by demand in Asia. However, they predict demand will decline by around 1% p.a. in Europe and North America. They also predict the impact will be more pronounced after 2030.

Whilst Asia could potentially offer an opportunity for growth of traditional lubricants, manufacturers will need to diversify into products for electric vehicles in order to keep market share and revenue in Europe and North America.

Currently, large volumes of lubricants are produced for car manufacturers (OEMS), like Volvo, and if their product launches are going electric then companies need to develop products to match this.

Crucially, many companies must be aware of the growth of electric vs hybrid and gain an understanding about where to focus more of their product development. As with any industry change, companies also need to be aware of innovative new market entrants.

At a point when lubricant manufacturers will need to embrace innovation to support electric vehicles, it is worth noting that the availability of fossil fuels means all lubricant manufacturers will eventually have to move onto developing more sustainable products for all vehicles. Without an additional focus on sustainable innovation during the next few years, the overall revenues of these companies will (unfortunately) decrease.

How Will These Changes Impact Roles In The Lubricant Industry?

In the short term:

Over the next 5 years, the impact on those working within the industry will be minimal; the market will remain a similar size meaning that job stability, as well as the number of job opportunities, will likely be the same.

The area that may see change at this point is research and development as companies switch their focus and expertise to begin developing the lubricants specifically designed for EV’s that will rise in popularity in the next few years.

In the long term:

The market will change as new manufacturers focus their product range on electric vehicle lubricants, whilst existing automotive lubricant manufacturers will move their portfolio of products to electric vehicles. This means that existing sales positions for traditional lubricants will be reduced as the demand for these products decreases.

Indeed, the change will force sales professionals and senior leaders to educate themselves on these new products and target different markets to be able to sell them to manufacturers. For those who have upskilled to sell or market these new lubricants, new job opportunities will arise as new organizations dedicated to electric lubricants begin to launch.

Undoubtedly, the rise in electric vehicles is not something that will happen overnight, but the increase in demand for electric vehicles is something lubricant manufacturers cannot afford to ignore.

If you operate in the automotive lubricant market and are worried about how electric vehicle adoption will impact your business, CSG Talent can help. Contact a member of our expert team or browse our further insights.