Passenger Cars and Passenger Car Motor Oils in the Post-COVID-19 World
How the COVID-19 pandemic has changed us! We do not go out as much, (mostly) work from home, live off food deliveries, and have a slightly better appreciation of Mother Nature. Personal mobility in 2021 and beyond will be very different. In this article, we take a brief look at how COVID-19 has impacted electric vehicles, ridesharing, and autonomous vehicles, and what it means for the passenger car motor oils (PCMO) market.
Electric vehicles have proven to be immune to COVID-19
The global electric vehicles (EV) market is getting closer to the highly anticipated tipping point when EV sales exceed ICE sales. This is expected to happen despite the unprecedented market contraction caused by the outbreak of the global COVID-19 pandemic. Sales of EVs topped approximately three million units, which represents a growth of 40% as compared to 2019, in contrast to a 15% decline in global sales in the internal combustion engine (ICE) vehicle segment. EV sales growth is high, partly because growth is on a small-scale basis but the divergent path for EV and ICE sales is telling.
The unexpectedly high resilience of EVs may be attributed to existing and new government stimulus, greater consumer focus on sustainability, and accelerated technological advancements, particularly in the field of battery technology. The last factor is a Gordian knot for the EV industry, a key element in determining the pace in the transition to electric mobility.
The road ahead
According to Kline’s analysis, the population of EVs including battery electric vehicles (BEV), plug-in hybrid vehicles (PHEV), and hybrid electric vehicles (HEV) is expected to post double-digit growth over the next 20 years, accounting for 35% of the total passenger vehicle population in select countries (see figure below) in 2040, from under 3% in 2020. The speed of transition is varied within the regions under consideration, with Europe and China exhibiting the fastest adoption of EVs. Moreover, sustainability has become the cornerstone of future technological and economic development in Europe. In the aftermath of the first wave of the COVID-19 pandemic in the first half of 2020, several European countries including Germany, France, and the United Kingdom, reinforced their determination to move toward a carbon-neutral future by offering purchase incentives targeting electric vehicles. Similarly, governmental support has been crucial in the development of China’s New Energy Vehicle industry. All in all, the motivation to adopt EVs and the pace of diffusion will be based on a mix of considerations, each with a different weight for individual countries. These considerations include a focus on sustainability and policy support, securing the competitiveness of national automotive sectors, and availability of energy resources.
Source: Kline’s PCMO 2040 report
Ridesharing was hit hard because we were homebound, but food deliveries prospered as we were ordering food online
Although the popularity of ridesharing, ride-hailing, and pooling services witnessed rapid growth in the past, their popularity has been severely dampened by the pandemic. Due to COVID-19, ride-hailing and ridesharing services were hit hard in 2020. In general, the COVID-19 pandemic has damaged revenues of ridesharing providers in 2020 due to an aggressive lockdown imposed by governments around the world. In some countries like India, shared mobility services were banned by the government with an exception for emergency services. In other countries, consumers were afraid of using these services due to concerns of contagion even when mobility restrictions were lifted. In the short to medium term, a negative impact of COVID-19 is likely for the ridesharing industry. But it is not all bad news for this industry. With most consumers being stuck at home, ordering food online has seen robust growth. Food delivery has partially compensated for the decline in passenger vehicles. So much so that some companies have set up “ghost restaurants” to promote food delivery. If the pandemic and its attendant restrictions last longer, there may be a permanent shift in consumer behavior.
Autonomous vehicles are a dream for a later day
At the current state of development, it is difficult to quantify the impact of autonomous vehicles (AVs) on personal mobility and their synergetic effect with the deployment of electric vehicles, and more importantly, the impact of the pandemic on AVs. While the pandemic could have resulted in further momentum for driverless rides due to social distancing guidelines and mobility restrictions, the industry has also observed reduced willingness to invest in AV technologies. Investors are shifting their focus to other opportunities that may pay off in the short term. With the looming employment crisis, will the government support this technology? Will the emergence of driverless cars always be five years into the future? Only time will tell.
Electric mobility is reviving technological innovation and the need for differentiation
Inevitably, the growth in EVs has the potential to greatly reduce PCMO consumption, especially for engineless BEVs as they do not need engine oil at all. Kline estimates that a decline of PCMO demand at a CAGR of 1.0% is purely due to the reduction in the effect of EV penetration in the passenger vehicle population in the select countries covered in the study. Conversely, EV growth will create a new market for EV fluids. This new generation of fluids will address key challenges presented by new electric powertrain, which are sustainability (carbon footprint reduction), tribological, and thermal features. Electric powertrains will require the development of new fluids for thermal management. Some lubricants products such as transmission fluids and greases will continue to be used but will have to be reformulated to meet new performance requirements such as thermal conductivity, electrical resistance, material compatibility, and enhanced wear protection.
Passenger car motor oils are becoming a key component of an emerging mobility solutions toolbox
Irrespective of the negative implications for the volumetric lubricant demand, the penetration of EVs has a vast potential to redefine the finished lubricants market.
From a regional perspective, it is expected that the increase of EVs will exacerbate the stagnant PCMO demand in mature markets, notably in Europe and North America. Conversely, emerging economies in Asia-Pacific and Latin America will most likely continue to grow even at projected high EV penetration levels, primarily fuelled by robust new vehicle sales and strong economic performance in the case of the former, and due to projected low EV penetration in the case of the latter.
The automotive aftermarket business is also embracing a new era of electric and shared mobility. OEM-franchised workshops are the biggest beneficiary of increasing EV penetration. EV servicing will be a purely do-it-for-me (DIFM) market. Most likely, customers are not going to change EV fluids on their own but will seek these services at OEM-authorized workshops.
Digital technology has also been boosted by the pandemic. The adoption of digital car dealerships gained significant traction during the pandemic. Predictive, smart, and connected maintenance services offered with EVs provided with onboard diagnostic sensors and algorithms to alert the car owner on when to change the PCMO is becoming the standard.
Given the inherent uncertainty of the longer-term outlook, it is important to look beyond the pure market numbers, and pay attention to broader shifts in the marketplace and understand the implications for the value chain under different scenarios. Agile players, operating under a balanced set of product differentiation strategies articulated for the growing need for a greener, smarter, connected future, will gain an unbeatable competitive edge.
The PCMO Market in 2040: A Long-term Outlook assists lubricant marketers in identifying opportunities and challenges within the PCMO industry.
Kline's Electric Vehicles Fluids: Market Analysis and Opportunities helps to understand the evolving EV fluids market in the context of emerging EV technologies, their penetration in the overall market, and their fluid requirements.