11 November 2019
This is the third episode in our Electrification of Transport series. The first episode covered our updated views on the electrification of the light duty vehicle fleet. The second episode zoomed in on the battery chemistries that we expect to lead this change. This episode looks at the outlook for the electrification of medium and heavy duty vehicles – a huge but in our view under-studied element of global oil demand.
Our views on the long run penetration of electric vehicles ( EVs) should now be quite familiar to our readers. We will not recapitulate them here. Instead, we will introduce an adjacent theme in transport demand that also warrants close attention, but is perhaps less well understood. How do we expect electrification to impact upon medium and heavy duty road vehicles (MHDVs)?
First, a few round numbers will make it clear why this is a vitally important question. Of the approximately 100 million barrels of oil consumed each day around the world, around 60 million are used in transport, around 46 million of which are used on the road1, with light duty vehicles (LDVs) taking around 28 million of those, and MHDVs taking the remaining 18 million. The MHDV figure comfortably exceeds the current oil needs of other key sectoral consumers like aviation, shipping, industry or plastics. It’s a big deal.
Our high case for EV penetration in LDVs in combination with our most aggressive case for internal combustion engine (ICE) fuel efficiency, allied to low case macro assumptions, puts more than half of those 28 million LDV barrels at risk by 2050. That is despite “vehicle miles travelled” (VMT) expanding by around 50 per cent over that period. As an aside, for all of the attention rightly bestowed upon the electrification of transport mega–trend, in the next quarter century the impact on oil demand from more fuel efficient ICE vehicles is projected to be twice as large as the impact of EV disruption.
The outlook for MHDV powertrains is one of the major reasons why the decline in total oil demand beyond the peak is expected to be sedate, rather than abrupt.
As for MHDVs – comprising trucks (around 86 per cent of MHDVs) and buses (the remainder) – our considered view is that very little, if any, of today’s 18 Mbpd are “at risk” in the same way as today’s LDV barrels: on a net basis. Indeed, under most scenarios, we project that this segment’s demand for oil will continue to grow, with perhaps some erosion at the edges in the plausible low. Erosion is not disruption. The outlook for MHDV powertrains is one of the major reasons why the decline in total oil demand beyond the peak is expected to be sedate,rather than abrupt, as an extrapolation of the potential LDV EV S-curve to the entirely of road transport might imply.
In terms of actual numbers, in our low case the MHDV fleet is expected to increase from around 58 million units today to just over 80 million in 2050. Our mid case raises that end point to just short of 100 million units. The VMT by this fleet is expected to grow by a little over 60 per cent in the low while it almost doubles in the mid. To help scale that in your mind, to double any aggregate from today to 2050, a compound annual growth rate of roughly 2% is required.
That may sound optimistic to some readers given the electrification zeitgeist. To help address those concerns at a high level before we get into the details, please be very clear about what we are not saying. We are not projecting business as usual for the entire MHDV segment. Nor are we suggesting that an extrapolation of past growth rates of MHDV oil consumption should be the starting point for assessing the future. What we are saying is that the sub–segments of the MHDV umbrella exhibit very different pre–conditions for electrification, ranging from highly amenable to very difficult. That assessment informs our bottom up approach to the competitiveness of all non–ICE powertrain options for MHDVs, not just electrification, and a differentiated view of their penetration rates governed by the performance requirements of each sub–segment.
The quick summary is that heavy duty (HD) trucks (46 per cent of the MHDV fleet) will represent the final frontier in terms of the EV conquest of road transport. That conquest will not occur until deep into the second half of this century, if at all. Buses (14 per cent of the MHDV fleet) on the other hand, are highly amenable to electrification, and the fleet should move aggressively in this direction in populous emerging markets with urbanisation drives underway. This urbanisation could take the form of either pure rural–to–urban migration, as in India, or a hybrid of that plus increasing density in existing city clusters, as in China. Both support bus electrification. EV buses could achieve similar penetration rates and sales shares to EVs in the LDV space.
The likely electrification path in medium duty (MD) trucks (39 per cent of the MHDV fleet) is expected to be similar to that of their heavy duty brethren up to the mid–2020s, but at that point we expect them to diverge away from the heavy duty path and move materially towards alternative powertrains out to 2050. The social and technological forces behind the rise of the gig and sharing economies, and the online–to–offline revolution in Chinese consumer behaviour, will arguably help sponsor aggressive electrification at the lower end of the medium duty range, where the lines between a medium duty truck and a light commercial delivery vehicle are somewhat blurred. Our high case has EVs commanding more than one half of sales and more than one third of the medium duty truck fleet by mid–century.
The basic reason for the very different rates of electrification envisaged for trucks and buses is the minimum performance needs of the two segments.
The basic reason for the very different rates of electrification envisaged for trucks and buses is the minimum performance needs of the two segments. Simply put, buses demand far less of their powertrain than do trucks. First generation EV battery chemistries such as LFP (Lithium–Iron–Phosphate) are quite serviceable as a workhouse technology for buses. They are also safe and cheap. Long haul trucking is a far more demanding proposition. Carrying a heavy payload, at motorway speeds, for extended ranges, with little commercial appetite for extended downtime while charging, at a competitive total–cost–of–ownership, is a steep ask of an EV powertrain based on current and even projected technology.2
Further, the ownership profiles of the truck and bus segments are very different. The most important decision makers on the future composition of the passenger bus fleet are likely to be officials elected to or employed by sub–national public authorities. The concentrated buying behaviour associated with urban bus fleets allows for a shift in societal expectations to be reflected quickly as the fleet expands. The ownership profile in trucking, on the other hand, is fragmented enough to be atomistic. The bulk buying that does occur (such as the 100 thousand EV delivery vehicles recently ordered by Amazon, or the “up to 800” hydrogen powered medium-haul trucks ordered by Anheuser Busch)3 is a minor element in total turnover.
Fuel efficiency is an additional key lever for improving the carbon footprint of the MHDV sector. In our most aggressive case, we see efficiency doubling, or if you prefer, we assume that the fuel requirement per distance travelled by the ICE fleet halves.
If batteries are not the unitary answer, for the first turnover of the truck fleet at least, what other non–ICE technologies might assist the decarbonisation of the trucking fleet?
In any market potentially facing technological disruption, a critical element in assessing the potential pace of change is the life cycle of the incumbent technology. (You can read more about our “Laws of Technological Disruption Potential” here). In LDVs, lifetimes average 10 to 13 years. In MHDVs, the range is from 17 to 20 years, with HD trucks at the top end of the range. We estimate that the average age of the total MHDV fleet today is about 10 years. So the fleet will naturally turn over approximately one and a half times by mid–century. That highlights an additional difficulty for non–ICE penetration in trucks to progress rapidly.
If batteries are not the unitary answer, for the first turnover of the truck fleet at least, what other non–ICE technologies might assist the decarbonisation of the trucking fleet? The plausible options here are natural gas (in liquefied [LNG] or compressed [CNG] form) and hydrogen fuel cells. We see both technologies playing a niche role in the future of trucking. LNG and CNG trucks may achieve a double digit percentage of the fleet by 2050. Hydrogen will be less successful on this timeframe. Infrastructure and cost challenges are writ large for the rise of a hydrogen rich transport future, even where the powertrain performance characteristics make a lot of sense, as in long haul trucking.
 This figure excludes two and three wheelers, which if included would take the total up by around one million. All historical data from the IEA and I.H.S Markit.
 Tesla is expected to release their heavy duty “Semi” truck towards the end of 2020. However their long-haul, 500 mile range version is expected to cost ~50% more than a typical diesel truck.
 For Amazon, see https://arstechnica.com/cars/2019/09/amazon-orders-100000-electric-trucks-to-fight-climate-change. For Anheuser-Busch, see https://www.theverge.com/2018/5/3/17314606/anheuser-busch-budweiser-hydrogen-trucks-zero-emission-startup-nikola