It’s time for oil investors to start taking electric cars seriously.

In the next two years, Tesla and Chevy plan to start selling electric cars with a range of more than 200 miles priced in the $30,000 range. Ford is investing billions, Volkswagen is investing billions, and Nissan and BMW are investing billions. Nearly every major carmaker—as well as Apple and Google—is working on the next generation of plug-in cars.

This is a problem for oil markets. OPEC still contends that electric vehicles will make up just 1 percent of global car sales in 2040. Exxon’s forecast is similarly dismissive.

The oil price crash that started in 2014 was caused by a glut of unwanted oil, as producers started cranking out about 2 million barrels a day more than the market supported. Nobody saw it coming, despite the massively expanding oil fields across North America. The question is: How soon could electric vehicles trigger a similar oil glut by reducing demand by the same 2 million barrels?



That’s the subject of the first installment of Bloomberg’s new animated web series Sooner Than You Think, which examines some of the biggest transformations in human history that haven’t happened quite yet. On Thursday, analysts at Bloomberg New Energy Finance weighed in with a comprehensive analysis of where the electric car industry is headed.

Even amid low gasoline prices last year, electric car sales jumped 60 percent worldwide. If that level of growth continues, the crash-triggering benchmark of 2 million barrels of reduced demand could come as early as 2023. That’s a crisis. The timing of new technologies is difficult to predict, but it may not be long before it becomes impossible to ignore.

Those who claimed low oil prices would crash renewables (other than biofuels) were wrong. The reason is simple. Wind and solar power make electricity. Oil makes less than four percent of world and under one percent of U.S. electricity, so oil has almost nothing to do with electricity. Thus in 2015, as oil prices kept skidding, global additions of renewable power set a new record, adding about 121 GW of wind and solar power alone. Renewables’ $329 billion investment was up 4% from 2014, says Bloomberg New Energy Finance (which tracks each transaction), but it added 30 percent more capacity because renewables got much cheaper. Solar power is booming even in the Persian Gulf, where it beats $20 oil.

Natural gas does compete with solar and windpower, and its price tends to move with oil’s, but cheaper gas doesn’t much affect renewable power either. That’s because new wind and solar power often beat even the operating costs of the most efficient gas-fired power plants anyway, even without counting the market value of gas’s price volatility.

Yet as oil prices gyrate, it’s important to understand that underlying trends are shifting too, to oil’s disadvantage. It’s happened before. In the 1850s, whalers—America’s fifth-largest industry—were astounded to run out of customers before they ran out of whales. Over five-sixths of their dominant market (lighting) vanished to competitors—oil and gas both synthesized

from coal—in the nine years before Drake struck “rock oil” (petroleum) in Pennsylvania in 1859. Two decades later, Edison’s electric lamp beat whale oil, coal oil, town gas, and John D. Rockefeller’s lighting kerosene. Today in turn, most traditional lighting is being displaced by white LEDs, which each decade get 30x more efficient, 20x brighter, and 10x cheaper. By 2020 they should own about two-thirds of the world’s general lighting market.

LEDs inside-out are PVs—photovoltaics, turning light into electricity. PVs often, and very soon generally, beat just the fossil-fuel cost of running traditional power plants. PVs are now less capital-intensive than Arctic oil, not counting the ability to use electrons more effectively than molecules. Costly frontier hydrocarbons like Arctic oil can’t sell for a high enough price to repay their costs. Their revenue model has been upside-down for years. Had Shell persevered instead of abandoning its $7-billion Arctic investment, and had it found oil, it wouldn’t have won durable profits.

Oil companies since 1860 and electric utilities since 1892 have sold energy commodities—molecules or electrons—rather than the services customers want, such as illumination, mobility, hot showers, and cold beer. This business model means that when customers use the energy commodity more efficiently to produce the service they want, the provider loses revenue, not cost. That’s bad for both electric utilities and hydrocarbon companies, because most (and for oil, ultimately all) of the commodity they sell can be displaced by far cheaper energy productivity.

That displacement is already well underway. Renewable electricity merits and gets lots of headlines, but in 2014 it raised U.S. energy supplies only a third as much as the energy saved in the same year by greater efficiency. Over the past 40 years, Americans have saved 31 times as much energy as renewables added. Those cumulative savings are equivalent to 21 years’ current energy use. They’re simply invisible: you can’t see the energy you don’t use. But globally, it’s a bigger “supply” than oil, and inexorably, it’s going to get much, much bigger.

Oil companies worry about climate regulation, but they’re even more at risk from market competition. The oil that’ll be unburnable for climate reasons is probably less than the oil that’ll be unsellable because efficiency and renewables can do the same job cheaper. An oil business that sputters when oil’s at $90 a barrel, swoons at $50, and dies at $30 will not do well against the $25 cost of getting U.S. mobility—or anyone else’s, since the technologies are fungible— completely off oil by 2050. That cost, like the $18 per saved barrel to make U.S. automobiles uncompromised, attractive, cost-effective, and oil-free, is a 2010–11 analytic result; today’s costs are even lower and continue to fall.

In short, like whale oil in the 1850s, oil is becoming uncompetitive even at low prices before it became unavailable even at high prices. Today’s oil glut, we hear, is caused by fracking, a bit by Canadian tar sands, and most of all by the Saudis’ awkward (though impeccably logical) unwillingness to give up their market share to higher-cost competitors. But less noticed, and equally important, is that demand has not lived up to irrationally exuberant forecasts.