Electric Vehicles Poised to Shock Automotive Lubricants Industry in Long Term

Electric Vehicles Poised to Shock Automotive Lubricants Industry in Long Term

Time to Change the Oil?

Automotive lubricant blenders and marketers are keeping a close eye on government regulations for electric vehicles. The engine in electric vehicles (EVs) is battery-powered, as opposed to the internal combustion engines (ICEs) used in cars since the days of Henry Ford and the Dodge brothers. The lack of an ICE means that EVs do not require engine oils, a product that accounted for more than three-quarters of all global automotive lubricant sales in 2016.

Although EVs have existed for over 100 years, only now are they beginning to rival the ICE in terms of power and affordability. Accordingly, a number of car manufacturers, including Volkswagen and General Motors, have recently pledged to exclusively produce EVs in the future.

In addition, governments around the world are increasingly looking toward EVs as a way to reduce carbon emissions in wake of the Paris Agreement. Several European nations have set moratorium dates on sales of vehicles that burn gasoline or diesel fuel. However, in recent years an unexpected country has taken charge of the global EV market: China.

Beating the License Plate Lottery

While traffic congestion in China’s major cities seems daunting, the simple task of purchasing a license plate can be worse. In an effort to curb traffic congestion and pollution, many Chinese cities restrict the number of license plates they grant per year. Those they do hand out are given via auction or, in some cases, a lottery where the odds of being drawn are in the fractions of 1%.

The difficulty of obtaining a plate has created an intensely competitive atmosphere in a country where owning a car is increasingly becoming a necessity of middle-class life. Black markets have popped up around the country, resulting in some people paying more for their license plate than the car they attach it to. A chair throwing brawl erupted in 2015 in the city of Huzhou at one hotly contested auction. In Shanghai, a loophole in the rules forbidding private sales of plates allows free transfer between spouses. A number of Chinese citizens have exploited this gap via a sham marriage scheme, where plate owners offer their hand – and license plate – in matrimony in exchange for cash.  

An Electric Solution

The Chinese government offers another route to legal license plates: electric vehicles (EVs). Through a program that began in select cities in 2016 – and will expand nationwide in 2018 – special plates are issued for owners of EVs, allowing consumers to avoid the headaches of obtaining traditional plates.

The move by China is just one example of how governments around the world are getting creative about incentivizing EV purchases in the hope of cutting down on pollution. Norway – which has the highest adoption rate of EVs in the world – has experimented with various EV incentives over the years, including allowing EVs to be driven in bus lanes and free public parking. Other countries offer tax breaks, stimulus payments, or a combination of the two.

Hope Before the Horizon

It’s not all gloom and doom for automotive lubricant suppliers. Although the ICE is expected to be phased out of new vehicle production, the process will take decades to complete, even according to the earliest forecasts. Despite the impact EVs will have on engine oils, not all types of automotive lubricants are in danger. EVs still need greases and most need gear oils, which currently account for a small percentage of automotive lubricant sales, to lubricate their differentials, chassis, and wheels. Drivers will still need shock absorber fluids to help smoothen their ride and brake fluids to stop. Also, people haven’t started buying EVs without incentives from their government, even in rich, environmentally-conscious countries. Denmark – which has one of the largest EV adoption rates in the world – reduced incentives for purchasing EVs in 2016, and locals immediately stopped buying them. EVs still have some ways to go before they can rival classic cars on their own.

Want to Learn More?

The emergence of EVs is one of many factors affecting the global automotive lubricants market. If you’d like to know more, check out the recently published Global Automotive Lubricants study by The Freedonia Group.

About the Author

Cory Bretz is an industry analyst at The Freedonia Group, where he researches and writes studies on the US and global chemicals and construction markets.

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