Monthly Archives: June 2022

When will petrol cars be phased out?

Bloomberg

Bloomberg NEF published its annual long-term electric vehicle outlook today, a deep look at the future on two, three, four and more wheels. The trends are clear: Despite the challenges of a pandemic, supply-chain crunches and trouble sourcing critical minerals, electric vehicles are eating into the transportation system and taking bigger bites every year.

Before we jump into the future, it’s worth mentioning the present state of EVs. At the end of this year, there will be more than 27 million electric passenger vehicles on the road out of a global fleet of more than 1 billion. There are currently fewer than 2 million electric buses and commercial vehicles plying streets worldwide.

There are also just short of 300 million electric two- and three-wheelers — the scooters, trikes and tuk-tuks that dominate roads in Asia. Electrifying every one of these segments contributes to reducing global oil consumption. Today, it’s these smallest vehicles that are denting oil demand most, although not enough to make global oil consumption fall, at least yet.

Today’s fleet is a result of yesterday’s habits, so to speak. With another year of global auto sales behind us, we can definitively point to the peak of a more than century-long trend of increasing internal combustion engine car sales.

In 2017, global new vehicle sales reached 87 million, and all but 1.1 million had an engine. That year will end up being the all-time high for deliveries of internal combustion cars. Sales dropped below 82 million in 2019, and in 2020 they plummeted to fewer than 70 million. ICE car sales will probably tick back up, but EVs are the predominant reason total auto sales will get back to where they one were sometime around the middle of the decade.

As sales rise and fall, so shall the fleet. BNEF expects that the world’s fleet of ICE cars, excluding hybrids and plug-in hybrids, will peak at just over 1.2 billion this year, dropping only slightly in 2023.

And after that, the decline is marked. By the end of the next decade, the global fleet of cars with an engine, rather than a battery or fuel cell, will be less than half the size it is today.

That switch in the source of automotive growth obviously has implications for carmakers, which have already devoted tens of billions of dollars of capital to electrification.

Most of the biggest manufacturers, in fact, are already aiming more than half their capital expenditures and research-and-development spending to EVs and digital efforts, which is self-fulfilling. Today’s investment serves tomorrow’s output. If investment is going electric, then so will production and sales.

That shift has major implications for infrastructure, as well, both at the street level and for whole countries’ grids. BNEF anticipates there will be at least $1 trillion worth of investment in EV charging networks by 2040 to construct and install 339 million charging connections in its base-case scenario.

If governments are serious about hitting net-zero emissions in the transport sector, charging infrastructure will need more than $1.4 trillion for just under half a billion chargers.

Energizing this new, vast system of cars and chargers will require a significant amount of electricity. EVs could increase global electricity demand by more than 4,700 terawatt-hours by 2040. That’s more than the current total consumption of the US. By 2050, the increase could be more than 8,800 terawatt-hours, more than China’s consumption last year.

EVs could account for between 10% and 13% of global electricity demand in 2040, and between 15% and 21% in 2050.

The electrification of road transport is well underway. There are hundreds of millions of personal electric vehicles on the road, and more than a million commercial vehicles and trucks.

EV sales are growing fast and the internal combustion era is starting to fade. In less than two decades, EVs will also begin to reshape our grids, the investment that goes into building them and the strategies that enable their growth. And if countries increase their efforts to reach net-zero emissions by 2050, we will see even more dramatic change.

Do not panic, manage your risk, and buy the dip, Markets may be slightly overreacting.

By Francois Stofberg 1 Jun 2022

During the first week of May, the Federal Reserve (US Fed) in the United States increased interest rates by 0.5%, for the first time since 2000. During the last week of the month, the South African Reserve Bank (Sarb) followed suit. We agreed with the decision of the US Fed but disagreed strongly with the decision of the Sarb.

While inflation in the US is exceptionally high, in fact, at a 40-year high, inflation in South Africa is not expected to breach the Sarb’s upper limit of 6% this year.

Whereas consumers in the US have just come out of the ten greatest years of wealth accumulation, consumers in SA have faced one hardship after the other.

Unemployment in the US was recently still at record lows, whereas unemployment in SA is still [generally] setting record highs. While South Africans struggle to secure employment, there are still more job vacancies than unemployed individuals in the US. And so, the list goes on.

Even though the Fed has made it abundantly clear that it is aware of the impact of its decisions on the US economy, showing that it is unwilling to risk forcing the US economy into a recession, investors are still fearful of a policy error. The month of May, therefore, brought no relief to markets or the weary, fearful investors that they represent. After what appeared to be a strong start, even the Johannesburg Stock Exchange (JSE) gave up its gains. Year-to-date, the JSE was down more than 7% at the end of May. Luckily, this is nowhere near the year-to-date contraction of roughly 26% that we have seen on the technology-heavy Nasdaq Composite.

But interest rate concerns are not the only drag on markets.

Other stressors

Markets have been worn out by the ongoing war in Ukraine and its impact on livelihoods, inflation, and global growth. There has also been a lot of concern about China’s zero-Covid policies that have caused work stoppages at ports and factories, which have fuelled the property slump and fears about a global recession. But we have continually reiterated that China has its reputation to protect, both externally and internally.

In true form, the Chinese central bank then announced that it would reduce one of its key interest rates. The five-year prime loan rate that governs how lenders base their mortgage rates was cut from 4.60% to 4.45%. This decrease will not only boost market sentiment and demand but should also ease global

In general, I, therefore, still believe that the markets are slightly overreacting. I am not saying that a recession is not possible, but even if this is the case, recessions usually do not last too long; in the US, recessions are typically between 15 and 17 months.

All the market volatility that we have been experiencing is, therefore, the perfect buying opportunity.

It is not the time to be getting out of the market but, like Warren Buffett, we are greedy when others are fearful.

So, if you are still saving towards a specific goal, like retirement, do not stop, but rather continue adding to your investment. Maybe also consider increasing your allocation. This will reduce your average entry price, which will increase your long-term potential returns.

If you are retired, ensure that you have managed your risk appropriately, that is, that you have enough income to get you through this short-term volatility (up to two years) so that you do not have to realise your losses and sell out of your equity positions. In the odd case that you are over-exposed and have not been managing your risk appropriately, speak to your financial advisor.

But most of all, do not panic!

Dr Francois Stofberg is senior economist at Efficient Wealth.