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Highlights

Electrification of the global vehicle fleet is gaining momentum, yet progress remains concentrated in select markets.

The automotive sector leads decarbonization efforts, while relatively more challenging technical demands mean the truck sector lags approximately a decade behind and varies across applications.

Evolving trends in fuel economy in the on-road sector are pivotal in shaping S&P Global Commodity Insights’ outlook that oil demand is poised to peak within the next five years.

Successfully meeting climate goals requires reducing oil consumption, which necessitates addressing transportation fuel demand. The electrification of the automotive fleet stands out as the most advanced initiative in the transportation sector, with 1 in 3 automobile sales in China being electric. However, the adoption of electric vehicles by American consumers remains lackluster, and the development of EV trucks lags a decade behind that of EV cars. Despite these challenges, the trajectory is clear: EVs are steadily entering key markets, while oil demand is approaching its peak. Nonetheless, the shape of the oil demand curve remains relatively flat due to fuel demand growth in emerging economies, which partially offsets the impacts of electrification in developed markets. 

Electrification in progress 

Policy and infrastructure play crucial roles in shaping the trajectory of electric vehicle adoption. While all three major EV markets — Europe, China and the US — have established long-standing government regulations and incentives to support EV sales and manufacturing, the scale of policy support in the US lags that of Europe and China. Moreover, Europe and China have made comparatively greater investments in public charging infrastructure, which continues to hold back EV adoption in the US. According to a recent S&P Global Mobility survey, after vehicle purchase price, lack of charging station availability is the largest reason for buyers not to consider an EV, with about half of survey respondents raising this issue.

There are signs that EVs are encountering challenges in attracting buyers beyond early adopters in the US. Despite price reductions, Tesla has indicated that its sales growth for 2024 may see a notable decline, while other automakers such as GM and Ford have cautioned about slowing EV sales and are scaling back investments in EV production capacity, particularly in the US. (See Tesla Q4 2023 Financial Results and Q&A Webcast, “Car Dealers on Why Some Customers Hesitate With EVs,” Wall Street Journal, Dec. 10, 2023.) In contrast, manufacturers such as Hyundai, Kia and BMW are moving ahead at a faster pace, meaning consumers have more models from which to choose. At present, the road to electrification is multispeed.

There are signs that EVs are encountering challenges attracting buyers beyond early adopters in the US.

Despite uneven enthusiasm for EVs among consumers, policy initiatives continue to forge ahead. Notably, the EU has a de facto ban on new light internal combustion engine (ICE) vehicle sales from 2035. Meanwhile, the US Inflation Reduction Act has widened EV sales tax credits and allocated funds to expand public charging infrastructure. In April 2023, the Biden administration unveiled draft greenhouse gas emissions standards through model year 2032. If implemented, these standards would effectively necessitate a greater portion of EVs or other zero-emission vehicles in the sales mix. For now, tensions between government regulations and consumer EV adoption are likely to persist in some key markets as EVs narrow the price gap with ICE vehicles and public EV chargers become more ubiquitous. The outcome of this tug-of-war holds significant implications for automotive manufacturers and fuel refiners alike. 

Trucks

When it comes to oil demand, trucks punch above their weight. Despite light vehicles outselling medium and heavy vehicles by a ratio of 30-to-1 in China, Europe and the US, each truck consumes approximately 10 times more fuel on average than a car. Historically, car and truck manufacturers have operated in largely distinct domains. 

Amid government initiatives aimed at decarbonizing the on-road transport sector, policymakers are directing greater attention toward the trucking industry. Over the past decade, truck fuel economy standards have tightened significantly, with an increasing emphasis on reducing greenhouse gas emissions.

Each truck consumes approximately 10 times more fuel on average than a car.

However, the rate of technological advancement in new trucks lags that of cars. Notable distinctions exist among truck subsectors and applications, and these distinctions influence background conditions for electrification, including driving range, payload and, ultimately, profitability. The electrification of medium-duty trucks shows promise in certain near-term applications, particularly in urban and residential delivery, where trucks operate from centralized hubs and daily route charging is feasible. Conversely, longer-haul applications necessitate remote or public charging infrastructure, with considerable electrical load and transformer requirements for moderate-sized truck stops. Due to these challenges, long-haul trucks may be more suited for hydrogen fuel cell technology as an alternative zero-emission solution. S&P Global Commodity Insights forecasts that sales of hydrogen-powered heavy trucks in the US will outpace electric trucks by 2050. Although decarbonization efforts through biofuels are underway, the sheer size of the truck diesel market suggests that these sources are unlikely to replace even half of the demand, given the competition for biofuels from other transportation sectors such as aviation and marine. 

A counterpoint to the relatively slow pace of truck adoption is the responsiveness of truck buyers to total cost of ownership compared with personal automotive buyers. While the up-front capital investment for an EV and its associated infrastructure is often higher than for ICEs, lower fuel and maintenance costs can reduce long-term ownership costs. As battery and component costs decrease, there is potential for more rapid growth in EV truck sales, particularly in medium-duty applications where infrastructure requirements are more manageable. Trucking companies and their customers are increasingly interested in creating more sustainable supply chains, providing additional motivation to transition to lower-emission vehicles and fuels.

In essence, progress in decarbonizing trucking is underway, albeit initiated later than for cars. In S&P Global Commodity Insights’ base case outlook, the adoption of zero-emission trucks lags that of zero-emission automobiles by seven to 13 years in key global markets. 

Oil demand

How do trends in road transport decarbonization affect oil demand?

On-road transportation has been a primary driver of oil demand, contributing to 62% of all oil demand growth over the past decade. Looking ahead, both light-vehicle kilometers traveled and trucking ton-kilometers of freight are projected to increase globally at 1.5%-2.0% per annum over the coming decade. However, on-road oil demand will not increase at this pace.

Modern cars and trucks are significantly more efficient than their predecessors, and this trend is expected to continue with the adoption of hybrid technology and electrification. The chart illustrates the breakdown of light-vehicle fuel demand, highlighting the impact of lower-emissions powertrains. In our base case forecast, which encompasses all powertrains, demand is projected to decline. This consumption forecast would be higher without the inclusion of EVs, and higher yet excluding hybrid technologies (cars with small batteries and electric assist motors but without a charging plug), along with the absence of ICE efficiency gains beyond current models.

The majority of on-road emissions stem from the combustion of gasoline and diesel fuel in automobiles, motorcycles and trucks. Global demand for these fossil fuels (gasoline and diesel, excluding biofuels) has steadily increased over the past two decades but is now showing signs of slowing and approaching a plateau (see chart). As demand declines, so do the associated greenhouse gas emissions, which are closely correlated.

The developed Organisation for Economic Co-operation and Development markets have shown minimal growth in demand since 2000, with emerging non-OECD economies, particularly China, propelling significant expansion (see chart). However, this dynamic is expected to shift, with China no longer the primary driver of gasoline and diesel growth, and on-road demand forecast to peak in 2025. Conversely, demand for these fuels in other non-OECD markets is projected to continue increasing as vehicle activity outpaces improvements in fuel economy throughout the forecast period.

Looking forward

The transition from ICEs to battery-powered cars and trucks will unfold gradually, with large variations by market and application. While oil will remain a primary power source for on-road transportation for decades to come, the energy mix will evolve, offering more alternatives for companies and shippers. Globally, significant progress is anticipated, especially with the ongoing increase in EV adoption in China and tightening fuel economy standards worldwide. This collective momentum is expected to contribute to a peak in global oil demand within the next five years, even as demand for petrochemical feedstocks and aviation jet fuel continues to climb.

This article was authored by a cross-section of representatives from S&P Global and in certain circumstances external guest authors. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent and are not necessarily reflected in the products and services those entities offer. This research is a publication of S&P Global and does not comment on current or future credit ratings or credit rating methodologies.

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