McKinsey & Co. sees impact of electrification putting a dent on lubricant demand by 2030

A recent report published by global consulting firm McKinsey & Co. sees demand for light vehicle lubricants beginning to fall in Europe and North America by 2030. In 2015, 52% of global lubricant demand came from the automotive sector, so a switch from internal combustion engines (ICEs) to electric vehicles would have a significant impact on the lubricant market, the report said.

“Despite the limited penetration of electric vehicles in 2015, the trend towards electrification of road passenger transport looks likely to gain significance over the next decade as more countries and municipalities around the world implement measures to reduce carbon, particulate and other emissions,“ according to the McKinsey report.

“The recent signing of the Paris Agreement, along with rising air quality concerns and the diesel emissions scandal, have all helped precipitate diesel or fossil fuel restrictions. France will ban all gasoline and diesel vehicles by 2040, while Athens, Madrid, and Mexico City have announced plans to ban all diesel cars and vans by 2025. China and India are also considering electric vehicle targets.

“At the same time, original equipment manufacturers (OEM) are divesting from ICEs, adding momentum to the transition. Volvo, for example, has announced it will no longer develop new diesel engines after 2019, largely because it believes compliance with carbon emission regulations would be difficult to achieve at reasonable cost.

“These and other similar moves around the world, combined with technology-driven cost and performance improvements, mean electric vehicles are likely to gain market share from ICE vehicles in the upcoming decade, more quickly than has so far been the case.”

McKinsey believes that engine oil demand will be hit the hardest with the shift to electrification.

“By 2030, we expect that the number of light vehicles will have risen to about 1.6 billion (an increase of 500 million from 2015), with an estimated 18% of the fleet (290 million cars) electric. At that point, only around 5% of the vehicle fleet could be HEV/PHEV [hybrid electric vehicles], while up to 12% of the vehicle fleet could be BEV [battery electric vehicles]—up from 0.1% in 2015 and representing growth of 38% p.a. between 2015 and 2030.

“This scenario would have a strong impact on the demand for light vehicle lubricants, because penetration of BEVs (which do not use engine oil at all) affects lubricants the most. Total lubricants demand in 2030, led by Asia, would still grow 1.5% p.a. to about 11 million metric tonnes. But, despite the overall increase, demand declines by around 1% p.a. in Europe and North America, and overall growth is far lower than it would be without the expected EV growth. After 2030, the impact is likely to be more pronounced,” the report concluded.