How the Rise of EVs Is Leading Oil’s Demise

David Fessler By David Fessler
Energy and Infrastructure Strategist

Oil & Gas

If you drive by the Pontiac Silverdome stadium parking lot, you might think there’s a big game going on. The parking lot is filled to the brim.

But except for the flapping of a few pigeons, the stadium is quiet. And the cars in the lot never leave.

What gives?

It’s all part of Volkswagen AG’s effort to hasten the end of oil and roll out the red carpet for EVs.

Bad News for Oil Companies

Is Volkswagen contributing to the demise of oil? I believe so.

The German carmaker is spending billions on U.S. EV charging infrastructure. And it’s at the beginning of a huge plan to electrify its entire vehicle model line.

More charging stations mean less worry for EV owners when traveling. And a growing list of EV models to choose from means an increasing number of car buyers will try them.

We have reached the EV tipping point. And for that reason, I don’t believe peak oil demand is far behind.

Here’s where Volkswagen comes into play with those stored cars…

It turns out that the Pontiac Silverdome parking lot, a huge lot outside Detroit, and 36 other secure locations are being used by Volkswagen to store repurchased diesel vehicles.

Through this past February, the company plunked down a cool $7.4 billion to buy back some 350,000 diesel vehicles it had sold in the U.S.

Why? Well, you’ll probably recall that in 2014, U.S. researchers conducted on-road tests of certain Volkswagen diesel automobiles. The results were nothing short of shocking. Volkswagen diesel cars were emitting between nine and 38 times the legal limit for nitrogen oxide. They were emitting the same amount of pollution as an 18-wheeler tractor-trailer truck.

Volkswagen knowingly installed software in its cars to fool testing hardware into thinking the cars were passing emission tests. In September 2015, it admitted to illegally circumventing emissions controls on U.S. diesel vehicles it sold here since 2009.

The company pleaded guilty to three felony counts and paid fines of $4.3 billion to the U.S. And now it has to spend an additional $25 billion here to rectify its wrongdoings.

All that money will have a major impact on current and future investments in the oil industry.

In all, Volkswagen has agreed to repurchase roughly 500,000 diesel vehicles. It must buy back or fix 85% of the vehicles involved in the lawsuit. The company claims it has already purchased or fixed almost 83% of affected vehicles and believes it will meet the requirement soon.

In addition to fines and repurchase costs, Volkswagen had to create a National Zero Emission Vehicle Investment Plan. That means spending $2 billion to build out EV infrastructure.

The $2 billion is divided up based on existing EV populations. As such, California will receive $800 million, with the rest of the states dividing up the balance.

Good News for EV Owners

Whether EV owners know it or not, the Volkswagen settlement is good news for them. And it’s especially good for potential EV purchasers.

Some potential EV buyers may be holding off because of a lack of public charge points. The $2 billion that Volkswagen is spending to increase the number of charge points will quickly make that a nonissue.

Back in 2008, there were just 430 EV charge points in the U.S. The Tesla Roadster was the only EV in production.

But as my First Law of Technology states, “Technology marches on.”

Now potential EV buyers can choose from 25 different battery-electric vehicles. There are also 26 plug-in hybrid EVs available to consumers.

But that raises another concern: Can the U.S. charging network keep pace with the growing numbers of EVs?

Well, I think so. The U.S. now sports a total of 47,117 public and workplace charge points. And that number could hit 300,000 or more within the next five years.

It’s a new, disruptive sector. And another example of one that didn’t exist 10 years ago.

The end of oil isn’t something the market’s focused on yet. But based on the huge strides the EV industry is making, it’s time to readjust your portfolio before the music stops.

You don’t want to be among the last investors standing when someone officially announces that peak oil demand is here.

Good investing,

Dave