UK ban of petrol and diesel cars to massively impact oil sector

17 August 2017 Consultancy.uk

The UK government has made plans to ban the sale of new petrol and diesel cars by 2040 – something already cited as having led to a steep decline in the sale of diesel vehicles already. According to Alan Gelder, a senior vice president at Wood Mackenzie, this will also have major impact on the refining sector and the oil markets.

The UK's new car market continues to shrink, with new car registrations down 9.3 per cent in the month of July, according to the latest figures from the Society of Motor Manufacturers and Traders. Last month saw 161,997 new cars registered in the UK, down from 178,523 compared to July last year. The total registrations for the year have now reached 1,563,808, representing a 2.2% fall from the first seven months of last year. Diesel sales have meanwhile taken the biggest fall of 20.1% for the month of July in which the government’s proposed ban of petrol and diesel vehicle sales, while falling 11% for the year in total.

In July, Britain’s government announced plans to ban all new petrol and diesel cars and vans from 2040, amid fears that rising levels of nitrogen oxide pose a major risk to public health. The plans, which followed a similar commitment from the new French government, came as part of the government’s much-anticipated clean air plan, which has recently been at the heart of a protracted high court legal battle. Ministers believe air pollution poses the largest environmental risk to public health in the UK, costing up to £2.7 billion in lost productivity in one recent year.

While Ministers have continuously ruled out clean air zones, which would levy punitive taxes against vehicles with major emission outputs like diesel vans, petrol and diesel vehicles seem to be experiencing a major public divestment in anticipation of such measures.

While diesel car sales continue to decline, alternative fuel car registrations rose by 64.9% in July and are up 31.4% for the year. Alternative fuel vehicles now have a record high 5.5% market share in the UK. According to the most recent figures published via the Office of Low Emission Vehicles meanwhile, there are over 100,000 hybrid and pure electric vehicles on UK roads at time of writing. Forecasts vary on how quickly this figure may climb in view of the government’s new tact, however distribution network operator Western Power Distribution recently predicted it will hit 1 million by 2020.

Thanks to the renewed interest in the technology, high profile firms like Tesla will be rolling out its cheapest model into the UK next year. Meanwhile, Volvo are pledging to produce electric vehicles (EVs) and hybrids only by 2019, and a recent study by Baringa Partners also suggested the tide could be turning for electric vehicles in that case. According to a recent statement by the Renewable Energy Association’s Matthew Trevaskis, head of electric vehicles at the organisation, the product cycle for new vehicle from research to launch is generally seven years, which means that soon the automotive industry will collectively be planning for petrol-free vehicles. Experts predict at that point, the pace of change will quicken even further.

UK ban of petrol and diesel cars to massively impact oil sector

According to Wood MacKenzie, a global consultancy specialising in energy and renewables among other things, electricity demand from the uptake of electronic and hybrid vehicles will reach 12 TWh or 3% of total electricity demand in the UK after 2025, requiring over 400,000 new public charging points at an investment cost of over £30 billion.

Alan Gelder, Wood Mackenzie’s senior vice president of refining and chemicals research said, “Sales of BEVs are expected to ramp up quite considerably after 2025, with one in three cars sold in the UK by 2035 expected to be fully electric (with typical new car sales over 2 million vehicles per year). By 2035, we expect the remaining internal combustion engine (ICE) passenger fleet will continue to consume over 6 million tonnes of gasoline and 7 million tonnes of diesel per year.”

This could result in a 40% reduction compared to the amount of fuel consumed by cars today – although due to growing demand from commercial vehicles and airlines, the total reduction in UK oil demand is projected to be only 20%. The UK currently has over 8000 retail stations, and this is already seeing around 100 close per year, while Wood MacKenzie predict by 2035 only 6000 sites may remain. If the government’s proposal permits only BEVs to be sold post 2040, then the situation will change even further. This could place the national grid under significant strain if action is not taken, however.

Johannes Wetzel, a research analyst in cross-commodity analytics for the firm’s EMEARC division, said, “Assuming that all ICE passenger cars were to switch to BEVs by 2035, electricity demand would increase by 55 TWH to 16% of overall demand, which would be a challenge for power grid stability, so massive investment in flexible power generation, electricity storage and the grid itself will be necessary. Currently peak load on the UK power grid is roughly 53 GW in winter. The introduction of fast charging technology means that EV charging load will rise as well.”

Earlier in the year a McKinsey & Company paper had forecast the approach of peak energy in the UK, as improving electrical efficiency meant less electricity would be needed for domestic and commercial use. However, hypothetically Wetzel and Gelder claimed that in 2035, if 5% of the EV fleet were to charge at the same time, the load on the grid could soar by up to 40 GW – and they therefore suggested the government would need to make massive investment in flexible power generation and electricity storage just to keep the lights on.

Gelder concluded that this is also likely to impact on the oil industry significantly, “The sustainability of the UK refining industry is threatened, as gasoline typically represents one third of the refined products supplied from UK refineries (though currently 20% of UK gasoline production is exported)… The impact on the oil, refining and electricity sectors extends beyond the UK, as if this change is delivered here, it is likely to be replicated across many other parts of the world.”

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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”