ILMA Compoundings April 2018 - 24

INDUSTRY RUNDOWN

Market Report
PCMO 2040
A closer look at the future of
the passenger car motor oils
market
By Sharbel Luzuriaga and Konstantin Melnichuk
The world is facing changes in mobility. These changes
were initially triggered by ride-sharing platforms like Uber
or Zipcar but have recently gained significant momentum
with the growing attention around electric vehicles (EV)
and investments into developing autonomous vehicles
(AVs). Going forward, the convergence of both technological and societal disruptors has the potential to prompt
significant shifts in the automotive industry and related
markets. These changes also elicited several questions to
ponder for our industry: What are the direct and indirect
implications for stakeholders operating in the finished
lubricant business? How and will the impact be felt (both
timing and the degree of impact)?
Following are some of the considerations related to
the implications for the consumer automotive lubricants
market, specifically passenger car motor oil (PCMO), in 15
of the largest PCMO markets.
THE DRIVERS BEHIND THE CHANGE
The 2015 United Nations Climate Change Conference, held
in Paris, where 195 countries adopted legally binding global
climate deals, resulted in a global consensus toward the need
for cleaner energy and transport. The growth of battery
electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs
or HEVs) has been primarily driven by strong governmental
support in nations with stringent emission standards, such
as European countries. Moreover, the rapid deterioration of
air-quality levels has been the main driver in countries such
as China and other emerging economies.
Several governments have introduced targets for EV
sales, like the Chinese New Energy Vehicle program, while
other governments have committed to reducing or banning
new internal combustion engine (ICE) sales gradually, at a

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city level (Ultra Low Emission Zones in London), and/or
nationwide (i.e., the ban on the sale of new ICEs by 2040 in
France and the United Kingdom, among others).
Major original equipment manufacturers (OEMs) are
investing in EV technology, either proactively or as a
reaction to regulatory and competitive pressures. Traditional
OEMs - BMW, Volvo, Volkswagen, Ford and Renault -
all have unveiled plans to introduce new EV models and
set future EV sales targets in line with their government's
aspirations for the EV market.
With the above forces at play, sales of EVs (BEVs plus
PHEVs/HEVs), after a modest start, have been growing
over the last five years. Despite this exponential growth, EVs
still remain a fraction of the global car population. Hence,
any impact assessment is influenced by the length of time
assumed for the analysis. Industry professionals also question the green credentials of EVs, considering their footprint
if different energy sources are used to generate electricity.
Although EVs enjoy a positive perception among early
adopters and environmentally conscious drivers, the scarcity
of charging infrastructure, the vehicle cost, range and other
techno-commercial considerations remain major challenges
for broader penetration of EVs. Market participants share a
consensus view that 2025 might become the turning point
for the mass-scale adoption of EVs. By then, the cost of EVs
could have already reached parity to ICE vehicles, enabling
EVs to become the mainstream alternative.
COMPETING EV TECHNOLOGIES AND THE IMPACT
ON LUBRICANTS
The 2040 EV landscape is foreseen to be substantially
different from the EV market of 2017. According to Kline's
analysis, the EV industry will undergo a significant technological and geographical transition. Currently, HEVs are the
leading EV technology. HEVs were introduced much earlier
than the first BEV cars, building a presence in countries
including Japan over time. In 2017, about 90 percent of the
global EV population was concentrated in Japan, the U.S.,
the United Kingdom and Germany. Fully electric BEVs
are set to become the leading technology by 2040, while
hybrids (HEVs and PHEVs) are seen as a bridge technology.
In 2040, the share of BEVs is estimated to account for 16
percent of the total EV population, and about half of the
world's EV population is expected to be on Chinese roads.

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ILMA Compoundings April 2018

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