The automotive sector is in transition. The future of light vehicles is electric; in time, perhaps autonomous (AEVs). Today, there are about 5 million electric vehicles (EVs) on the road globally, less than 0.5% of the 1.2 billion light vehicle fleet. That will change as EVs become competitive without subsidies in the 2020s, building an ever-rising share of the global car fleet that itself is set to grow by 50%.

Disruption won’t be quick, and the rise of the electric vehicle won’t be linear.

The range of possible outcomes is wide. We forecast 300 million EVs and AEVs on the road by 2040 in our base case – one in six light vehicles and rising. Disruption by EVs is a key factor behind our prediction that oil demand peaks in the mid-2030s.

But the disruption won’t be quick, and the rise of the EV won’t be linear. What suits the automakers and consumer preference will all affect the pace of penetration. Linda Giesecke, Research Director, Macro Oils, points to unexpected trends unfolding in the big five car markets that will account for 90% of EV sales.

First, the US, which will be home to almost a quarter of EVs by 2040

The Tesla Model 3 led to EV sales jumping by 80% in 2018. There are now 1 million EVs in the market, just 0.4% of the fleet. Yet the rate of growth is set to slow this year as tax credits for some models end.

The bigger story is soaring demand for gasoline-fuelled SUVs. Sales of SUVs were 8 million in 2018, almost half of US auto sales – up from a third in 2015 – although a shift is underway from the biggest SUVs to more fuel-efficient cross-over or mid-sized SUVs. We still expect US oil demand to fall 5% by 2025. But SUVs are impairing progress in fuel efficiency and making it tougher for automakers to meet the Environmental Protection Agency’s greenhouse gas emissions standard.

Second, China, now the world's biggest EV market

Sales almost doubled in 2018 to 1 million units, against the trend – overall car sales fell 4% to 24 million units as consumer finances dried up. EV sales should be buoyant again this year ahead of subsidy cuts in 2020. We expect China's EV stock to reach over 90 million units by 2040, 20% of China's total car fleet.

But SUVs are in the ascendancy with the growing Chinese middle class. A sideline a decade ago with 7% of the market, SUVs captured 42% in 2018 with sales of 10 million units. As in the US, the weighting of SUVs in the mix is bullish for oil consumption, which we expect to grow by 25% through 2025.

US and China auto sales by type

Third, India, where two-wheelers are the hot segment

The EV stock is minuscule today and reaches just 13 million in 2040. Sales of motor bikes and scooters in contrast are booming, up 19% in 2018 as India’s youth and rural dwellers take to the road. One in seven Indians now owns a two-wheeler, more than own cars. The car fleet, too, has much growth potential as living standards improve. We expect fuel demand from the two combined to grow by 0.4 million b/d, over 50%, through 2025.

Fourth, Europe, fast becoming a scrap heap for diesel cars

Amid concerns over the effect of fumes on health, policy and consumer sentiment have turned anti-diesel. Only one in three cars sold in 2018 was diesel, down from 1:1 three years ago. The law of unintended consequences? Diesel engines are more efficient; the renaissance of gasoline cars will make achieving the EU’s 2021 fuel-efficiency target much harder. Even so, we expect fuel demand in Europe to fall by 10% to 2025, with diesel declining at a faster rate.

Last, Japan – transitioning fastest and with only limited help from EVs. Improving fuel efficiency is the goal and it’s working; the 2020 target is already in the bag. Consumers’ lust for hybrid EVs (HEVs) and mini-gasoline fuelled internal combustion engine cars (660cc or smaller) is like no other market. HEVs are now mainstream, making up one-quarter of the 4 million cars sold in 2018.

These trends show that the road to decarbonisation in the automotive sector will have many twists and turns. ICE vehicles will hang on for some time yet.