Low-speed electric vehicles (LSEVs) could reduce China’s demand for gasoline and, in turn, impact global oil prices, according to a new issue brief by an expert in the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.

“Low-Speed Electric Vehicles: An Underappreciated Threat to Gasoline Demand in China and Global Oil Prices?” is authored by Gabriel Collins, the Baker Botts Fellow in Energy and Environmental Regulatory Affairs at the Baker Institute.

Disruptive innovation is typically a Silicon Valley buzzword and not one commonly associated with discussions of gasoline markets. Yet the past several years in China have seen the emergence of a potential disruptor: low-speed electric vehicles. These little vehicles typically lack the aesthetic appeal of a Tesla, but they protect drivers from the elements better than a motorcycle, are faster than a bicycle or e-bike, are easy to park and charge, and, perhaps most endearing to emerging consumers, can be purchased for as little as $3,000 (and in some cases, less).

—Gabriel Collins

The International Energy Agency estimated there were 4 million low-speed electric vehicles in China as of midyear 2018, representing about 2% of the country’s passenger cars, Collins said. Low-speed electric vehicle sales there appear to have slowed in 2018, but manufacturers still sold nearly 1.5 million of them—roughly 30% more units than conventional electric vehicle makers did.

Source: “Low-Speed Electric Vehicles: An Underappreciated Threat to Gasoline Demand in China and Global Oil Prices?”

Depending on how proposed government regulations of the sector unfold in 2019 and beyond, sales could rise significantly as low-speed electric vehicles penetrate deeper into lower-tier markets where motorcycles and bicycles remain the prevalent means of transport, as well as into the increasingly crowded urban areas where space is at a premium and many residents still cannot afford larger vehicles.

—Gabriel Collins

If a million low-speed electric vehicles displaced a million gasoline-powered midsize sedans from the market, about 15,000 barrels per day of gasoline demand could effectively be lost, Collins said. At the current estimated low-speed electric vehicle fleet size, the potential fuel demand displacement could exceed 60,000 barrels per day—2% of current total Chinese gasoline demand.

Low-speed electric vehicles (and other electric vehicles) are even more impactful when it comes to capturing incremental demand for transport services that might otherwise be served by gasoline-burning motors. Here, 4 million low-speed electric vehicles could capture an amount of incremental gasoline usage equivalent to the nearly 64,000 barrels per day of gasoline demand growth in China between 2016 and 2017.

The fact that low-speed electric vehicles in China have thus far been the only electric vehicles worldwide that have successfully sold at industrial scale without unsustainable levels of government financial support suggests that they are a wild card worth watching. This is particularly true given China’s outsized importance as the global ‘oil consumer of last resort,’ as well as the fact that if low-speed electric vehicle manufacturing capacity scales up in China, manufacturers are likely to begin targeting export markets in Africa, India and Southeast Asia. These regions have many of the same characteristics as rural China in terms of no prior car ownership history and low-income levels that often make ‘conventional’ cars prohibitively expensive for most consumers.

—Gabriel Collins

Collins conducts a range of globally focused commodity market, energy, water and environmental research. In addition to his research on shifts in China’s domestic oil consumption structure, he focuses on oil field water issues, evolutions in the global gasoline market, water governance and groundwater valuation in Texas and the nexus between food, water and energy.