Jan 20, 2023
Posted by Colin Morton, Senior Director, Consumer Lubricants
Forecasting the future is never easy—especially in the changing marketplace for automotive fluids and lubricants. The landscape is impacted as the transportation sector for light duty vehicles transitions towards an electric vehicle (EV) future. EVs have different fluid and lubricant needs compared to traditional automotive architectures, and it’s incumbent upon our industry to remain proactive and innovative in the face of change. This was the subject of a panel discussion which I had the privilege of joining late last year at the 17th ICIS Middle Eastern Base Oils and Lubricants Conference in Jeddah, Saudi Arabia. The Middle East region is home to some of the world’s key players in the global base oils market, while Saudi Arabia is the largest exporter of crude oil in the world. I was joined by representatives from Kearney, Saudi Aramco, Shell and Petromin Stellantis to discuss the impact of increasing electrification on the base oils market. Here are some key takeaways from our discussion:
A Gradual Evolution
There is no doubt that sales of EVs are growing. According to the International Energy Agency, “nearly 10% of global car sales were electric in 2021, four times their market share in 2019. This brought the total number of electric cars on the world’s roads to about 16.5 million, triple the amount in 2018. Global sales of electric cars have kept rising strongly in 2022, with 2 million sold in the first quarter, up 75% from the same period in 2021.”
But it’s worth keeping these numbers in perspective. There are an estimated 1.4 billion passenger cars in the world today, the vast majority of them powered by the internal combustion engine (ICE). Indeed, ICE technology has significantly evolved in recent years and continues to do so, with sophisticated hybrid and electrified powertrain designs. Emissions regulations have driven the trend towards engine downsizing, combined with advanced aftertreatment systems, which has led to the move towards higher-performing lubricants across the board.
These factors create a situation in the lubricants market where new investment into fluids for EV technology is required while maintaining significant investment into the core business to keep ICE vehicles functioning properly. Indeed, establishing relationships across the value chain and building expertise in these early stages of electrification are critical. While major returns may not be seen immediately, developing the complementary lubricant and fluid technology that will enable EVs to meet their full potential depends on investment, collaboration, and partnerships today for the longer term This leads to an important focus on strategy in balancing current and future business portfolio choices in a changing market.
Volume Transformation, Higher Value
The fluid and lubricant needs of EVs are on many levels fundamentally different than those developed to complement ICE technology. These technologies must be designed with electrical interactivity in mind, as fluids and lubricants will increasingly come into contact with electric components. e-Fluids must be compatible with the significant amounts of copper in electrified drivetrains, helping to prevent detrimental corrosion. And they must also account for different operating conditions. Dynamic viscosity, density, specific heat capacity and thermal and oxidative stability of fluids are all increasingly important attributes for these reasons.
Achieving the necessary levels of performance here will likely require formulation with highly refined base stocks. Group III base stocks will better enable formulators to deliver the required performance for EV applications, while Group IV and V stocks can help deliver even higher performance for specialized applications. So, while EVs may not consume the same amounts of lubricants by volume, we anticipate that the lubricants industry will be able to seize value in the marketplace with specialized formulations that provide performance suitable for EVs.
Meanwhile, EVs will coexist with ICE technology for the foreseeable future. The evolving needs of ICE technology will further drive demand for high-performing formulations, requiring higher-tier base oils as well. In all situations, the right base oil, paired with the right additive and performance polymer chemistry, can help formulators maximize the performance of their fluids.
The future of the base oils and lubricants market in the face of growing electrification will be that of ongoing innovation and increasingly rapid change. Our industry has already undergone significant change over the past 15-20 years, as traditional engine technology and aftertreatment systems have evolved to meet increasingly stricter emissions standards. I believe that the next 20 years will reshape our industry even further. It will be particularly important to focus on category value.
To meet those needs, we must embrace the change and identify how we can continue to add value to everything we do. Along with the technology that will make these things possible, we of course need the right people. Attracting the next generation of young professionals to our industry will be critical, to help pursue the technical solutions and breakthrough business thinking needed for a more sustainable future. A continued embrace of diverse talent—of developing ideas with the brightest minds in all countries, of people from all backgrounds—is absolutely essential. Inclusion matters and will be a differentiator for successful companies.
As new legislative measure, sustainability and emissions agendas proliferate around the world, the lubricants industry has the responsibility not just to respond to change, but to remain ahead and lead. If we embrace this role, long-term success will follow.