Rapid advances in battery technology are disrupting industries across the economy, from oil companies to utilities, and could have significant implications for global credit markets, Fitch Ratings says in a new report.
Improvements in battery technology could transform the viability of electric vehicles, which would be credit negative for the oil sector because transportation accounts for 55% of oil consumption, Fitch says.
Utilities also could be negatively affected, but Fitch said renewable energy companies could significantly increase market share as batteries are better able to solve the problem of intermittency.
Fitch noted that nearly 25% of all outstanding corporate bonds, or as much as $3.4 trillion, comes from utility and auto companies that rely on fossil fuels.
Advances in battery technology could lead to increased viability for electric vehicles, and electric utilities and automotive companies could be faced with choosing between winners and losers, Fitch said.
Electric cars have not had much impact on gas and diesel sales to date, but Fitch says the growth trajectory of EVs may be grossly underestimated.
The ratings agency did add, however, that the transition to EVs will be gradual because of the need for infrastructure investment and the fact that new vehicles can have a 20-year lifespan. Even with a 32.5% compound annual growth rate in EV sales, Fitch calculated it would take nearly 20 years before EVs accounted for 25% of the global auto fleet.
But reduced demand for transportation fuel “could tip the oil market from growth to contraction earlier than anticipated,” Fitch said, adding that a market with falling demand would be “a lot more risky for all oil companies.”
Fitch says it will be important for energy companies to react early to the potential changes. Many have already taken those steps, diversifying into batteries or renewables or putting more emphasis on natural gas. That kind of diversification will help “guard against the risk that the markets turn against them,” Fitch said.