CHICAGO -- On the periphery of the forecourt, developments are shaping up that could significantly shape the future fuels market. Here are five of the top potential game changers highlighted at the NACS State of the Industry (SOI) Summit held in Chicago.
1. Tesla Model 3: By the first day of the NACS State of the Industry Summit, consumers placed around 350,000 preorders for Tesla’s mass-market Model 3 electric vehicle (EV), which won’t be available until 2017. Meanwhile, only 70,000 EVs were sold in all of 2015, representing 14 different models. So are we about to see an EV explosion?
“I question whether it’s a game changer for the entire industry,” said John Eichberger, executive director for the Fuels Institute, during a presentation on the future of fuel. He pointed to the Model 3’s relatively small share of the overall vehicle pool based on preorders, or 350,000 out of 18 million vehicles.
“We have to ask ourselves, was the Model 3 fanfare and explosion of interest attention for EVs or attention to Tesla?” he said. “I think the phenomenon is isolated to the Tesla Model 3. I don’t think it’s an indicator some people have said for the EV market.”
That said, Eichberger believes EVs will begin to quickly gain critical mass as they address their biggest issues—range, recharge time and price—and consumers become more familiar and comfortable with the technology.
“We’ve got another 10 years before we see momentum on EVs, but when that momentum hits, watch out,” he said.
2. Car sharing and autonomous driving: According to one study, car-sharing services took about 500,000 in new vehicle sales off the market. Another new service, Turo, connects car owners with potential renters a la Airbnb. Are there longer-term implications?
As Eichberger noted, there has not been a measurable change in national vehicle miles traveled (VMT) or fuel consumption numbers based on the growth of these services. But they have great potential in urban markets. And autonomous driving is already creeping into the vehicle fleet with semiautonomous features such as parallel parking.
“I believe they really have the chance to change the face of transportation,” he said.
3. E85 out? In 2019, automakers will lose the ability to earn credit toward meeting their Corporate Average Fuel Economy (CAFE) standard obligations by producing flex-fuel vehicles (FFV), which can run on E85, an 85% ethanol blend. This means that unless consumer demand revs up, they will lose incentive to manufacture FFVs—so much so that a forecast conducted for the Fuels Institute by Navigant expects FFVs’ share of new vehicle sales to fall from about 12% in 2016 to only 1.25% in 2025.
“If you sell E85 at your store, you’ve got a couple years left to capture that 10% of registered vehicles before you start seeing that market start to erode,” said Eichberger, adding that there are efforts to extend the FFV credit. Otherwise, “we’re looking at a situation where E85 might actually dry up, disappear, after a 20-year effort.”
4. E15 in? In 2011, the Environmental Protection Agency (EPA) approved E15—the 15% ethanol blend—for use in model year 2001 and newer vehicles. Five years later, only about 230 stations in 23 states are selling it, according to Growth Energy figures. One big issue holding it back: The EPA currently restricts E15’s sale in summer months to FFVs only because it does not meet vapor pressure regulations for the season.
“The biggest challenge is the regulatory hurdle,” said Eichberger, noting that retailers who are selling E15 are doing so because it is profitable, not because the government is mandating it. “If this vapor [issue] is resolved, and E15 can be sold to consumers as a fuel year-round, I would not be surprised if in five years … tens of thousands of stores are selling E15.”
5. Premium gasoline revival. According to CSX data, premium gallons rose twice as fast as regular gallons from January 2013 to January 2016. One crucial driver is automakers’ introduction of more fuel-efficient, turbocharged engines that run on higher-octane premium gasoline.
“The auto industry is really focused on building a more efficient internal-combustion engine,” said Eichberger. “How do we get the most out of existing technology so we can improve efficiency, reduce emissions and provide customers with the driving performance they desire and demand? You can achieve that with higher octane.”
Automakers are hoping the government will enable even higher-octane fuel to be made available—think E25 or E30. E25 is much more cost-effective for fuel retailers to stomach; the challenge will be encouraging automakers and the government to consider this crucial factor as they plan out a higher-octane fuel future.
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