rating-down-to-junk-300aAdvancements in battery technology could have significant implications for global credit markets, according to Fitch Ratings. Disruption may occur across sectors that account for close to a quarter of all outstanding corporate bonds. 

A leap in battery technology could increase the viability of electric vehicles (EVs) over internal combustion engines, resulting in a negative effect on credit in the oil sector. Transport accounts for 55% of oil consumption, according to Fitch.  Rapid advancement in battery technology may cause a polarization between electric utilities and the automotive industry. Companies dealing in renewable technology could increase their market share if batteries could solve supply problems. These conclusions are found in the first in a series of Fitch reports that examine the effects of advancements in disruptive technologies.

The transition to electric vehicles, however, would remain slow, even in the face of rapid change. Infrastructure investment and the long lifespan of new vehicles will create a barrier to the transition. Fitch estimates that it would take 20 years for EVs to comprise a quarter of the global car fleet.

Even so, the oil market could go from growth to contraction earlier than anticipated, brought on by reduced fuel demand. Oil companies will need to react early in anticipation of coming changes. Many have already begun the process of diversifying into batteries or renewable technology. Capital may act before the transition occurs, which could reduce oil companies’ access to equity and debt capital.

Courtesy Adam Fusco, staff writer  National Association of Credit Management