The likely contraction of the petrol market because of fuel efficiency and the growth of electric vehicles has underscored the necessity to be disciplined in any acquisition in Caltex Australia’s existing core business, chairman Greig Gailey has declared.

Mr Gailey said the company, which is thought to be in the running to buy Woolworths’ $1.6 billion petrol station network, does not intend to pay more for expanding its core business than it would be worth in the longer-term given the transformation that the market is set to go through.

“We’ll do [any such acquisition] with a high degree of discipline and we’ll do it with a very clear recognition of what might be down the road in 10 or 20 years,” Mr Gailey told a business luncheon in Sydney.

Fresh from a visit to Silicon Valley by the Caltex board last week, Mr Gailey said the company would “build our business in new and innovative ways”, expanding beyond the fuels and convenience retailing sector to take advantage of the changes being wrought on the sector by electric vehicles and self-driving cars.

Greig Gailey says electric vehicle sales could account for about 10 per cent of the light vehicle sector by 2025.
Greig Gailey says electric vehicle sales could account for about 10 per cent of the light vehicle sector by 2025. Erin Jonasson

He said Caltex would invest to optimise its core business but plan for the long term rather than take a “head-in-the-sand” attitude about the transforming market.

“I think you are going to be seeing us doing new and exciting things,” he said.

Caltex is believed to be one of three suitors still in the process for the Woolworths petrol retailing business, which is set to catch the eye of national competition tsar Rod Sims, who has voiced worries about the impact of any concentration of the market.

But Mr Gailey said that consolidation was inevitable for an industry confronted with a decline in demand for its primary product.

Improvements in fuel efficiency

He said the main challenge in the short term was an expected reduction in fuel consumption in the light vehicle market of about 5 per cent by 2025 due to improvements in fuel efficiency, which would more than offset an expected increase in distance travelled by the average car.

But longer-term, EVs and autonomous vehicles would have a greater impact.

“We believe that we have many good years ahead of us before we will be confronted with these challenges,” Mr Gailey said. “This is important because this gives us time to adapt.

“Now is the time to be developing a game plan to not only deal with the ultimate eventuality but to seek out the opportunities that these changes present.”

Mr Gailey said Caltex did not expect the big auto manufacturers to be producing a good mass-market electric car at a “realistic” price point until the early 2020s, predicting that by 2025 new EV sales would probably be about 10 per cent of the light vehicle sector.

He said battery technology was improving dramatically but it would need to come down from about $350 a kilowatt hour to under $200/kWh to make the cost of owning an electric vehicle comparable with the increasingly efficient internal combustion engine vehicles now rolling off production lines.

The advent of autonomous vehicles would probably change the whole concept of vehicle ownership, he said, but a fully autonomous vehicle was probably still some way off as it would require artificial intelligence close to human levels.

While the pessimists believed fully autonomous vehicles could be as far away as 50 years, it was likely they would be used in more constrained applications much earlier, Mr Gailey said, pointing to the about 500 engineers that Uber has in Pittsburgh working on a project for self-driving cars in a specific area.

Extracted from Australian Financial Review.