ECO 506 project

EV Effects onthe Kingdom of
Sudi Arabia
Economy
Saudi Arabia, a land where 68% of national income is generated from a single source:
oil. This black gold has been the main sector for the kingdom’s economy for many years,
it affects every aspect of life as we know. Yet, across the globe, a sign of disruption rises
– the electric vehicle (EV) – its quiet sound surpasses the conventional engine’s rumble.
This flourishing technology casts a long shadow on Saudi Arabia’s future, its potential to
upend the established order as potent as a desert storm. However, the kingdom rejects
standing still as a passive observer. Through the Public Investment Fund (PIF), a bold
diversification strategy avail. Lucid Motors, a well-known EV pioneer, stands alongside
CEER, a fresh entrant in electric car manufacturing world, and EVIQ, a pioneer in
charging infrastructure. These are not isolated moves; they represent a calculated shift,
a deliberate pivot away from the oil dependent economy.
Vision 2030 draws an aggressive plan for Saudi Arabia’s future, aiming to liberate itself
from oil dependent economy. While electric vehicles (EVs) are championed as a green
solution in the western community, their true environmental full life cycle footprint tells a
different story. The exploration, extraction, and processing of the batteries raw materials
leave a substantial environmental impact, while the development of charging
infrastructure presents a complex logistical and financial burden. Moreover, the
dependency on electricity generation, whose carbon footprint can vary drastically based
on the energy mix of any particular country, adds yet another layer of complexity. These
limitations suggest that while EVs can play some role, they might not be the silver bullet
for long-term sustainability. Investing in cleaner internal combusting engine (ICE)
technologies with their quick refueling, extended range, and higher energy efficiency may
offer more promising alternative. At the same time, adopting carbon capture and storage
(CCS) technologies can offer a cleaner environment to clean up existing energy sources
and reduce the impact of fossil fuels, with a bonus of having more beneficial financial
returns. By diversifying its energy portfolio beyond EVs, Saudi Arabia can walk the talk
towards a cleaner and more resilient future, one that safeguards its environmental future
while decoupling its financial well-being from oil.
This project drills-down into the fine line between Saudi Arabia’s oil-dependent past, the
EV-driven present, and the quest for a sustainable future. Can these strategic
investments shift the kingdom away from its 60% dependence on transportation-driven
oil demand, or will the sands of change bury them beneath the weight of
a dwindling resource? This exploration transcends mere economics; it navigates the
crossroads of tradition and innovation, where the very identity of a nation hangs
precariously in the balance.
Project guidelines:
The distribution of the grades for the project will be as follows:
a. The written part will be will be a 60%.
b. The presentation part will be 40%.
The project shall include the following:
1. Introduction which shall include description of the idea of the project (full explanation
of the idea).
2. Literature review of works that you would cite for your project.
3. Analysis of your project finding, including the use of indicators, tables and graphs and
with discussion of each of the abovementioned requirements.
4. Correct citation
5. Conclusion
6. References
EV Effects on
the Kingdom of
Saudi Arabia
Economy
Introduction
The Kingdom of Saudi Arabia is one of the most important oil producers in the world. Oil
production has been the fundamental cornerstone of Saudi economic development for several
decades, but the country’s dependency on oil reserves has fallen significantly. Back in 1979, oil
rents represented 87.1% of the country’s GDP, falling to 23.7% in 2021 (The World Bank, 2024).
Prince Mohammed bin Salman introduced Vision 2030 as a new strategic plan for the kingdom’s
economic development in 2016 (Saudi Vision 2030, 2024). Vision 2030’s goal is to transform
Saudi economy by diversifying investments as a way to reduce the country’s dependency on oil
rents.
Oil, or black gold has been the main economic sector for the kingdom’s economy for many
decades, and it affects every aspect of life as we know. Yet, across the globe, a sign of disruption
rises – the electric vehicle (EV) – its quiet sound surpasses the conventional engine’s rumble. This
flourishing technology casts a long shadow on Saudi Arabia’s future with its potential to upend the
established order as potent as a desert storm. However, the kingdom rejects standing still as a
passive observer. Through the Public Investment Fund (PIF), a bold diversification strategy avail.
Prince Mohammad Bin Salman took over the PIF in 2015 and his first public statement was that
under his leadership, the kingdom’s “addiction” to oil would end (Nakhoul et al., 2016). Some
example of PIF’s diversified investments are its large stake in Lucid Motors, a well-known EV
pioneer, stands alongside CEER, a fresh entrant in electric car manufacturing world, and EVIQ, a
pioneer in charging infrastructure. These are not isolated moves; they represent a calculated shift,
a deliberate pivot away from the oil dependent economy. The effects of these new policies resulted
in Lucid Motors opening its first international production plant in King Abdullah Economic City
(KAEC) in 2023 (Lucid Motors, 2023).
Vision 2030 draws an aggressive plan for Saudi Arabia’s future, aiming to liberate itself
from oil dependent economy. While electric vehicles (EVs) are championed as a green solution in
the western community, their true environmental full life cycle footprint tells a different story. The
exploration, extraction, and processing of the batteries raw materials leave a substantial
environmental impact, while the development of charging infrastructure presents a complex
logistical and financial burden. Moreover, the dependency on electricity generation, whose carbon
footprint can vary drastically based on the energy mix of any particular country, adds yet another
layer of complexity. These limitations suggest that while EVs can play some role, they might not
be the silver bullet for long-term sustainability. By diversifying its energy portfolio beyond EVs,
Saudi Arabia can walk the talk towards a cleaner and more resilient future, one that safeguards its
environmental future while decoupling its financial well-being from oil.
This project drills-down into the fine line between Saudi Arabia’s oil-dependent past, the
EV-driven present, and the quest for a sustainable future. Can these strategic investments shift the
kingdom away from its dependence on transportation-driven oil demand? or will the sands of
change bury them beneath the weight of a dwindling resource? This exploration transcends mere
economics; it navigates the crossroads of tradition and innovation, where the very identity of a
nation hangs precariously in the balance.
Literature Review
Oil and Saudi Arabia
Oil and Suadi Arabia go hand in hand. Saudi Arabia’s economic development has been
dependent on oil and it is still heavily dependent on oil (Sweidan & Elbargathi, 2022). The goal of
Vision 2030 and Saudi PIF is to reduce this dependency by transforming the nation, but it is still
a work in process. Saudi Arabia has benefitted from globalization as oil prices surged over past
decades. Even though many developed countries decided to impose trade barriers to foreign
imports from developing countries, oil has not been affected by them. Saudi Arabia’s economy
has flourished over the past decades but international risk has also increased. The country’s
dependency on oil exports makes it extremely sensitive to changes in international oil prices. Saudi
Arabia is a much more globalized country nowadays, but greater globalization can be a challenge
due to increased risks (Sweidan & Elbargathi, 2022).
Research by Mahmood and Murshed (2020) analyzed how changes in oil prices affect
Saudi economy. In the long run, changes in oil prices produce symmetrical results. In other words,
higher oil prices are correlated to higher economic prosperity, while lower oil prices are correlated
to lower economic prosperity. But as the kingdom’s economy starts to diversify, short run results
are asymmetrical. Greater diversification and strong government accounts limit negative economic
effects of low oil prices, while the positive economic effects of high oil prices continue (Mahmood
& Murshed, 2020). This can be considered a success for the kingdom’s modern economic policies.
Saudi Arabia’s Public Investment Fund
Saudi Arabia’s PIF managed approximately $776 billion in assets by the end of 2023 (Shan,
2024). It was also the leading investor among sovereign funds during 2023, with over $31.5 billion
invested both locally and internationally (George, 2024). The PIF is one of the pillars of Vision
2030 and is the driving force behind economic diversification (Saudi Arabia Public Investment
Fund, 2024).
Prior to the leadership change occurred in 2015 when Prince Mohammad Bin Salman took
over, the PIF mainly focused on investing in projects directly related to the energy sector,
strengthening the kingdom’s dependency on oil (Saudi Arabia Public Investment Fund, 2024).
When Prince Mohammad Bin Salman took over, the PIF’s priorities shifted towards diversifying
its investment portfolio. The PIF currently focuses its investments in six major portfolios. Some
of the major investments include (Saudi Arabia Public Investment Fund, 2024):
1. International diversified portfolio: Lucid Motors, Walmart, Amazon, Uber, etc.
2. International strategic investments: Blackstone, Softbank, Russian Direct Investment
Fund, etc.
3. Saudi giga projects: Neom City, Red Sea project, Qiddiya project, etc.
4. Saudi real estate & infrastructure development: Saudi Transport Company, Saudi
Electricity Company, Alinma Bank, Tadawul Real Estate, etc.
5. Saudi sector development: Saudi Arabian Mining Company, Saudi Arabian Industrial
Investments Company, National Shipping Company of Saudi Arabia, etc.
6. Saudi equity holdings: Arab Bank, Saudi Company for Artificial Intelligence, ASMA
Capital, etc.
PIF’s strategic objectives include investing in the following sectors: aerospace and defense,
automotive, construction and building services, consumer goods and retail, entertainment, leisure
and sports, financial services, food and agriculture, metals and mining, real estate, telecom and
new technologies, transportation and logistics, utilities and renewable energy.
Vision 2030
Prince Mohammad Bin Salman’s goal of transforming a country’s economy from virtually
a complete dependency on oil to a diversified economy is a huge challenge. Undeniably, the
kingdom’s economy flourished due to oil, but oil production will end someday. Vision 2030 is not
just an economic development plan; it represents a strategic plan for transforming the entire nation
(Saudi Vision 2030, 2024). Its aim goes beyond simply economic factors, as it emphasizes on
creating a society that allows citizens to pursue their dreams. Social transformation combines the
kingdom’s cultural values and traditions, national pride, social services, and modern Islam (Saudi
Vision 2030, 2024).
The first step towards transforming Saudi economy is to create a supportive business
friendly ecosystem and increasing investments in education. Vision 2030 acknowledges that the
pillars of economic prosperity are creation of new businesses and better education. Vision 2030
also strives to build better and more efficient government institutions.
Some of the program’s most important goals are developing and modernizing the
kingdom’s financial sector, achieving fiscal sustainability, improving health services, expanding
housing programs, enhancing education and development of human capital, expanding the
kingdom’s logistics services, modern infrastructure programs, etc. (Saudi Vision 2030, 2024). The
PIF is fundamental for economic diversification and investing in alternative energies. Shifting
away from oil is only possible if the country’s economy transforms into a more diversified and
vibrant economy.
Electric Vehicles
At first glance, EVs seem to be a great alternative for sustainable transportation systems,
but that is not the entire picture. There are multiple issues that must be solved first before EVs can
be considered a widespread global substitute for internal combustion engines (ICE).
Canada is a signing member of the Paris Accord and is implementing policies to reduce
greenhouse gas (GHG) emissions by 30% compared to 2005 levels. Doluweera et al. (2020)
researched about the impact of EVs on sustainability and energy consumption. Their findings show
that increasing the use of EVs can reduce GHG emissions, but factors like increasing electricity
demand, clean electricity generation, and controlled EV charging are aspects that affect the
sustainability of mass adoption of EVs. In order to offset higher electricity demand without
increasing GHG emissions, it is necessary to increase production of clean energies. But there is
also a problem related to electricity consumption during peak hours. In order for electric grids to
operate normally, EV charging must be limited to non-peak hours.
Another concern about EVs is what happens to batteries after their useful life is over? Hua
et al. (2020) researched sustainable reverse logistics processes aimed at recycling and reusing
lithium-ion batteries. Fostering circular economies where lithium-based batteries are reused and
pollution is reduced is possible, but faces multiple challenges.
Source: Hua et al. (2020)
Reusing batteries is the best option, but it requires multiple evaluations including
disassembly processes and software and hardware updates. Recycling is by far cheaper and easier
since components will be separated and used to produce other products. Recycling is not as
efficient from an environmental point of view, but it is more economically feasible. As the number
of EVs increases, reusing and recycling batteries is necessary since not doing so can cause severe
damages to the environment. More than economic feasibility, these programs aim at environmental
sustainability (Hua et al., 2020).
Another factor that must be considered regarding EVs is the impact in land use. Orsi (2021)
researched about the impact of generating clean electricity on land use. EVs represent a challenge
to modern cities that are densely populated due to increases in electricity demand and aging electric
grids. Higher demand for electricity also requires larger amounts of land for generating electricity,
although this is not a problem for Saudi Arabia. The main challenge faced by city planners is
disposable land for electric charging spots since charging electric cars at individual homes is not
feasible in large cities (Orsi, 2021).
Finally, a factor that must be considered regarding EVs is their high cost. Tseng et al.
(2013) researched about the economic feasibility of owning and operating EVs compared to ICEs.
Their research shows that subsidies are necessary for mass adoption of EVs since their higher cost
does not entirely offset savings resulting from using electricity instead of gasoline. This is the
reason why EV demand is higher on countries that subsidize them (Tseng et al., 2013).
Alternative Energies
Research by Grodsky and Hernandez (2020) show that even though solar energy
production seems to be the most logical source for clean energy in Saudi Arabia and other regions
with large portions of deserts, it is necessary to evaluate their impact in nearby communities. Large
installations can hold thousands of solar panels but different technologies require different
materials for generating electricity. Some of the most efficient technologies utilize large volumes
of water and that might not be feasible in Saudi Arabia. Regarding solar power generation plants,
concentrating solar power plants are more efficient (Azouzoute et al., 2020). Some of the
advantages of this type of plants is that they can produce electricity during a broader range of time,
and produce more output than traditional solar panels. The problem is that large volumes of clean
water are required, and that can result in a conflict if the number of solar generation plants and
population increases. Water is scarce in many regions of Saudi Arabia, so there must be a balance
between human and animal needs for water, and solar generation plants. The kingdom’s population
is growing at very high rates and its demand for both water and electricity is growing as well (Mir
& Ashraf, 2023).
Installation of large solar generation plants also represents challenges to surrounding
communities. Electricity plants tend to be located close to urban areas to reduce operating costs
and distribution costs, but their impact on communities’ well-being must be analyzed (Grodsky &
Hernandez, 2020).
Research by Al-Dousari et al. (2020) claims that energy production using solar panels and
wind mills is the best possible solution for large desert areas like the Middle East. There are some
challenges that need to be considered like carbonates or mud coatings, and their most efficient
location is not homogenous. Overall, wind turbines are more efficient near coastlines, while solar
panels are suitable for inland regions.
Project Findings
It is highly probable that the world will shift towards EVs or some other type of alternative
fuel for cars, reducing global demand for oil. Electric vehicles (EVs) are generally classified into
two main categories, battery electric vehicles (BEV) and plug-in hybrids (PHEV). Currently,
growth rate of EVs is very high but they still represent a relatively small portion of total cars sales.
Sales of BEVs and PHEVs increased by 35% during 2023 totaling 14.2 million cars (Irle, 2024).
Approximately 10 million were BEVs, meaning that they run solely on electricity. Sales of BEVs
and PHEVs combined represent 15.8% of total global sales of cars and light vehicles, with PHEVs
growing at slightly higher rates (Irle, 2024). Global sales of EVs is growing at much higher rates
than sales of ICE vehicles, especially in China and other countries where government subsidies
are available. Even though overall sales growth is very high, it shows a decreasing trend with
“only” 25-30% forecasted growth for 2024. This is still a very high figure, but it shows that
geometric sales growth are not sustainable in the long term.
Source: Irle (2024)
Decreasing global demand for oil will certainly reduce oil prices which has negative effects
on the kingdom’s economy (Alharbi, 2020). EV sales are still marginal in Saudi Arabia with less
than 70,000 light vehicles sold in 2022 (Oxford Analytica, 2023). Saudi Arabia’s economy is
highly globalized and the effects of higher EV sales will be significant. It is also reasonable to
expect that domestic sales of EVs grow at very high rates in the near future as Lucid Motors starts
selling locally produced cars and other manufacturers enter the market.
This represents three main challenges, how to deal with lower oil prices, how to produce
sufficient electricity to power growing demand by local EVs, and how to implement circular
economy plans for lithium-ion batteries?
Vision 2030 and Saudi PIF are fundamental for diversifying the kingdom’s economy in
order to reduce potential negative impact of lower oil prices. As the proportion of oil rents to GDP
decreases, negative effects suffered by the kingdom’s economy will decrease. Greater
diversification is the solution for decreasing economic risks associated to oil price volatility. The
following table shows a clear negative trend in oil rent as a percentage of GDP.
Source: The World Bank (2024)
Regarding production of alternative energies, the kingdom must foster installation of wind
turbines in coastal areas, while limiting installation of concentrating solar power plants due to high
requirements of fresh water. Solar power generation plants should be installed at safe distances
from urban centers since potential negative effects on communities and ecosystems are not clear
yet. Just because a large portion of the kingdom is desert, it doesn’t mean that solar power plants
should be installed everywhere.
The fact that Lucid Motors started producing EVs in Saudi Arabia is a major landmark and
shows that Vision 2030 is feasible. But the kingdom must also consider how used batteries will be
dealt with in the future. The current number of EVs sold in Saudi Arabia is very low, but as sales
volume increases, so will used and disposed lithium-ion batteries. Circular economies should be
part of the company’s production strategies. It is feasible for Lucid Motors allocate resources
towards repurposing batteries and other components of electric vehicles. One of the major
advantages of EVs is that they are mechanically much simpler than ICE cars. This also facilitates
repurposing and reusing parts and components. For example, battery packs need to go through a
complex process in order to be reused, but their useful life can be extended significantly reducing
waste and pollution.
Conclusion
Saudi Arabia is facing many challenges regarding its future economic development due to
changing global trends. The increasing popularity of electric vehicles will tend to decrease global
demand for oil, likely reducing international oil prices. Lower oil prices negatively affect Saudi
economy, but the severity of economic hardships decreased over time as the kingdom’s economy
diversifies. Greater economic diversification is the main objective of Vision 2030 and is being
fostered by Saudi Public Investment Fund.
Besides the economic impact of changing oil prices, the kingdom must also adjust its
infrastructure to deal with higher volumes of EVs sold domestically. Generating electricity using
alternative energy sources like wind turbines and solar panels is the best option for the nation. It
is necessary to thoroughly analyze and evaluate where these power plants will be located in order
to reduce negative externalities affecting citizens and the environment. Also, urban infrastructure
will need to be adjusted to meet changing consumers’ needs regarding EV charging stations in
urban areas.
Another important issue to consider is how to deal with disposed batteries. Implementing
programs based on circular economies that foster reuse of lithium-ion batteries is recommended to
reduce any potential negative environmental effects. Reusing also extends useful life of battery
parts and components, reducing negative externalities resulting from mineral extraction production
processes.
There are many challenges ahead, but Saudi Arabia has sufficient natural and financial
resources to overcome them successfully.
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