Markman Capital Insight

Electric Vehicles Now Menace Oil Biz

The car business is about to take us all on a wild ride. Autonomous vehicles will challenge industry business models. Electric propulsion will challenge the global economy.

This month, Toyota joined Daimler, Volkswagen, General Motors (GM) and Ford (F) in making a major longer-term commitment to electric vehicles. Big automakers are being pushed toward EVs faster than the public realizes. Business-model dynamics and clean energy regulators demand the course change. An unknown is the unintended consequences of removing even a small portion of energy demand from a crude oil market in equilibrium.

Right now, EVs represent just 1% of the total market. Even in China where demand is growing fastest, EVs account for just 337,000 units in a market of 22 million. And despite the bevy of shiny Teslas roaming Silicon Valley streets, EVs make up just a tiny fraction of the 17.5 million-unit U.S market.

That is going to change. Car companies know autonomous vehicles are coming. That will bring lower sales and a new Mobility-as-a-Service business model in which EVs will be sought after.

Veteran venture capitalist Steve Jurvetson told an audience that Uber Chief Exec Travis Kalinick recently told him that in 2020, if Teslas are autonomous, he’d want to buy all of them – 500,000 of estimated 2020 production, I’d want them all.”

That type of enthusiasm is not lost on auto company chieftains. They see EVs as their path to MaaS fleet sales. Toyota Chief Exec Akio Toyoda, is personally overseeing EV expansion. Volkswagen wants EVs to represent 25% of sales by 2025. Ford said it would invest $4.5 billion by 2020.

While the rise of electric cars now seems inevitable, it will have a devastating impact on long-term fossil-fuel demand.

In February, Bloomberg New Energy Finance analysts predicted EVs will reach price parity with internal combustion vehicles by 2022. More important, many of these models will have better performance. Add that to operational advantages and it’s tough to see why most people would opt for anything else. They are fun to drive, featuring terrific acceleration and nimble steering due in part to their lighter weight.

Based on trends and forecasts that take into account MaaS, Bloomberg analysts suggest EVs could create a 2 million barrel/day glut of oil as early as 2023. And that is where the unintended consequences get tricky.

Even Tesla founder Elon Musk concedes political advantages make it difficult to replace fossil fuels as the main source of energy. However, oil prices are governed by margins. A significant longer-term glut would ravage prices, force producers to give up on costly projects and flip the power structure in global politics. It would also wreak havoc with the U.S. petrodollar equation, but we will leave that for another day.

We know electric vehicles are coming. We know why. Now we just have to wait to see if politics will intervene.

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About Jon Markman:  A pioneer in the development of stock-rating systems and screening software, Jon Markman is co-inventor on two Microsoft patents and author of the bestselling books The New Day Trader Advantage, Swing Trading and Online Investing, as well as the annotated edition of Reminiscences of a Stock Operator.  He was portfolio manager and senior investment strategist at a multi-strategy hedge fund from 2002 to 2005; managing editor and columnist at CNBC on MSN Money from 1997 to 2002; and an editor, investments columnist and investigative reporter at the Los Angeles Times from 1984 to 1997.

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