How Far Down the Road Until Electric Vehicles Disrupt the Fossil Fuel Industry

How Far Down the Road Until Electric Vehicles Disrupt the Fossil Fuel Industry


Sean O’Reilly: Moving on, this is a speculative
story, but we have to talk about it. Tyler Crowe: Do we have to? O’Reilly: We do, because it’s a big deal.
Crowe: Aw man, dad! (laughs) O’Reilly: It’s a big deal! This could destroy
all of oil forever! Crowe: Aw, okay, fine. Whatever. O’Reilly: Basically, how fast could electric
cars disrupt the the oil industry? Bloomberg just put out an interesting piece and a companion
video under the headline, “Another Oil Crash is Coming, and There May Be No Recovery.”
It goes on to talk about how peak oil was clearly a myth, we can also talk about that,
because I have some thoughts; that once electric cars become increasingly popular via mass
adoption, which is not far away, according to them, it could be as early as 2023, oil
is screwed, basically, pardon my French, in not so many terms. How seriously should we
take this, what are the potential holes in this analysis, and is anybody at this table
selling their oil shares because of Tesla right now?
Crowe: No. O’Reilly: Okay.
Taylor Muckerman: (laughs) O’Reilly: We can leave now. (laughs)
Crowe: We’re done. Muckerman: This is, like, a pause for thought.
It’s definitely going to be a big deal. I don’t think in the next 3-5 years, which,
generally, I’m looking at stocks to invest in for. You want the stocks that are going
to be around in 10-15 years, but you have to imagine, with most companies, in five years,
you’re going to have to reevaluate your investment thesis anyways. But this is definitely something
that I think energy investors need to be worried about, because they’re projecting decades
of cash flows. OPEC and Exxon seem to– O’Reilly: Well, they had that projection– Muckerman: –downplaying it to 1% of overall– O’Reilly: They had that video, and OPEC is
reporting, by 2040, 1% of the vehicles in the world will be electric? That seems really
low to me. Muckerman: Whereas, Bloomberg says 35% will
be electric. So, there’s a lot more room for error from OPEC’s point of view, because it’s
not going to be less than what they expect, which would be good for them. It’s most likely
going to be more than they expect, which would be a bad thing for them. The thing here, I
think, you look at the increase in electricity needs when you have that many cars on the
road– O’Reilly: Well, and, do we have enough lithium?
I wanted to get your guys’ thoughts on … Crowe: Yeah. Muckerman: There’s plenty of lithium out there.
It’s one of the most abundant resources in the ground.
O’Reilly: Okay, that’s good. Crowe: It’s really not an issue. Muckerman: So, you have that and cobalt. So
maybe you look at some of these miners. But right now, because it is so abundant, these
miners haven’t been doing all that well. And then, maybe some renewable utilities out there,
because they’re talking about needing 8% of current electricity use, if this Bloomberg
projection is correct, in 2040. 8% of current production of electricity will be needed for
electric vehicles. O’Reilly: Wow. Crowe: So, I thought it was a very interesting
thought piece. One of the nice things about this is, it makes you think about your thesis,
and anybody who’s a long-term investor, it really gets your mind flowing in trying to
wrap your mind around some of the things that are going on that could totally transform
industries. The points they make certainly have a case. One of the things they talked
about mostly is what’s called the S-curve, the rate of adoption of a new technology.
And what they were saying is that we’re going to see a rapid acceleration of the S-curve
in the adoption of the electric vehicles, mostly with companies like Tesla Motors, Chevrolet,
and I believe Nissan, they’re all, within the next couple of years, looking to bring
out an electric vehicle, in the $30,000 range, which makes it certainly much more affordable
than what we’ve seen in the past couple years. And then, they made the comparison of rapid
adoption of certain technologies. They mention things like refrigerators, microwaves, cell
phones, things like that. So, there was the case to be made. Here are some of my counter
points, where I’m looking at it and going, “Okay, here’s some of the things that I feel
like don’t quite jive with that idea.” Let’s start with the purchase and adoption rate.
Going to buy a refrigerator, a cell phone, something like that, is a much more discretionary
purchase. $500 for a cell phone, it’s may be a few weeks’ paycheck or something like
that, but it’s not a $30,000 purchase. You’re not going to immediately go turn in your car
just because there’s a cheap EV to be had out there.
Muckerman: You are if you’re Sabine. O’Reilly: Well …
Crowe: You are. Muckerman: You’re just cashing it in. O’Reilly: What about, even, like, they’re
talking about, there’s a billion cars on the road right now, blah blah, we’re having a
hard time, here in the United States, getting to electric cars, and we have, theoretically,
or could pretty easily have, the infrastructure for all the charging stations and everything.
That’s going to be hard in emerging markets like India, Africa. It’s going to be harder
than it is here, and we’re not doing it super easily. Crowe: Right, so, the integration of not just
the electricity demand itself, but also the grid demands, are going to be huge. And one
of the things that I always feel like is slightly underestimated when we talk about these sort
of things, they always look at the adoption rates in China, and to a lesser degree, India.
But when we look at the developing world, there is a much, much wider swath that really
isn’t talked about a lot, when we talk about oil demand, petroleum demand, things like
that. And while we can see a decent decline of use
from the developed nations such as ourselves, most of Europe, and more and more becoming
China, what are considered the OECD nations, but at the same time, those developing markets
are growing at such a rapid pace, and the expansion of GDP, population, I feel like
the demographics of that are underestimated, and the demand for oil and energy are going
to be so great from that that I don’t necessarily see how robust that argument can hold up when
you have that much demand coming online. O’Reilly: The other thing that stuck out to
me was the peak oil point. That’s fine, I agree that peak $20 oil is gone. But I’m not
so sure that peak oil always and forever at certain costs is gone. Crowe: Please clarify, go on. Muckerman: Do tell. O’Reilly: Okay, so you guys remember, in 2008,
the books for coming out, peak oil and all that and whatever. What they’re talking about
is, now that is a defunct thesis. My point is, and a lot of the analysis that I’ve read
today is, that was correct for $20-30 oil. Saudi Arabia still produces for $10-20 per
barrel. We can’t. Shale’s what, $50-60? Crowe: Some people are pushing it down a little
lower than that. O’Reilly: But you see my point.
Crowe: But that’s prime time acreage. O’Reilly: And not only that, but U.S. shale
production is projected to peak in 2021, and all of the sudden we’re in decline again.
So, I’m not so sure that … because the first point the video made was, “Because of advanced
technologies and unanticipated things, we have way more oil than we ever thought we
would.” But really, this seems like more of a pause in a limited resource and our ability
to get it out of the ground. Crowe: Seems like a fair enough assessment.
If you look back, historically, there have been these times, a great example is the eighties,
where we were awash in oil, and everybody said, “We’re going to be fine forever.” O’Reilly: You had the North Sea, you had blah
blah blah. Crowe: Between the cycles of, “Oh my god,
we can’t find any oil!” All of the sudden, 10 years later, we’re like, “Ugh, what are
we going to do with all this oil?” So, that’s certainly a valid point in terms of trying
to take the assessment that we have today and basically projecting it out. O’Reilly: Well, and it was just in 2008 that
oil went up to $130, gave it a high five, and Goldman Sachs was talking about $200 oil.
This was just 6 years ago. And all this $20 talk is funny to me. Muckerman: They can figure out how to extract
more out of the ground. I mean, we’re leaving a ton of oil and natural gas in the shale.
So, if you can figure out how to extract that, then– O’Reilly: But that’s expensive, which lends
itself to my point. Muckerman: It is, and it has been in the past.
But it’s always gotten cheaper. I’m not saying it’s going to continue to get as cheap as
it has been percentage-wise as quickly. But … Crowe: We’re going really deep into this one.
I like this. O’Reilly: Today is deep philosophical … Do
we need pipes or something to be doing this? Crowe: No, nu-uh. Muckerman: Maybe pipelines. O’Reilly: Maybe pipelines? Muckerman: But yeah, that’s my thought, if
we really need to, there’s so much more underground that we can get it.
O’Reilly: Deep. Muckerman: Deep, way deep.
O’Reilly: The human spirit, Taylor. Muckerman: The American spirit! O’Reilly: Oh, god. (laughs) ‘Murica! Muckerman: ‘Merica, man. We’re the ones with
shale, that’s ours! O’Reilly: It is ours. Although, what’s-his-name,
McClendon, he’s going to Argentina, doing a little shale drilling. Muckerman: But that’s American technology. O’Reilly: Oh, here we go.