PEAK OIL - EPOCHAL EVENT OF OUR LIVES

[HowardHughs]

"Around 2023, the falling demand for oil should trigger an oil glut"

"Today, the total transportation fuel market is about 56 Mbbl/day. (The total oil market is conveniently close to 100 Mbbl/day).

"It is interesting to know that if oil prices followed business as usual, EVs would replace ICE within about 13 years from today. This is dramatically faster than 3 or 4 decades as most oil and auto predictions forecast.

"By 2022, the 4 million EVs installed base will have grown to 40 million and the 0.1Mbbl/day will grow to about 1Mbbl/day. By that date, a glut is almost certain to have begun."

From:
EVs, Oil, And ICE: Impact By 2023 And Beyond
Nov. 28, 2018 Ross Tessien


https://seekingalpha.com/article/4225153-evs-oil-ice-impact-2023-beyond


Summary
This article explores the timings and various impacts of EVs on Big Oil, and the ICE automotive industries, including shale oil plays, Ford, GM, Tesla, Rivian and others.

I find that ICE auto sales will drop 50% by 2025. Passenger car sales are down already with SUVs and Pickup sales to follow with Rivian and Tesla entering the space.

EV penetration into the global auto fleet should initiate an oil glut by 2023. Shale oil (high extraction cost) operations should become stressed first.

By 2031, there will be ~1 billion EVs in the global fleet of cars. This timing is 2 decades faster than many analysts are projecting.

Caveats: Dramatically lower oil prices will delay these projections and operational autonomous vehicle control will accelerate them. Some companies will soar, others will collapse.

Summary
This article describes expectations derived from a graph I created that estimates the pace at which EVs will disrupt ICE. Of note is that ICE vehicle sales should drop much faster than most analysts are projecting. Companies like Ford (F) and GM (GM) will be severely stressed if new ICE car sales trend toward 0 around 2026.

Legacy auto companies are planning on the EV disruption taking several decades. But disruptions never take that long once the new technology can match the old.

While Tesla (TSLA) is leading the disruption in the US, the majority of EV sales are being made in China. Whether Tesla will become the leading EV brand sold in China following the Shanghai Tesla factory starting sales remains to be learned.

Every graph I've seen that attempts to project the shift from ICE to EV all adopt the same, likely incorrect, idea. In the following graph, notice that the tops of the light blue bars follow a smooth trajectory.

The idea analysts are using is that the market for new cars will remain the same as usual, while there will be a shift from 100% ICE vehicles to some percentage of those cars being EVs by some future date. The BNEF graph above estimates that the shift will have reached 55% plug in vehicles by 2040.

I disagree with graphs that have this smooth top for total new cars sold for two reasons, in particular.

The time scale is far longer than is typical for historic disruptions. Disruptions normally play out in less than a decade.
The decision to - purchase a new car - is separate from and independent of the decision to - purchase an EV instead of an ICE vehicle -.
When someone decides their next car will be an EV, sales of ICE vehicles drop immediately. However, EV sales do not grow until that person finds an EV with features and price that meets the person's needs. The result is a drop in total new car sales as I show below.

In this article, I study the likely timings for these shifts in consumer preference from ICE to EV and from Oil to Electricity. There are around 90M new cars sold per year, and there are around 1 billion ICE cars in the global fleet.

Based on the information studied, I estimate new ICE car sales will be approaching 0 around 2026 and that the installed base of EVs will approach 1 billion by about 2032. I also find that a surplus of oil production should manifest around 2023. These projections are dramatically faster than most analysts.

I explore the potential ramifications of these estimates being correct and compare them to expectations of others that study historic technology disruptions like Tony Seba.

The curves are,

ICE sales (in blue) down 20% ~2021 and approach 0 ~2027
EV sales (in red) reach 20% ~2024 and pass 90M ~2028
ICE plus EV sales (in green) show a 35% decline in new auto sales around 2025. Some assumptions sets I made showed new cars sold dropping by 55% in 2025 for one year. The dip shown is a "best case" scenario for new car sales and assumes a rapid growth in EV production capacity.

Transportation Oil Demand (in purple) indicates a glut will form around 2023 with >2Mbbl/day demand displaced by the global EV fleet.
IEA estimates current global oil demand is around 100 million barrels per day. The projection is that the demand for oil is rising slowly, but with the changing markets, I use a fixed figure of 100 Mbbl/day. If actual demand rises, the effect will be to delay the downturn in oil demand slightly, but the EV effect is much larger than the projected rise in demand, making the rise insignificant compared to the EV penetration.

BP estimates that the global oil demand for transportation is around 56% of the crude oil demand. This means that around 56Mbbl/day go to the transportation sector, and this is the portion I consider in my graph below.

Plotting transportation oil demand out to 2032 and assuming a 1 billion car global fleet yields

"For my study, I chose the red curve in this plot as being most likely.

"I chose 2026 as the year when essentially all new cars sold are EVs.

"Tony Seba, who specializes in the study of disruptive technologies, now estimates that, by 2025, essentially all new vehicles will be EVs."

"I anticipate that, by 2030, around 700 million EVs will be in the global fleet. This is 3 times the cars in a decade less time than the OPEC estimate above."

"For this disruption to play out over the next 7 years should not come as a surprise to anyone that has studied past disruptions. EV sales are just now entering the rapid growth phase where consumer acceptance has flipped from one technology to the next.

Every legacy auto company has run advertisements now, indicating that they too plan to convert their line up to EV. From a consumer's perspective, this is proof that EVs are superior."

GM and Ford are right now at risk of following Kodak into the American history books.

A sudden drop in pickup and SUV sales greater than 10% of the market will financially stress Ford and GM as well as others. This is half the drop already experienced by many passenger car models. Ford, with most of its profits coming from its pickup trucks, should suffer the worst.

Does this mean Ford will continue the decline in stock value toward $0? I think the answer is yes. So, this makes Ford a long-term short stock.
o avoid this fate, GM and Ford would need to take drastic and immediate action to convert their entire line up to EVs. They would need to build enormous battery factories. And they would need to build a decent charging network that Tesla is NOT ABLE TO USE.

I see zero motion in these directions. When action is finally taken, the question will be whether there is enough time. When sales drop suddenly, the first thing to disappear are net profits on operations. And without those, legacy auto won't be able to develop their own EV entrants to compete in the new industry. Game, set, match to EVs will be the result.

If the downturn happens as fast as I project, it is already too late to react. Profits are about to disappear with declining sales.

If it takes a couple decades as the linear thinking analysts project, then sure, they will be fine. The problem is, as Seba points out in every talk, disruptions are never linear in spite of the smartest analysts at the largest companies repeatedly making linear projections for how things will play out. They are never right when it is a technology disruption taking place.

GM at least as the Bolt while Ford is in a denial haze, wandering off in "dead end hybrid land" with the market racing off in the opposite "BEV" direction.

Am I wrong? We'll know soon. Let's keep a close eye on pickup sales. The numbers should begin to drop by late 2019.

Could Tesla acquire Ford?.............

Time until a glut of oil results from EV sales.......

Which oil companies are likely to collapse first?..........

read it all!

https://seekingalpha.com/article/4225153-evs-oil-ice-impact-2023-beyond