Tesla is growing. It is struggling with growing pains, but it’s still far and away the biggest corporate driver of the EV revolution. We can’t tease out corporate or government policies enough to make a list of things that wouldn’t exist if not for Tesla, but we know it’s a long and awe-inspiring list.
Still, Tesla is a “startup” in certain ways. It’s production output doesn’t at all match its market cap. Its overall corporate value is based on an expectation of massive growth. Even if things go well, we’re talking maybe 1 million cars a year by 2020, a small fraction of what a Volkswagen or Toyota is selling today. Don’t discount the possibility that people and institutions throw exponentially more investment at the company as it sees exponential growth in production and demand, but be cautious to not overestimate what Tesla can do alone.
In isolation, that’s a fun story. But the world is not a place of one isolated entity after another — the world is a highly interconnected place.
Tesla’s exponential growth, which seems more likely now than it ever did before, is just one part of the exponential growth of a giant industry — the EV industry. And that means an exponential decline of the fuel of the old industry, oil. Sure, EVs can see exponential growth for a bit while oil-dependent conventional cars still grow in demand globally (due to overall growth in automobile demand) — but that won’t last forever. In fact, it’s unlikely to last much longer.
Aside from Tesla pumping every penny it can earn into quicker and quicker growth, large auto companies with giant piggy banks Tesla could sit inside of are shifting as well. JAC & Volkswagen are putting $12 billion into their combined EV work in China. Globally, Volkswagen Group is putting $24 billion to $40 billion into electrifying every model, having 50 fully electric car models on the market by 2025, and being more than just a passive battery buyer. BMW is planning to electrify every one of its models by 2020. Jaguar Land Rover is planning the same target. Volvo plans to reach the same by 2019. These are all massive investments that point to a major coming shift in the auto industry globally, which means a major drop in oil demand.
Oil & gas accounts for 92.5% of Saudi Arabia’s budget revenues and 97% of export earnings. Saudi Arabia’s GDP is ~55% from the oil & gas sector.
Oil & gas accounts for 52% of Russian budget revenues and over 70% of its total exports. Russia’s GDP is ~16% from the oil & gas sector.
You seeing a problem yet?
Yes, these two major global political figures, not to mention others, are heavily reliant on a strong stream of oil revenue. If that revenue starts dropping quickly, it means the governments will experience a perhaps disruptive shift in their finances and challenges internally as a result. Challenges internally, with countries like these, can quickly lead to challenges globally.
Image by US Dept of State
Saudi Arabia is already in a period of shaky political transition, with some significant risks just from that. Some of its most powerful and well known princes were recently arrested, while power is being consolidated into the hands of a 32-year-old crown prince who seems more than willing to shake things up. This crown prince, MBS (Mohammed bin Salman), is interested in diversifying Saudi Arabia’s economy, but that doesn’t happen within just a few years, whereas a drop in global oil demand could.
If When Saudi Arabia’s governmental revenue takes a nosedive along with global oil demand, how will this 30-something prince respond?
“For Saudi Arabia, having to share output decisions with Russia, an ally of its arch-enemy Iran in the Syrian civil war, is a bitter pill to swallow. In the past, the Saudis could impose their will on prices and punish rivals by flooding the market, as they did against other OPEC members in 1985-86, Venezuela in 1998-99 and the U.S. shale industry in 2014-15. Russia was an afterthought.” Bloomberg writes. “But now the Saudi economy is reeling and the kingdom needs higher crude prices as much as everyone else. By some measures, including its fiscal break-even point, Saudi Arabia needs even higher prices than Iran or Russia, which is basing its budget for next year on oil averaging $40 a barrel.”
Amidst all the transition and high-profile arrests, Saudi’s political economy seems anything but stable. “Because of this vulnerability, we believe the kingdom, and more importantly Mohammed bin Salman, needs strong oil revenues — and hence higher oil prices — to ensure he stays in power,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London. But it’s not only a matter of price. The other critical piece of the equation is demand.
Vladimir Putin reportedly already took opportunity from recent oil pricing crises to leverage control over OPEC, something he would like to retain control of indefinitely. What type of instability and conflict is Russia willing and ready to sow in Saudi Arabia and other Middle Eastern countries in order to retain its newfound position as captain of the industry? What kind of geopolitical results — and terrorism results — will pop out of weakened global oil demand, weakened OPEC influence, and a Russian parasite in the neck of OPEC.
As much as everyone — and especially political leaders — like to think and feel like they are in control, the reality is that power can slip from fingertips quite quickly and easily, no matter how much you hold.
Extra oil production and resulting drops in oil prices recently presented major challenges for these influential countries. How much will a 10% drop in oil demand affect them? How much will a 20–25% drop in world oil demand affect them? What will the resulting geopolitical shifts and challenges be?
Will instability in the Middle East rise? Will Russia exert more influence over Middle Eastern affairs? Will Russia’s own piggy bank dry up so much that it faces its own internal political disruption and perhaps even more than that? What kind of sanctions will Russia face after Trump leaves the presidency, by the way?
Political discussions about these matters today remain quite mild. Political leaders can arrogantly presume EVs aren’t nearing a point of genuine, full-scale, mass-market disruption. But when that disruption becomes more apparent and looming, as these oil-soaked political leaders become more desperate, what kind of pressure will they try to put onto the US, China, and Europe? We can say, “hey, that’s Russia’s problem, that’s Saudi Arabia’s problem, that’s other regions’ problems,” but will it really be just their problem? How will they lash out in search of more power, influence, and income?
EV market share has gone above 1% globally. When will EV market share be 5%? When will it be 10%? When will it be a market share that disrupts the budgets of Russia and Saudi Arabia so much that they begin to panic?
Saudi Aramco is considered by some to be the most valuable company on the planet, worth up to ~$10 trillion according to some analyses. How much will that worth shrink and shrivel as oil-powered cars go from 99% of new car sales to 95% to 90% to 80% to 70% to 50%? In a CleanTechnica video I recorded earlier this year, Saudi Aramco’s chairman made the argument that fossil fuels can be cleaner than renewable energy. He said he believed we didn’t need to keep them in the ground. “In fact, I believe that, without the fossil fuels — by constraining their production — you actually are going to have a less sustainable global economy.” That sounds like a man in complete denial, doesn’t it?
Whether national governments decided to actually take strong climate action or not, though, cities are beginning to boot dirty vehicles and there’s going to be a disruptive shift toward electrification of transport anyway —whether Khalid A. Al-Falih, who is also Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, wants to believe it or not.
Getting back to Tesla, there’s still a matter we haven’t discussed in this piece. We’re just highlighting implications of a drivetrain shift, but what about modal splits. How many people will genuinely feel a need to keep a car when they can order a robotaxi from an app at any time of day? Uber apparently just ordered 24,000 self-driving XC90s. Tesla likes to be at the front of the line with tech like this. Over a year ago, CEO Elon Musk said, “full autonomy is going to come a hell of a lot faster than anyone thinks it will.” It was a couple of months later that Tesla announced all of its cars were being produced with hardware that allows for fully autonomous driving.
It’s been a long time since anyone at Tesla publicly talked about the company’s coming “Network,” which will reportedly allow Tesla owners to one day send their cars out as robotaxis to make some money on the side. It will be like having your own personal and unpaid Uber driver who goes and makes you money on your car when you don’t need it. What else will that mean if it gets through regulatory processes? Cheaper electric transport for non-Tesla owners. Death to gasoline/diesel taxis. Perhaps death to many cheap but polluting used cars. How much further will that cut global oil demand, especially if Volkswagen, GM, Ford, Nissan, Waymo, and others are implementing similar options.
Painting that picture, the world starts to look a bit better to me. However, shifting wealth to Tesla owners and their electricity providers means it’s shifting from somewhere else, and that’s potentially a lot of wealth. My experience is that people and nations of people don’t like to give up a lot of wealth if they’re getting nothing in return. What happens as it becomes clear that’s going to happen? What happens as outside investors in some of these companies and regions decide it’s time to bail? What will the political aftermath be? Who will clean it up? And what will millions of people feel and owe to those who clean it up?
Does all of this lead to more US investment? Does it lead to the US pouring more of its money into military programs to “secure” shaky regions? Does it lead to a lashing and lunging Russia and/or Saudi Arabia usurping influence and even control in regions where the US has been holding onto the working draft of the script?
Even if robotaxis don’t take off quickly, but even more so if they do, Tesla is set for rapid growth, and electric vehicles overall are set for rapid growth. Oil is set for rapid decline. Nothing else will change in the world as a result, right?
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