EVs, Oil, And ICE:  Impact By 2023 And Beyond

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Includes: ARMCO, BMWYY, CVX, F, FCAU, GM, PAG, RACE, SHI, SMP, TSLA, TTM, VLKAF, VOLAF, VOLVF, VWAGY, XOM
by: Ross Tessien
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.

Image result for projection graph for how fast EVs will replace ICE

(Source: Bloomberg New Energy Finance)

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.

  1. The time scale is far longer than is typical for historic disruptions. Disruptions normally play out in less than a decade.
  2. 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.

Background

Here is the graph I will discuss in this article.

(Source: Author, various data sources including EV Volumes, InsideEVs, Bloomberg NEF, oil sources such as Center for Strategic and International Studies, etc., see details below in article)

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:

(Source: Author)

However, there will remain for decades a large number of ICE vehicles so that transportation oil won't drop to zero. Instead, demand will drop to some low value and then slowly trend to zero over time.

Remember too that transportation fuel is perhaps 56% of the total oil market space (see graph below), while I'm only showing the oil demand for transportation fuel.

Here is the data used to plot the graphs:

(Source: Author)

Different assumptions shift the dates, but the overall shape of the graph remains consistent.

By 2023 and beyond, several independent factors can dramatically alter these predictions. So, this article is best considered a peek into what will happen for the coming 5 years.

The factors that will change these results significantly include:

  1. A large drop in oil prices due to EV penetration of the global fleet of vehicles. A reduction in oil prices will slow EV purchases and delay the end of new ICE vehicle sales. If this happens, then the drop in total new car sales will be reduced.
  2. Autonomous control, once realized and allowed to operate on public roadways or private roadways, will accelerate the adoption of new vehicles with autonomous control. As those will preferentially be EVs, I expect that whenever autonomous control becomes a reality, EV penetration will accelerate. If this happens, then the drop in total new car sales after 2023 will match the graph.
  3. Whenever Legacy Auto companies cease grousing and begin construction of EVs in earnest, the EV transition will accelerate.
  4. If oil producers manage to coordinate a global reduction in production volume, so that supply and demand are balanced, then the price of oil could remain high throughout the decline in transportation oil sales. This would accelerate the transition to EVs and accelerate the pace of oil sales' ultimate decline.

I expect a globally coordinated cutting back in oil production to fail. Individual producers and producing countries are self-interested, and this will hamper cooperation in mutual budget tightening to accommodate dropping demand for oil.

What went into making these graphs?

The graph is a tool, not the word of God. So, please use it and comment about it accordingly. The first task required to explore ideas like presented in this article is to perform a series of estimates for how the future might play out based on a wide range of assumptions. One needs to choose individual assumptions that appear to yield the most likely future outcomes.

This first section discusses a few of my assumptions and why I chose them. Skip to the next section if not interested in the foundation underlying the estimates.

To select my best guesses for each variable involved, I carried out a study of how the graph changed based on changing individual parameters. Here are the curves I obtained for one parameter, namely, how many customers (N) are removed from the new ICE car market space per new EV sold:

(Source: Author)

This study showed that for a range of assumptions, the date for the end of ICE ranged from about 2023 to 2028 based on this single variable. 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.

My estimate is conservative to Seba's estimate and aggressive compared to most analysts.

I repeated this sort of analysis, iteratively, to arrive at my final choices for each parameter as shown in the overall curve above.

For EV sales, I compared my estimates against past sales growth and find good agreement looking backward. I applied my simplistic equation which just assumes that global sales are increasing by an average of 50% each year so that if sales are 100 this year, they will be 150 next year.

I applied the ratio from 2018 with sales of 1.8 million EVs going forward and also going backward. The graph below shows the results going backward fit the actual data fairly well back to 2011. I feel the blue curve I adopted is reasonably accurate and slightly conservative.

(Source: Author with sales data from EV Volumes)

The only other estimate to create the graph is that an average EV will displace about 15 barrels of oil per year. I estimated this figure, and it also agrees with a Bloomberg NEF estimate.

What can we learn from the graph?

As with any projection, as time moves forward, we can check the assumptions and predictions and compare them against what is really happening. This graph creates a line in the sand that we can refer to in the future. We can plug new data into it and modify the predictions made today after we receive the real results in future years.

Therefore, to begin, let's be clear that this is one possible scenario for how things will play out. With that caveat, let's explore the expected market behavior.

  • Accelerating growth in EV Sales

In 2015, OPEC estimated that, by 2040, there would be about 46 million EVs globally. Then, in 2016, they increased their projection by 500% to 266 million or about 25% of the global auto fleet.

(Source: Bloomberg NEF via autotechreview)

Image result for number of EVs sold graph projection

(Source: Bloomberg NEF via NASDAQ)

This "Rise of Electric Cars" graph by Bloomberg anticipates that about 50% of the global fleet of cars will be EVs by 2040. It also projects that about 35% of new car sales will be EVs by that year.

My projection is different. 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.

(Source: Author)

But because I expect ICE sales to drop first and EV sales to grow later, I expect that EV sales will make up >90% of all (ICE + EV) new car sales by 2027.

(Source: Author)

This is dramatically different from the OPEC and Bloomberg NEF projections above. However, my estimate is slower than Tony Seba's estimates.

Mr. Seba said:

"China has 300 new EV companies" and

"By 2025, every new vehicle will be electric"

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.

Inadvertently, legacy auto companies shot themselves in the foot and collapsed passenger car sales. It's interesting to understand this and then know that GM and Ford are now grousing that they have no plans to replace ICE for at least a decade in their pickup and SUV lines. I suspect they realized that letting consumers know this kills current sales as I'm showing.

The problem now is that it's too late. Tesla and others are coming out with EV variants, so GM and Ford cannot put the cat back into the bag and worse, they look dumb trying to do so.

Therefore, as quickly as EV counterparts to the various vehicle styles become available, sales in those sectors will also collapse.

(Source: BlackRock via Market Realist)

What's easy to see is that as manufacturing technologies have improved, it takes less and less time for a disruption to evolve. Most disruptions today take less than a decade to play out from 20% to 80%.

I would suggest that planning for the EV disruption to displace half of ICE vehicles by 2025 would be prudent. And I would also suggest that getting out of ICE auto stocks immediately would be wise. While shorts have suggested Tesla has been headed toward bankruptcy, I suggest it is legacy auto, and many oil companies that are headed that direction, and soon.

The auto industry has small margins which means it will be difficult to survive a 50% drop in the entire market, even if they manage to deliver some EVs by 2025. Such a large and sudden drop in total sales will push most legacy companies into the red. The failure to build decent charging infrastructure and battery production capacity will exacerbate the problem.

Many oil companies operate at high extraction costs. Several companies in these two sectors should go bankrupt during this disruption.

If I am right, then the ongoing collapse of passenger car sales has nothing to do with a shift in consumer demand to SUVs and pickup trucks as analysts have suggested. The drop in passenger car sales is due to the introduction of EVs and all of the companies that have been saying they plan to introduce new passenger car EVs soon.

There are between 25 million in US and 100 million people worldwide that removed themselves from new ICE car purchases (see AAA survey)

Consumers, I feel, have believed the legacy auto hype that they were introducing new passenger car EVs to go after Tesla. They have decided to hang onto their older ICE vehicles until a new EV with price and features they desire becomes available.

Passenger car sales have collapsed as a result of the shift in desire for EVs, not SUVs. So, when a few companies come out with SUVs and pickup trucks, those segments will also collapse.

EVs will stress Ford, VW, GM and all ICE companies with a rapid drop in new car sales, segment by segment

Passenger car sales are dramatically down in the US. Most ascribe this to changing consumer preference. I ascribe it to the beginning of the downturn in ICE vehicle sales. This drop was initiated because numerous brands including Tesla, GM, Nissan and others, introduced and or announced their intent to introduce new EV passenger cars.

A flood of variants in the SUV and Pickup Truck spaces do not yet exist. So, consumers continue to purchase ICE versions of those vehicles. However, the first products in those key segments are projected to begin sales in 2020.

Sales of ICE variants in those two segments should follow passenger cars and begin to decline in 2019. New EV entrants from the likes of Rivian and Tesla are going to begin the shift away from SUVs and pickups built using ICE technology.

Rivian is just now introducing its new pickup truck and SUV at the LA Auto Show, November 27, 2018. The new pickup has impressive specifications, including a range of 400 miles being available. Engadget just released a video describing details of the pickup truck.

(Source: The Detroit Bureau)

Rivian will introduce their new SUV built on the same platform today, November 28.

(Source: Autoblog)

The company is led by Rensselaer Polytechnic/MIT Sloan Automotive Laboratory graduate. Rivian recently purchased a 2.6 million square foot auto factory from Mitsubishi in Normal, Indiana. They have 600 employees and plan to build pickup trucks and SUVs starting with first deliveries in 2020.

Rivian reportedly bought the shuttered Mitsubishi factory and its contents for only $16 million and even though it's much smaller than NUMMI that Tesla bought, it originally had a capacity for over 200,000 cars per year.

Bollinger is another start up that will introduce an EV pickup.

(Source: The Verge)

(Source: WorkHorse W-15 pickup via fleetcarma)

(Source: Havelaar Bison pickup via fleetcarma)

Tesla Electric Truck

(Source: Unofficial Artist Concept for Tesla pickup via fleetcarma. Though Musk's recent comments that the Tesla pickup would fit into a Blade Runner/Steam Punk movie probably means this image will not match what Tesla releases)

GM and Ford have recently groused that they are NOT developing EV versions of their SUV or pickup trucks. This is so absurd it must be a misdirection to try to curb market share loss.

InsideEVs wrote:

Mike Ableson, General Motors Vice President Global Strategy, said at the GM Global Headquarters in Detroit that we shouldn't count on an electric pickup from GM:

"The core business is going to be the core business for a couple of decades to come. There will not be any AV/EV pickups."

That GM is in such denial is mind boggling. So much so in fact, I don't believe it. With all of these proposed pickup trucks, do I really believe GM and Ford when they claim they are not developing a full EV pickup?

If they are being truthful, then they never played the game of Risk or Monopoly. Falling behind in the beginning of the game always spells doom later on.

What makes sense is that they may have learned from their mistake with passenger cars. Because every auto company announced plans to introduce new EV passenger cars, people actually believed them. Many of those people just decided to not purchase another ICE vehicle and are waiting for the promised EV versions.

This, I believe, is why the passenger car sales in the US are down by so much.

Having learned this, it makes sense to claim they won't build a pickup variant for a couple decades. In this way, people won't pull out of purchasing another new ICE version of those vehicle segments as they did with passenger cars. Claiming GM isn't going to build EV pickup trucks makes sense from the standpoint of preserving sales of ICE versions of those vehicles.

At least it makes sense if you don't have Tesla, Rivian, Havelaar, WorkHorse, and Bollinger all coming into the space with viable EV pickup solutions.

But we do have viable EV solutions so GM and Ford are now stuck. Either they must change their stated direction yet again, or suffer a loss of sales when the ICE market space collapses and they do not have an EV entrant to compete in the ongoing disruption.

If I am right, if Tony Seba is right, if a disruption is what is happening right now, then ICE car sales are going to collapse within a couple more years. This collapse will be faster than legacy auto companies will be able to handle the loss of revenue. 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.

To 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?

In order that Tesla acquire Ford would require that SUV and pickup truck sales drop too rapidly for Ford to react. Dropping sales would need to drive Ford toward bankruptcy. And finally, Tesla would need to acquire Ford using Tesla shares equity which means Tesla share price would need to increase.

For all of these criteria to be met is a long shot. But I think Tesla is headed up and Ford is headed down, so this possibility is worth being aware of. If my graph is correct and ICE sales will be virtually ended by 2026, then the odds of this playing out are fairly good.

If you are not interested in this curious angle and the likely impact on Ford, then skip ahead to the next section about the coming glut of oil due to EV market penetration.

Today, Ford is weak and getting weaker. The shares have been trending downward for the past 5 years and are off nearly 75% from their past peak of around $32 nine years ago compared to $9.30 today.

That Ford is a laggard in converting to EVs was made clear recently.

Musk tweeted with pride that Tesla had finally managed to build 5,000 Model 3 cars in a single week bringing the total production, including S and X to 7,000 vehicles. Just prior to this, Tesla was bleeding cash and itself headed toward the hard concrete bankruptcy wall as Musk recently revealed.

A recent CNBC article stated:

In response to Musk's announcement, Steve Armstrong, Ford's president of the Europe, Middle East and Africa region, tweeted how long it takes Ford to make the same number of cars. The tweet invites comparison of the two companies' production times: seven days for Tesla versus four hours for the more established auto manufacturer.

(Source: CNBC and Twitter via CNBC)

Most people that read the above laughed at the pitiful number of cars being built by Tesla. These people will side with Armstrong, and they make up the majority of people out in the world today.

But people that understand disruptions will instead laugh at Armstrong for his ignorance with how Ford is about to pass the way of Kodak precisely because of his ignorance concerning how the auto industry is shifting.

Anyone in psychology will recognize Armstrong's comment as the classic "build myself up by putting you down" sort of statement. It is mean. But worse, it often comes from those that feel insecure.

How fast Ford can build cars doesn't matter. What matters is how many of them are EVs, and on that front, Tesla out-produces Ford something like 20 to 1, and the disparity is growing fast.

Ford is betting on hybrid vehicles, while the EV leaders have already demonstrated that people prefer BEVs over hybrids. So, Ford is right now wasting R&D resources on the wrong vehicle type going forward. Of course, GM is doing the same and contends that a BEV pickup is not on their near term list of things to create.

If this disruption was going to take a couple decades, then these would be fine choices. But if my graph is correct and, by 2025, sales of ICE vehicles will be nearing 0, then the course of action being taken by Ford is exactly the wrong thing to be doing. This means Ford is, if my graph is even close to right, headed swiftly toward bankruptcy.

And other legacy auto companies will also be stressed and unable to acquire Ford.

On the last earnings call, Musk claimed he was most excited about the pickup truck. Is that because he really likes the steam punk styling? Is it because pickup trucks sell more units and generate higher profits than passenger cars? Or is it because he knows that releasing another EV pickup truck is the best course of action to further stress Ford and GM?

I suspect the answer is all three.

So, if actions are already in the works to drive Ford toward bankruptcy, and you are Musk and you know this, would you attempt to take control of Ford?

As crazy as this may sound today, it is worth reflecting upon the attempt by Porsche to acquire VW in 2008.

Porsche was tiny but profitable and had almost acquired a controlling interest in VW (OTCPK:VWAGY) by buying up shares of VW stock. Just as they were about to purchase the final batch of shares to take ownership, the world collapsed into a banking crisis, and Porsche was unable to acquire the additional needed loans.

Were it not for the banking collapse that year where banks refused to lend Porsche the additional cash to buy a controlling interest in VW, they would likely have pulled it off. Later, a business turnaround enabled VW to purchase Porsche instead.

Porsche failed, but the Tesla vs. Ford match-up is different. With a higher market cap, Tesla could simply acquire Ford for an exchange of shares Tesla.

First, we should consider Tesla's Mission Statement:

Tesla's mission is to accelerate the world's transition to sustainable energy.

Does acquiring Ford fit this mission statement? I think the answer is yes.

By acquiring Ford, Tesla could do what Ford won't. Convert an entire product line of ICE vehicles to EVs. In one strategic maneuver, Tesla could become the largest EV manufacturer on the planet. But, first, Ford must be facing bankruptcy.

Ford has already been dropping in value for more than 5 years. Part of the reason is that it carries a hefty $222 billion in total liabilities. Few companies will be willing to assume that enormous liability if Ford is faced with bankruptcy, and therefore, it is likely no one would step in to help. Even the US Government would have to see that Ford just has the wrong cars and even a loan would fail to bail Ford out of insolvency.

If the options available are "go bankrupt" or "be acquired by Tesla", being acquired would be the lesser of two evils.

Tesla could likely negotiate the $222 billion to be closed out for ten cents on the dollar. One logical number to settle the debt would be the value of Ford cash on hand, which is around $36 billion today. It's difficult to sell off the assets any other way so that something of order of 10 cents on the dollar would be a reasonable settlement.

Tesla could reasonably manage this by issuing Tesla shares if the terms were right.

In this way, Ford would continue to exist under the control of Tesla, and neither Ford nor Tesla will have ever actually gone bankrupt, a fact both companies like to promote.

When Tesla introduces the Model Y and the Pickup, sales of ICE vehicles in those segments should begin to fail. Dropping SUV and pickup sales will hurt Ford disproportionately to any other company.

If the SUV and pickup segments follow the passenger sales drop, then a loss of 20% revenue virtually overnight is possible. This dramatic a loss in sales would be very difficult to manage.

Will "David" acquire "Goliath" after hitting the giant with a little pickup stone?

Time until a glut of oil results from EV sales

The next important question is "How long will it take until a glut of oil is first caused by EV penetration into the global vehicle fleet?"

Generally, because all companies and countries want to sell as much oil as possible, the oil storage facilities have been kept fairly full. This means that a relatively small excess in oil supply vs. demand can trigger a glut.

To avoid this, oil producers like OPEC cut back on production.

For example, on November 12th, Bloomberg published, "Saudis See Need for Major Oil Supply Cut Amid Fears of Glut". The Saudis want to curb production by about 1 million barrels per day. In essence, this is price fixing and business as usual in the oil business. By limiting supply, the prices charged are higher, and the total dollars earned over time are greater.

If a glut is created, prices drop and the same volume of oil generates a far lower revenue. So, oil producers carefully balance supply and demand as best they can.

This balance of supply and demand requires that all of the oil producers work together. But if you look at where all of the oil comes from, can you imagine all of those independent interests acting in unison?

(Source: 2014 data from last glut at Political Theory discussion site)

To cause a glut of oil, all that needs to be realized is an excess production of around 1.5 million barrels of oil per day. So, the recent Saudi recommendation to cut production by 1 million barrels per day fits this expectation.

In 2014, oil producers acting independently over-produced by 1.5Mbbl/day. The result was that oil storage capacity globally became filled and a glut of oil needed to be gotten rid of. The solution, in addition to cutting back on production, was to drastically slash prices. Consumers traveled further, bought gas guzzling cars, bought more fuel, and burnt up the excess oil.

The following chart shows how the price of oil responded to that glut.

Crude Oil Futures

(Source: Bloomberg EIA via Angelfire)

If instead of producers pulling too much out of the ground, EVs cause a drop in demand of the same amount, then another glut should manifest.

In a video well worth the time to watch, Bloomberg NEF estimated in February 2016 that EVs could yield a glut of oil around 2023. I arrive at the same year using current 2018 data in this article. So that date has remained fixed after nearly 2 years of EV market penetration. (Source Bloomberg video )

Dropping demand for oil

The coming EV disruption will be qualitatively different from the 2014 glut. In 2014, the glut could be fixed by simply cutting back on supply. When the EV driven glut begins, there will be an additional drop in demand each year as the installed EV base of cars continuously increases.

To balance supply with year on year decreasing demand, the supplies will also need to decrease, every year.

(Source of graphs: Author)

Today, the oil market is made up of demand in the following sectors (Source: Center for Strategic and International Studies)

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.

Companies and countries facing bankruptcy are not going to agree to cut back on oil sales. They are going to need the income to survive.

In the end, it is likely going to turn into a brawl. The winners will be consumers treated to low fuel costs, and the loser will be the planet as the use of ICE vehicles will be prolonged if nothing else happens to force the shift to BEV.

Interestingly, this means that Tesla should act in whatever way it can to keep the cost of oil high. Shale oil operators will also act to keep the price of oil high. Keeping the price of oil high will generate larger short-term profits for oil. But it will also drive an earlier shift from ICE and Oil for transportation, to EVs.

I suspect the US understands that the time remaining to dump oil is limited.

For this reason, the US opened sales of US oil reserves. CNN wrote: "After 40-year ban, U.S. starts exporting crude oil" in 2016. When I learned of that decision, I was at first confused. I believed in the peak oil idea. Once I understood that the problem now is getting rid of oil before demand for it ends, then opening sales of US oil made perfect sense.

The US has flipped from hoarding oil to dumping it, quietly, and as fast as possible.

The motto used to be "Peak oil is coming, let's conserve it". Now, the cry is "Get rid of it as fast as you can before no one wants the gorp".

Which oil companies are likely to collapse first?

The first oil companies to suffer from an oil glut will likely be the highest cost operations such as shale oil and oil sands.

I am not an expert on shale oil finances, but there are an awful lot of videos out there that claim shale oil is a financed Ponzi scheme. Here are some videos to consider if interested:

Other articles claim shale oil production is putting the US back in the number 1 position as a global oil producer. These articles claim that reductions in the cost of drilling wells has reduced the overall cost of shale oil production.

In this article from oil price.com, "U.S. Oil Production Is Set To Soar Past 12 Million Bpd" they claim that US shale oil production is increasing global supply by around a million barrels per day.

(Source: Zero Hedge: The Coming Collapse of US Shale Oil)

That the total oil production from shale oils is growing can be seen to be the result of a steadily increasing number of wells, and not from the addition of wells that keep producing at the initial rate.

Here is the production curve for a single well. The majority of oil comes out in the first year and then production is declining and low ever after.

Image result for typical production of shale oil well

(Source: Oleocene org)

The red graph above shows annual losses (negative black bars) and also the cumulative losses for oil production in the Bakken fields in North Dakota. The only reason oil production is growing is because more money is being spent to drill an ever increasing number of wells.

Are the steady and cumulative losses the result of this being a Ponzi scheme? I leave this to you. One thing seems certain. As EV penetration grows, oil demand will shrink. That should trigger a glut of oil unless all oil producers work together to strategically pull back on income and production.

Because that cooperation is unlikely, I expect a glut to form starting around 2023. If so, prices should drop as they did in 2014, and with that, the oil producers with the highest costs will be stressed the most.

(Source: Market Realist)

In the end, the world will need about half of the current production of oil by about 2030.

Conclusion

This article expresses my conclusions and opinions. I am not a certified analyst so make your own choices on using this information for stock decisions. At present, I own zero stocks of any company.

By 2025, I expect new ICE vehicle sales will be down by >61%. A sudden drop in revenue should result in large losses to several legacy auto makers. Legacy ICE auto makers will undergo severe financial stress as the demand for ICE ends and the demand for EVs grows. This stress will be particularly difficult to manage if as I expect, total new car sales are cut in half around 2025.

Today, one company that has done very little to convert to EVs is Ford. Though GM has also stated it has no near-term goals to develop an EV variant of a pickup truck. From their actions, most legacy auto makers expect the transition from ICE to EV to take a couple decades. If as I expect it happens in 5 years, there will likely be some legacy auto companies that fail.

Around 2023, the falling demand for oil should trigger an oil glut and a drop in oil prices. This will stress oil companies with high production costs making them potential short opportunities. It may also prolong the transition to EVs, helping legacy auto companies.

If Tesla can capture a first legacy auto company that is going bankrupt and convert that line to EVs, Tesla could overnight become the largest EV car company in the world.

Rather than attempting to acquire all of Ford, Tesla and other EV manufacturers may move to acquire shuttered vehicle manufacturing plants from GM and Ford, following Rivian's lead. GM recently announced closing more plants in anticipation of an industry down turn, potentially making the acquisition of production facilities easier for EV companies.

I am not an analyst, these are my opinions, so make your own decisions.

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