Shorting Oil, Hedging Tesla

[dalalsid]

I assume it means BEV and PHEV, and possibly full serial Hybrid. Renault/Nissan speak excludes conventional Hybrid unlike its peers.

Ghosn missed his early early volumes targets but he did build the factories for his 500k unit per year targets. But his battery factories were not competitive to his procurement departments deals with LG. It was a 4billion Euro program ($5billion USD)

Renault/Nissan operates differently to most automakers, they make profit selling cheap, they make a loss selling expensive (polar opposite to Daimler)

but for humor then, I was interested if you could make a graph for that automaker to get to 4.2million PHEVs/EVs by 2022. Its the baseline scenario that Renault Nissan is presenting to their stakeholders.

Doubling every year to 4.2M by 2022

No problem with PHEVs included manufacturing wise IMHO. Exclusive EVs is a problem because LG will become a bottleneck between Nissan/Renault and VW in 2020/2021. And PHEVs can be piss poor like the Prius Prime with 25 miles EV range and not like the Volt. If I were LG/Samsung I'd be putting up gigafactories now to deal with these future orders and if they don't materialize go into the car business.

 

[renim]

good, thanks

lets look at 2018 baseline
LEAF 100k (new model, double the outgoing 2016 sales)
Nissan Van 20k (new battery, wider availability)
Renault Zoe 50k (current sales rate)
Renault Van 20k (wild guess, big battery/motor refresh)
Dongfeng 36k (3% of 1.2m, just for chinese credits)
Mitsubishi 50k (revised model, new markets for double the 2016 sales)
which is about 276k for 2018
so the growth is from elsewhere, lines like Rogue/Qashqai PH&EV, Eclipse PHEV

the centre of the global market has changed over the past 8 years, time to move on from big Hatch to small SUV

 

[jhm]

If I were LG/Samsung I'd be putting up gigafactories now to deal with these future orders and if they don't materialize go into the car business.

That is a fundamental problem with the pack supplier model. The OEMs will need pack makers to ramp up like that if the have a ghost of chance of competing. But the pack makers will be assuming a lot of the build out risk if the OEM ambitions do not materialize. So either the pack makers get into the business of building cars (not just packs) or they hold back on ramping up pack supply. So the latter would not seem conducive to annual doubling. Imaging doubling your factory capacity every year, but lacking confidence that demand will be there. (I think this is why Tesla is in the Powerpack business, frankly.) But the former would be a major development. When we see pack makers ramping up to make cars, we can be sure they have either lost confidence in OEMs or they have discovered they can make a lot more money as an EV maker. Either way, it would be bad news for the traditional auto maker for pack makers to step directly into the EV market.

Bosch also looks to get into the EV drive train business. For Nikola Motors, they are making a modular, integrated drive unit for the semi. But just like Tesla, these drive units can be use in small cars as well! Tesla will be using the same drive units in Model 3 and Semi. So Bosch and Tesla seem to be following the same strategy. Who knew that the large scale diesel makers like Cummins could be disrupted by drive units designed for small cars?

 

[dalalsid]

good, thanks

lets look at 2018 baseline
LEAF 100k (new model, double the outgoing 2016 sales)
Nissan Van 20k (new battery, wider availability)
Renault Zoe 50k (current sales rate)
Renault Van 20k (wild guess, big battery/motor refresh)
Dongfeng 36k (3% of 1.2m, just for chinese credits)
Mitsubishi 50k (revised model, new markets for double the 2016 sales)
which is about 276k for 2018
so the growth is from elsewhere, lines like Rogue/Qashqai PH&EV, Eclipse PHEV

the centre of the global market has changed over the past 8 years, time to move on from big Hatch to small SUV

This is good. So the numbers in my spreadsheet were close enough with 2018 being 262500. Can Nissan double this in 2019?? I say no.

 

[renim]

This is good. So the numbers in my spreadsheet were close enough with 2018 being 262500. Can Nissan double this in 2019?? I say no.

Nissan can quadruple EVs with just the introduction of the Rogue/Qashqai EV
Mitsubishi can quadruple EVs with transition to Eclipse PHEV, (Mitsubishi is the easiest for Carlos to scale)
Renault is close to maxed out, its just incremental from here on.
Dongfeng Nissan, must ramp or pay credits, China is about 1/2 the worlds EV market, Nissan is preparing its best (distinctively low cost) for there.

I expect Renault Nissan figures were based on a bottoms up summation of what the expect to sell. They've been wrong before, but still became the world's no1 electric vehicle maker in unit volume, and that was the difference between being the world's No1 largest car company vs being the world's 3rd largest car company.

 

[jhm]

good, thanks

lets look at 2018 baseline
LEAF 100k (new model, double the outgoing 2016 sales)
Nissan Van 20k (new battery, wider availability)
Renault Zoe 50k (current sales rate)
Renault Van 20k (wild guess, big battery/motor refresh)
Dongfeng 36k (3% of 1.2m, just for chinese credits)
Mitsubishi 50k (revised model, new markets for double the 2016 sales)
which is about 276k for 2018
so the growth is from elsewhere, lines like Rogue/Qashqai PH&EV, Eclipse PHEV

the centre of the global market has changed over the past 8 years, time to move on from big Hatch to small SUV

Yep, that is about 4 doublings (15.2X) to get from a base of 276k to 4.2M. That is huge ramp for 4 years. At least this company knows what it takes to ramp up EVs.

 

[dalalsid]

Nissan can quadruple EVs with just the introduction of the Rogue/Qashqai EV
Mitsubishi can quadruple EVs with transition to Eclipse PHEV, (Mitsubishi is the easiest for Carlos to scale)
Renault is close to maxed out, its just incremental from here on.
Dongfeng Nissan, must ramp or pay credits, China is about 1/2 the worlds EV market, Nissan is preparing its best (distinctively low cost) for there.

I expect Renault Nissan figures were based on a bottoms up summation of what the expect to sell. They've been wrong before, but still became the world's no1 electric vehicle maker in unit volume, and that was the difference between being the world's No1 largest car company vs being the world's 3rd largest car company.

There is no Rogue EV coming in 2019. Do you know any different?

 

[jhm]

Changing quality mix is affecting crude oil price differentials and refining decisions - Today in Energy - U.S. Energy Information Administration (EIA)

Here is a nice discussion of qualities of cure (light vs heavy, sweet vs sour) and the complexity of refineries needed to process them. Light, sweet crude is easiest to refine into gasoline and diesel. More complexity is needed for to handle medium-heavy and sour crude.

So the light, sweet crude commands the highest prices, but the spread has been narrowing. Thus, refiners who had invested in more complex refineries to handle heavy and sour are at a relative disadvantage as the spreads narrow.

Opec has be cutting the supply of heavy and sour crude. So these prices are climbing relative to light, sweet. The impact of this production cut would be felt most acutely by complex refiners.

I'm not sure what implications this may have for say peak demand, but I does seem useful to have some perspective on this. Maybe when oil demand is in structural decline, we'll see some differential effects. Perhaps complex refineries will be more subject to asset value write downs or something like that.

 

[ggies07]

This is really good slide deck by Michael Liebreich, founder of BNEF. I think this is less BNEF and more Michael, which is good. The video should be better when released.

Michael Liebreich State of the Industry Keynote at BNEF EMEA Summit 2017 | Bloomberg New Energy Finance

I was coming in here to post this, but you beat me to it! The video is on the page you linked now. These are some of the slides I like from the presentation:

 

[SebastianR]

I was coming in here to post this, but you beat me to it! The video is on the page you linked now. These are some of the slides I like from the presentation:

Seriously, this is really really interesting stuff. I very much enjoyed the video and all their data. I wonder what Michael is doing next?

EDIT: I love a lot of the tweets coming out of #BNEFSummit on the streem of Michael here: Michael Liebreich (@MLiebreich) | Twitter

I liked this one: Seb Henbest on Twitter: "Solar: I got cheap because I manufactred at scale. Li-ion Batteries: hold my beer."

 

[ValueAnalyst]

Changing quality mix is affecting crude oil price differentials and refining decisions - Today in Energy - U.S. Energy Information Administration (EIA)

Here is a nice discussion of qualities of cure (light vs heavy, sweet vs sour) and the complexity of refineries needed to process them. Light, sweet crude is easiest to refine into gasoline and diesel. More complexity is needed for to handle medium-heavy and sour crude.

So the light, sweet crude commands the highest prices, but the spread has been narrowing. Thus, refiners who had invested in more complex refineries to handle heavy and sour are at a relative disadvantage as the spreads narrow.

Opec has be cutting the supply of heavy and sour crude. So these prices are climbing relative to light, sweet. The impact of this production cut would be felt most acutely by complex refiners.

I'm not sure what implications this may have for say peak demand, but I does seem useful to have some perspective on this. Maybe when oil demand is in structural decline, we'll see some differential effects. Perhaps complex refineries will be more subject to asset value write downs or something like that.

"I'm not sure what implications this may have for say peak demand,"

To answer your question: crude quality is a relatively shorter term phenomenon and does not factor into the peak demand discussion.

 

[ggies07]

I liked this one: Seb Henbest on Twitter: "Solar: I got cheap because I manufactred at scale. Li-ion Batteries: hold my beer."

haha, that's awesome.

 

[ValueAnalyst]

Distillate prices, along with other oil components, will rise in the coming months.

I repeat: Tesla does not yet fully grasp the magnitude of the demand level for its products.

Production plans will need to be revised upward, again, by a wide margin.

 

[SebastianR]

Distillate prices, along with other oil components, will rise in the coming months.

I repeat: Tesla does not yet fully grasp the magnitude of the demand level for its products.

Production plans will need to be revised upward, again, by a wide margin.

Missing from that picture: China + India

But aside from that I agree: Tesla does not yet fully grasp the magnitude of the demand level for its products.

 

[ValueAnalyst]

Missing from that picture: China + India

But aside from that I agree: Tesla does not yet fully grasp the magnitude of the demand level for its products.

Agreed, but for those who don't follow oil markets closely: the reason why China + India are not included in the graph is that reliable data is not available for non-OECD countries. There's a belief that China has been ramping up its SPR (which is only crude as far as I know, so would not affect distillate inventory calc anyway) and that this has been the primary reason for quickly declining OECD inventories, and that once China stops building its SPR, inventories will stop declining. I disagree. I believe global oil demand growth is underestimated and global oil supply growth (mostly U.S. shale) is overestimated and will prove unsustainable.

 

[transpondster]

This is important: EIA-914 showed a US oil production DROP for August vs. consensus of SURGE.

EIA-914 monthly production report

This is in-line with my earlier projection that shale oil production growth is being overestimated by the market.

We'll see if this reverses next month, but if it doesn't, oil prices will likely start moving up, which is positive for TSLA.

it's FLAT if not counting Alaska and Gulf...

Shale Billionaire Hamm Slams ‘Exaggerated’ U.S. Oil Projections

So EIA drilling report shows big increases
Monthly production reports shows flat
and shaleprofile.com shows slight increases
either way last site shows that shale oil isn't profitable at current prices

 

[ValueAnalyst]

Shale Billionaire Hamm Slams ‘Exaggerated’ U.S. Oil Projections

So EIA drilling report shows big increases
Monthly reports shows flat
and shaleprofile.com shows slight increases
either way last site shows that shale oil isn't profitable at current prices

EIA DPR is completely useless. Did you see the MASSIVE revisions to Eagle Ford projections FROM PREVIOUS MONTH in the last report? The only thing I look at on that report is how the legacy well production decline is tracking against new-well production, but I independently track the two components of the latter using some data from shaleprofile.com but also from DI Index and Baker Hughes.

EIA-914 is relatively more reliable, but it's at a two-month delay. What I would point out, however, is that EIA yesterday tweeted that August U.S. production is BELOW that of July, which is huge.

My devil's advocate says U.S. oil production will grow like a hockey stick later this year and 1Q18, due to higher rate of completions, but I think the D.A. is wrong on this one. My primary reason: how can completions grow so dramatically when nearly all co's just cut their 2017/18 cap-ex guidance in the last round of earnings calls? What Hamm said yesterday aligns with me.

Yes, there's a slew of oil data out there, but it's important to consider the reliability factor.

 

[jhm]

"I'm not sure what implications this may have for say peak demand,"

To answer your question: crude quality is a relatively shorter term phenomenon and does not factor into the peak demand discussion.

I don't think it has any significant impact on the timing of the oil peak. But it does have strategic implications going into the peak and consequences exiting. Think about Alhajji's interpretation that Saudi strategy is becoming product oriented. Such a view is elevating the role of refining infrastructure relative to crude production.

If you've got a lot of heavy sour crude to sell, you need to be sure that sufficient investment into refineries continues and is adequate for your supply. As demand for refined products falls off, refiner margins will be under stress, and this could like to declining investments in refineries. Since heavy and sour crude require more additional investments in special processing equipment, a decline in these investments could weaken demand for low quality crude. So some producers can lose demand more quickly than others depending on the quality of crude.

So right now is it problematic that the price differentials are growing narrow. This reduces the return on investment on equipment needed for heavy and sour crudes. Will this discourage investment in complex refineries? If so, you have a set up where certain producers will take a bigger hit from plateauing and declining product demand. So you have to wonder about the longer term outcome of OPEC cutting production of heavy crude and not the light stuff. Are they in fact compromising the long-term demand for heavy crude? Intentionally or not?

Think about Venezuela. It has an abundance of heavy crude, but it's refiners need to import light sweet crude from the US and elsewhere because they are not equipped to refine their own heavy crude without it. For years they have needed new refineries capable for their domestic supply, but have not been able to make the investment. It becomes increasingly doubtful that they ever will. So how does Venezuela fair as oil peaks and declines? The strategy of cutting heavy crude production may take players like Venezuela and Canadian tar sands out of the market more quickly than others.

This may not impact when demand for crude will peak, but it does have implications for which producers will be most profitable post peak.

 

[neroden]

I don't think it has any significant impact on the timing of the oil peak. But it does have strategic implications going into the peak and consequences exiting. Think about Alhajji's interpretation that Saudi strategy is becoming product oriented. Such a view is elevating the role of refining infrastructure relative to crude production.

If you've got a lot of heavy sour crude to sell, you need to be sure that sufficient investment into refineries continues and is adequate for your supply. As demand for refined products falls off, refiner margins will be under stress, and this could like to declining investments in refineries. Since heavy and sour crude require more additional investments in special processing equipment, a decline in these investments could weaken demand for low quality crude. So some producers can lose demand more quickly than others depending on the quality of crude.

So right now is it problematic that the price differentials are growing narrow. This reduces the return on investment on equipment needed for heavy and sour crudes. Will this discourage investment in complex refineries? If so, you have a set up where certain producers will take a bigger hit from plateauing and declining product demand. So you have to wonder about the longer term outcome of OPEC cutting production of heavy crude and not the light stuff. Are they in fact compromising the long-term demand for heavy crude? Intentionally or not?

Think about Venezuela. It has an abundance of heavy crude, but it's refiners need to import light sweet crude from the US and elsewhere because they are not equipped to refine their own heavy crude without it. For years they have needed new refineries capable for their domestic supply, but have not been able to make the investment. It becomes increasingly doubtful that they ever will. So how does Venezuela fair as oil peaks and declines? The strategy of cutting heavy crude production may take players like Venezuela and Canadian tar sands out of the market more quickly than others.

This may not impact when demand for crude will peak, but it does have implications for which producers will be most profitable post peak.

So you're seeing a difficult position where some refineries will win out at the expense of others depending on what *source* of oil they're designed to work with. Let me reiterate that the decline in gasoline demand in particular will lead to many existing refineries not being optimized to produce the right *product*, so this will be another piece of pressure on refineries.

Looks like the winner refineries will be producing jet fuel from light sweet crude. The biggest losers are probably those turning heavy sour crude into gasoline. I really haven't gone through the existing refinery stock to figure out which ones are well-positioned and which ones are badly positioned, and I'm not going to, but it seems clear to me there will be a shakeout in refining.

 

[jhm]

So you're seeing a difficult position where some refineries will win out at the expense of others depending on what *source* of oil they're designed to work with. Let me reiterate that the decline in gasoline demand in particular will lead to many existing refineries not being optimized to produce the right *product*, so this will be another piece of pressure on refineries.

Looks like the winner refineries will be producing jet fuel from light sweet crude. The biggest losers are probably those turning heavy sour crude into gasoline. I really haven't gone through the existing refinery stock to figure out which ones are well-positioned and which ones are badly positioned, and I'm not going to, but it seems clear to me there will be a shakeout in refining.

Another good point. So if refineries find adaptation difficult, this could lead to a situation were crack spreads on profitable products to go even wider. This would simultaneous keep product prices high even as crude prices are pushed lower. Thus, a decline in oil prices may not lead to lower product prices to consumers. This would keep price pressure up on consumers to keep switching to electric vehicles. Under this sort of scenario peak oil could come sooner and post peak could decline more rapidly. Just as scenario, but it is a pretty dark one for the oil industry.