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ZachF
Active Member
I see that you are talking about peak ICE sales, which IMHO already occured in the US in 2015/16. The fleets themselves won't peak until the sales of EVs are greater than the increase in size of the car fleet. I imagine peak ICE fleet will be around 2023 when sales hit 2m+ a year in the US. Worldwide numbers will be a couple years after.
FWIW, my own more detailed model of EV, PHEV, and ICE market share has ICE sales growing to a peak of 102.6M in 2022. Four years later these sales fall to 86.0M in 2026. At this time the ICE fleet reaches 1,389M and needs to replace some 83.4M in the following year. But ICE sales begin to fall below that level so the fleet begins to shrink.
I am quite sure your model is good, but I think the drop in ICE sales is doing to happen earlier, as we just discussed. I don't see that much growth in ICE sales; I don't see how it happens. If the current 3.1% growth rate is maintained we only get to 90.4M peak *vehicle* sales by 2022, some of which are EVs -- the rate of growth car sales would have to go back up, and I don't see why it would.
I believe the "put off buying a new car -- there will be EVs soon" dynamic may be much larger than we had guessed.
Or it may partly be dynamic of "put off buying a new car -- there will be robotaxis soon", which lots of people seem to believe (though I don't think it's true, here the belief is what matters).
Or maybe cars really are lasting longer than they used to.
Off Shore
Off Topic Member
Yup, and that means death to the ICE Makers. There are going to be a LOT of orphan cars driving around for a while.
I agree. My model is not designed to anticipate a massive Osborne effect. I am assuming a 3.6%/y growth rate for total car sales. Then I've got a logistic model that that divvies up the market share between ICE, BEV and PHEV. To model an Osborne scenario, I could suppose some production ramp for EVs alone, then use the market share model to extrapolate ICE sales. So for example, if my model says that EV market share is 5% in a particular year and EV production is 5M, then we back into ICE sales of 95M. But if EV production is just 4.5M, we get ICE sales of 85.5M. It is a bit strange to think of a market functioning this way, but it would produce the desired effect. That is, we want somehow to represent the idea that production constraints in EV translates into suppressed growth for the entire market.
There may be some other way to model pent up demand for EVs that suppress actual sales. For example, Suppose total demand is 100M with 5% allocated to EVs. But only 4.5M EV are produced. Thus, 5M demand minus 4.5M supply leaves 0.5M unsatisfied demand for EVs. So total actual sales is just 99.5M (95M ICE, 4.5 EV), but the other 0.5M unsatisfied demand is making due with used cars for a year. This demand carries over to the next year. Suppose next year there is 7.5% demand for EV on a total demand for 103.6M vehicles. So specific demand for EVs is now 0.075*103.6+0.5= 8.27M, including the 0.5M carry over of pent up demand.
Let's suppose production ramps up 60% to 7.2M EV produced. So unsatisfied EV demand is now 8.27 - 7.2 = 1.07M. Meanwhile demand for ICE is 103.6*(1-0.075)=95.83M, and total sales are 103.03M on total demand of 103.60M. So we see with this example, that the growth rate in total auto sales can be suppressed for lack of EV production, meanwhile the pent up demand for EVs allow EV makers to command a premium for their product and motivate rapid growth in production.
Had EV production only grown by 30%, half of 60%, then EV production would have been just 5.85, so total sales would have been just 101.68. And pent up EV demand goes to 8.27-5.85=2.42M more than twice what it would be had production grown 60%. So we see that this pent up demand can grow quite fast if production growth is anemic.
In this cycle total EV demand with 8.27M with 0.5M pent up. To have satisfied this, production would need to grow 8.27/4.5=1.84, or 84%. Even modest amounts of pent up demand can motivate rapid ramp up in production. Also in this scenario Total auto sales would be 104.1M.
To summarize the scenarios, total demand grows 3.6% to 103.6M in this year, excluding pent up EV demand. But auto sales can range from 101.68M, 103.03M to 104.1M depending on EV production ramping up 30%, 60% or 84%. Perhaps a model along these lines could explain how eventually growth in the total auto market comes to depend critically on how much EV production can ramp up in a given year. I think it is transparent that the massive sales increase in the Model 3 is in part a function of pent up EV demand. Indeed, every reservation holder was signaling pent up demand in a very concrete way. My guess is that most of these reservation holders were simply holding onto their existing cars while waiting for their Model 3 to come to be built. So they held onto "used" cars for an extra year or two.
If pent up EV demand does become huge, what does this do for the used car market. I think in the short run it supports used car prices. But when EV production surges to catch up with this pent up demand, the situation can quickly change. People start to dump their old ICE onto the use car market as they finally drive away with the EV they've been waiting for. This potential for turbulence could motive ICE buyers to lean a little more towards buying or holding a used ICE vehicle. But I don't think EV makers can catch up fast enough with pent up demand to really undermine used car prices. The effect of pent up demand for EVs should be to suppress the ratio of average new ICE price to average used car price. This is really bad news for ICE makers because they are competing both with EVs and used vehicles for sales.
These are all things we've discussed quite a lot, but the challenge is how to express all this in parsimonious mathematical model. Modeling pent up EV demand introduces a latent variable, which cannot be directly observed. This really ups the complexity of the model, but may be necessary to represent an Osborne effect.
Oh, that's definitely going to be wrong. BEV+PHEV growth rate seems to be fixed; it's independent of the size of the car market, and will be for years to come. You can't put in market share as an independent variable; that's going to be wrong; it's a derived quantity.
I've been simply modeling BEV+PHEV production on the one hand, modelling total car sales on the other hand, and then subtracting the BEV+PHEV from the total car sales to get ICE production. I think this is the essentially correct model -- but it doesn't have an Osborne effect in it. It simply assumes that BEVs+PHEVs are superior goods and ICE cars are inferior goods, so that given a car market of a particular size, first all the BEVs + PHEVs will sell, and then everyone who can't get one (due to limited supply) will buy an ICE as a "consolation prize".
OK, that would be interesting to see.
That's also an interesting model. In my model above, I've simply assumed outright that 100% of new car demand is actually EV demand, while assuming that everyone will "settle for" an ICE car when the BEV+PHEV production runs out that year.
We could instead add a percentage who "won't settle for" an ICE car in order to model the suppressed/delayed car purchases. That would be a good model I think. If we supposed that 1% wouldn't settle for an ICE car, we should see a suppression amounting to 0.8M of delayed purchases each year. I wonder if we can test that?
SebastianR
Active Member
Hi all, is there a way to setup a Monte Carlo simulation in Google Sheets or something? Wouldn't it be fun to create our own crowd-sourced model and see what the likely scenarios are?
We have had great discussions over the past years here. But my hunch is we have a very volatile reality to model with hugely diverging outcomes depending on how the different factors play out. And many factors from OPEC behaviour, the US financials around fracking to the way that China uses their SPR all the way to how many miles are driven/how many cars are bought/advances on fuel economy, the next recession etc. really crowd the discussion and blur the picture.
We have had great discussions over the past years here. But my hunch is we have a very volatile reality to model with hugely diverging outcomes depending on how the different factors play out. And many factors from OPEC behaviour, the US financials around fracking to the way that China uses their SPR all the way to how many miles are driven/how many cars are bought/advances on fuel economy, the next recession etc. really crowd the discussion and blur the picture.
mspohr
Well-Known Member
Canada is desperate to get tar sands oil to market. Keystone Pipeline is latest setback.
Now they've come up with the idea of packaging the oil in little plastic pouches.
Oil pucks and pellets; Canada eyes new ways to move stranded crude | Reuters
Now they've come up with the idea of packaging the oil in little plastic pouches.
Oil pucks and pellets; Canada eyes new ways to move stranded crude | Reuters
So, there's something I've been thinking about, which is basically, "when does our 50% per year exponential growth curve slow down?" When do we see the "top half" of the S curve.
Well, Norway is the first market to look at. Norway went from 40% BEV+PHEV in 2017 to 60% BEV+PHEV last month, so that's still following the clean exponential growth curve. We will see in 2019 whether we go from 60% to 90% as the exponential growth curve would predict -- I'm personally guessing we will undershoot that a little -- but the fact that the exponential growth runs cleanly through 60% adoption is good news. If it runs through 90% I'm not worried about the remaining 10%. If it does slow down before 90%, this will be important data for projecting the worldwide adoption curve.
Well, Norway is the first market to look at. Norway went from 40% BEV+PHEV in 2017 to 60% BEV+PHEV last month, so that's still following the clean exponential growth curve. We will see in 2019 whether we go from 60% to 90% as the exponential growth curve would predict -- I'm personally guessing we will undershoot that a little -- but the fact that the exponential growth runs cleanly through 60% adoption is good news. If it runs through 90% I'm not worried about the remaining 10%. If it does slow down before 90%, this will be important data for projecting the worldwide adoption curve.
About peak oil demand, something I didn't see you mention yet: High mileage cars will be replaced first, because the relative advantage is higher. I'm guessing 15-20% of cars consume 50% of fuel. If you replace 50% of them, so only 12-15% of cars, suddenly there is 25% less fuel consumption.
Considering the Tesla treatment, Bloomberg has no credibility for me regarding electric vehicles. They're talking upfront price parity, but actual price parity has been there for large vehicles a while ago, see Model S/X sales in the US vs. German brands. Actual price parity for medium and even smallish vehicles is already only limited by Model 3 production. Other companies will be 3 years behind, so 2021. Who really believes in price parity in 2040?
Since we're already at price parity, I expect sales growth of EVs to be more like 80% to 120%, not 60%. See sales growth in China.
shlokavica22
Member
Oh man, this thread is from 2016. There is no way I can keep up with the Market thread and catch up with this one.
Therefore apologies in advance.
I have a question for you- what is your preferred short position? Do you short straight OIL, or certain oil related companies?
With the recent price drop and the gradual Iran restrictions, did you adjust your original positions?
Therefore apologies in advance.
I have a question for you- what is your preferred short position? Do you short straight OIL, or certain oil related companies?
With the recent price drop and the gradual Iran restrictions, did you adjust your original positions?
TheTalkingMule
Distributed Energy Enthusiast
I found a great investment opportunity for you guys. Apparently the Saudis are going to IPO Aramco in 2021!
Saudi Aramco IPO on track for 2021, CEO says
Saudi Aramco IPO on track for 2021, CEO says
mspohr
Well-Known Member
I've long thought that the title of this thread was odd since there are thousands of factors which in the short term influence the price of oil (and its effect on Tesla) and the link between the two is very tenuous.
However, the thread has generated some interesting discussions.
I still wouldn't take this as investment advice. Short term it will be as reliable as a casino.
This is why I focus primarily on a logistic model of market share. Eventually share will get large enough that logistic growth slows down. But of course the question is where. The standard set up for the logistic model is that the max growth in absolute terms happens at 50% market share. So Norway has just crossed that. It remains to be seen how much absolute growth will climb in the coming years. 50% annual growth can at most continue for one more year. There are a lot of edge cases of consumer demand that EVs cannot satisfy at the present moment. For example, compelling electric trucks and vans are lacking in supply. On the other hand, the Model 3 has not yet hit Norway. So it remains possible that EVs gain another 20% market share hitting 80% over the next 12 months, largely on the Model 3.
Let's see what a simple logistic model would project. Last year share was 40%, this is a logit of log(40/60)= -0.4055. This year 60% is a logit of log(60/40)=0.4055. So the 12-month gain in logit is 0.8109. If this continued over the next 12 months, the logit hits 1.2164 which corresponds to a share of exp(1.2164)/(1+exp(1.2164)=77.1%. So the logistic curve anticipates a mere 17% gain in market share over the next 12 months. Likewise we can further extrapolate to 88.4% in 24 months, 94.5% in 36 months, and 97.5% in 48 months. Even if the Model 3 boosts above 77% in 12 months, it becomes really hard to beat logistic growth 2 or 3 years out.
When we think about this playing out globally, we have to recognize the saturation comes sooner to some markets than others. In a few years the growth rate of EVs in Norway will be just slightly above demand growth for all cars in Norway. So Norway will not be contributing much to sustaining a 60% growth rate and the global EV fleet. Of course, Norway is very small, so it won't matter that much. But this does illustrate how the global growth rate must slow as market after market slip above 50% EV penetration. This is one reason why I believe that it is a pressing need to bring all types of EVs to market quickly. Any vehicle segment that lacks compelling EVs can become a little bottleneck for full adoption.
mspohr
Well-Known Member
California is just starting up the curve. YTD, 10% of all new car sales are BEV (7%) or PHEV (3%).
A good start.
shlokavica22
Member
Indeed. To try and predict the price of OIL as a whole is quite a tricky task. There are two side to the coin when the price is agreed and decreasing the demand over time won't necessary lead to lower price (as the supply will be also decreased by some companies exiting the game). Not to mention the geopolitical unknowns.
More sensible approach seems to be shorting weak companies, rather general indexes. I have a couple of small short positions on companies with negative P/E, but was curious if anyone singled companies after more in-depth research.
Gasoline Pulls Oil Prices Into Reverse
This is a pretty important read. See also this chart (Oilprices). Six months ago the price of diesel and gasoline were nearly equal. But in the past few months the spread has grown. Heating oil is now at $2.12/gal while gasoline is at $1.58/gal, a spread of $0.54/gal.
This huge spread is hurting refiner profitability. Gasoline stock is growing, as refiners try to meet demand for diesel. This gasoline glut is part of what is dragging down the price of crude.
We've hashed out what this sort of product imbalance can do to the oil industry, and now we get to see it play out in front of us. The IMO standard hitting maritime fuels in 2020 will also add to this imbalance. Let's see how the oil industry responds. It's not just a matter of retooling refineries, it also impacts demand for light crude which naturally yields more gasoline rich mix.
The demand response needs to include a shift away from diesel. Buyers of diesel vehicles really need to contemplate whether some other fuel can save them money, be that gasoline, L/CNG, or electric.
In terms of EVs displacing oil, I think we may be at a place where every barrel of diesel displaced by EVs, like the Tesla Semi, will displace nearly a full barrel of crude oil. My thinking is that displacing a barrel of diesel avoids having to build the glutted stock of gasoline. So this impacts easily 3/4 of the barrel of crude, but the other 1/4 may be of too little value to drive crude volume produced. This could be setting up a perfect storm for heavy EVs to have an outsized impact on the oil market. I sure wish Tesla had the Semi ready to roll.
This is a pretty important read. See also this chart (Oilprices). Six months ago the price of diesel and gasoline were nearly equal. But in the past few months the spread has grown. Heating oil is now at $2.12/gal while gasoline is at $1.58/gal, a spread of $0.54/gal.
This huge spread is hurting refiner profitability. Gasoline stock is growing, as refiners try to meet demand for diesel. This gasoline glut is part of what is dragging down the price of crude.
We've hashed out what this sort of product imbalance can do to the oil industry, and now we get to see it play out in front of us. The IMO standard hitting maritime fuels in 2020 will also add to this imbalance. Let's see how the oil industry responds. It's not just a matter of retooling refineries, it also impacts demand for light crude which naturally yields more gasoline rich mix.
The demand response needs to include a shift away from diesel. Buyers of diesel vehicles really need to contemplate whether some other fuel can save them money, be that gasoline, L/CNG, or electric.
In terms of EVs displacing oil, I think we may be at a place where every barrel of diesel displaced by EVs, like the Tesla Semi, will displace nearly a full barrel of crude oil. My thinking is that displacing a barrel of diesel avoids having to build the glutted stock of gasoline. So this impacts easily 3/4 of the barrel of crude, but the other 1/4 may be of too little value to drive crude volume produced. This could be setting up a perfect storm for heavy EVs to have an outsized impact on the oil market. I sure wish Tesla had the Semi ready to roll.
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