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Shorting Oil, Hedging Tesla

Discussion in 'TSLA Investor Discussions' started by jhm, Mar 15, 2016.

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  1. jhm

    jhm Well-Known Member

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    Yeah, for the time being we'll have to put up with the blurry line of hybrids. I think the bigger issue here is that OEMs will be confronted with the reality that conventional ICE will be a declining market. I suspect most thought this peak ICE day would come 5 or more years later. Many will try to get by with plugin hybrids, but I doubt this will really deliver the explosive growth that committed EV makers will experience with BEVs. Even if PHEVs can bridge into the EV age, traditional automakers are still headed into a decade of crisis.

    Also I think tha peak ICE will drive home the reality of peak oil demand. On Twitter now I see people starting to grapple with the question of surplus gasoline and how the imbalance in demand for all fractions of a barrel of crude will cause dislocation. So my sense is that the discussion about EVs and oil is starting to shift.

    Happy New Year!
     
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  2. Oil4AsphaultOnly

    Oil4AsphaultOnly Active Member

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    If edmund's projections of 17.4 million US auto sales (same as 2017) bears fruit, then 2017 was peak ICE for domestic sales.
     
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  3. mspohr

    mspohr Active Member

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    I think part of the problem for ICE sales is that people are starting to realize that EVs will be the future so they are putting off ICE purchases to avoid being stuck with an obsolete car.
    The EV they want might not be available now but should be available in a year or so.
     
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  4. mspohr

    mspohr Active Member

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    Bad news all around for oil stocks

    Bloodbath In Oil & Gas Stocks Could Continue | OilPrice.com
    “The stock market went to hell in December. And when it got there, it found that the energy sector had already moved in, signed a lease and decorated the place,” Tom Sanzillo,

    Looking forward, there are even larger hurdles, especially in the medium- to long-term. Oil demand growth is flat in developed countries and slowing beginning to slow in China and elsewhere. The EV revolution is just getting started.
     
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  5. mspohr

    mspohr Active Member

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  6. SebastianR

    SebastianR Member

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  7. jhm

    jhm Well-Known Member

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    U.S. Auto Sales Brand Rankings – December 2018 YTD | GCBC
    I've been analyzing this data. Total sales for 2018 come in at 17.414M, up 166k or 0.96% from prior year. Meanwhile PEVs grew 159k or 79.48% to 359k in 2019. This implies that non-PEVs grew just 7k or 0.04% to a peak at 17.056M. Note that Tesla grew 147k or 294.51% in 2018. So almost all the growth in EVs was due to Tesla's contribution. Non-Tesla PEVs grew 11K or 7.59%, which is still substantially more than the non-PEVs grew.

    So I would say that US non-PEV sales have likely peaked in 2018. It will take a few more years to confirm this. The two worries would be if foreign demand for Model 3 pulls too many out of the domestic market or if total sales have a growth spurt. The latter seems unlikely to me. Also keep in mind that the Tesla's market share for the whole year is 1.13%, but 2.03% in December. Also total PEV full-year penetration is 2.06%. So looking forward to 2019 I could see Tesla's share go to 3% while for all PEV 4% or more. So the PEV penetration can easily double next year. So unless the total market grows by more than 2% next year, PEVs should supply all that growth, while non-PEV suffers decline in sales. Looking out further to 2020 it only gets harder for ICE to grow in the US.
     
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  8. renim

    renim Member

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  9. jhm

    jhm Well-Known Member

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    WoodMac: Demand For Oil In Transportation Sector To Peak In A Decade | OilPrice.com

    Interesting to see that WoodMac and others within the oil industry now acknowledge that demand for transportation fuels will likely come by the second half of the next decade. So the timing seems a little more credible, 2025 to 2030. But notice that they are not acknowledging that demand for crude itself will peak in that time frame, jut transport fuels. At least this includes diesel along with gasoline and heavy distallates.

    Naturally if transport fuel demand is declining but not demand for petrochem this creates an imbalance in how the whole barrel of crude is consumed. Hence, an adaptive strategy is needed.

    So adapt they must, but even this is couched as something after 2030.

    WoodMac is now acknowledging that electric vehicles are coming as the cost of batteries decline.
    They seem to be following BNEF analysis here, but through the vagueness of round numbers, "decline 80% this decade", they obscure just how fast the decline has been. BNEF has the pack cost falling 20% per year from $1000/kWh in 2010 to about $168 in 2018. Continuing at this pace leads to $109/kWh in just two more years. But BNEF and now WoodMac want to suggest that the decline rate will immediately slow from 20% to 10%. In the case of WoodMac this leads to a really bad estimate on the timing to the magic price of $100/kWh.

    This 2027 target is a joke. Let's assume their assumptions of $200 in 2018 and an annual decline rate of 10%. This leads to $77/kWh by 2027 or $106/kWh by 2024. So WoodMac is just inventing a number they and their clients can feel "comfortable" with. Rounding $168 up to $200 is also a big mistake. Starting at $168 in 2018 and declining 10% annually gets to $99 by 2023, and declining by 15% gets to $103 by 2021. So even if the decline rate slows a little from 20% per year, we are still talking about hitting $100 in 2.5 to 5 years from 2018. The idea that it could take as long as 2027 is wishful thinking on the part of an industry that is at risk of disruption.

    Let me reiterate that I do not believe that $100/kWh is the magic number that suddenly transforms the dynamics of EV adoption. The EV fleet grew by about 64% in 2018, inspite of pack costs well above $100/kWh. Rather we are on a learning curve where prices fall as production doubles. Thus the growth of 64% last year is also fueling the decline of battery costs this year, and those reductions will fuel further growth in the EV fleet. Any sort of argument that we must wait for some magic cost threshold like $100 is simply overlooking just how rapid the uptake of EVs has been.

    So increasingly, WoodMac and the oil industry will be confronted with just how fast disruption is happening. Year after year they will have to move their up their estimates.
     
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  10. ggies07

    ggies07 Supporting Member

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    Is this why the GTM site seems to have changed as well when WoodMac bought them? I swear the articles I see on there now are not the same caliber as they used to be.....
     
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  11. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Interesting. Didn't know they had been bought, just stopped following them when most of the content turned to nonsense.
     
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  12. jhm

    jhm Well-Known Member

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    I suspect this is so. WoodMac makes its money consulting for the oil and gas industry. They have a vested interest in not pissing off their clients.

    I also suspect that BNEF is consulting more broadly for the energy sector. This could also explain why their analyses have moderated over the years.

    Follow the money. That's what "thought leaders" do.
     
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  13. mspohr

    mspohr Active Member

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    Ford Plans to Cut Thousands of Jobs Across Europe
    U.S. Auto Sales Put Up a Big Number, but Show Signs of Strain
    ...
    Tesla’s sales more than tripled in 2018, and without that increase, the industry would have reported a decline in sales. G.M., Ford and Toyota reported lower sales for a third year in a row. G.M.’s domestic market share fell to 17 percent — its lowest level since the company’s infancy a century ago.

    Most automakers posted gains early in 2018, with sales markedly weakening late in the year. G.M. reported a decline of 1.6 percent for the full year, but its estimated year-over-year decline for December was 3.7 percent. (The company no longer reports monthly sales.) Ford’s sales fell 9 percent in December.
     
  14. jhm

    jhm Well-Known Member

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    Bloomberg - Are you a robot?

    Aramco want to borrow $70B to acquire 70% of Sabic, a large petrochemical. I guess this is inline with WoodMac consulting around demand for petrochem advancing even as demand for motor fuels decline. Aramco seems to want a lot of downstream vertical integration.
     
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  15. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Apparently people are still lending hard currency to Saudi Arabia. A lot of money will be lost.
     
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  16. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    They tried this 4 or 5 months ago and the banks said no. Not sure what's different this time around. Desperate times!
     
  17. mspohr

    mspohr Active Member

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    I think they are looking to petrochemicals as the savior. Not sure how this will work out. Even if they manage to increase demand, the volume is still small compared to fuel.
     
  18. jhm

    jhm Well-Known Member

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    I poured myself some orange juice this morning. I finished off the beautiful plastic bottle. Before throwing it into the recycle bin, I thought, why is this bottle plastic, and not glass?

    The obvious guess is that plastic must be cheaper than glass. At least, glass and plastic must be near parity in cost if plastic were not substantially cheaper.

    But why would plastic be cheaper? Ultimately this is rooted in the price of crude and the price of other products made from crude. As gas and diesel go into decline, they will contribute less to refiners profits. Moreover, refiners will have to upgrade their processing and perhaps incur elevated operating costs to produce a mix of products richer in plasticizers and other petrochem feedstock. So plastic will have to contribute more revenue to cover the cost of crude and elevated refiner costs. Thus, the displacement of demand for motor fuels can lead to higher prices for plastic and petrochem.

    This takes us back to the question of glass or plastic for decanting my morning orange juice. I'd be just as happy to use a glass bottle. If plastic weren't so darn cheap, there would be much more glass bottles on market shelves.

    So the growth in demand for plastic is partly an illusion of supportive petroleum economics. It would be harder for this demand to grow if plastic became more expensive than glass for something as simple as a bottle of orange juice. So it seems unlikely that plastic can emerge as a reliable growth engine for crude. Take away the favorable economics when demand for motor fuels were high, and it is not so clear that demand for plastic should continue to grow.

    Additionally, as the price of plastics and other petrochem goes up, crude as a source of petrochem must compete more with natural gas, recycling and renewable sources. If deriving more plastic per barrel of crude were competitive to these alternatives, refiners would have already moved product mixes in this direction. Instead what we see is natural gas adding to the supply of plasticizers and othe petrochems. So it must be marginally cheaper to supply from natural gas than from shifting the refining mix of crude. Of course, natural gas is ridiculously cheap as byproduct of drilling for oil, so it's complicated. But this just illustrates that as demand for motor fuels declines the cost of plastic will go up, both as derived from crude and natural gas. So ultimately, it becomes a contest between fossil extraction and renewables. In the category of renewable materials, I would include glass and metals which are robust under recycling. All plastics degrade chemically as they recycle, though there certainly is value in doing so. As demand for oil and gas as an energy source declines, I expect the cost of fossil derived plastic to increase. Renewable plastic and renewable alternatives to plastic will increase in value and use.

    I just don't see how fossil sourced plastic will continue to grow for more than just a couple years past peak production of crude. I can totally see why oil majors are eager to get into that business, but it does not appear to be a longterm growth opportunity.
     
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  19. adiggs

    adiggs Active Member

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    Obviously part of the answer as well, is that glass weighs a lot more than plastic, so you get less weight to move around when the bottles are plastic rather than glass.

    To get to parity and the ability to substitute back to glass from plastic, there's the direct cost of the container. The weight also needs to be near parity (at least nearer), in order to have substitution.


    Of course, if the energy cost to move things around goes down, then our sensitivity to the weight of stuff we're moving down will also go down.
     
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  20. winfield100

    winfield100 Active Member

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    Glass bottles do not have to be single use
    :):)
     
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