Oil's Coming Transition from Autos

by Michael Keane

It seems as if the car industry is moving off of oil, thereby creating a great question. What are the plans for the major companies? One guess is that they (the major ones) just squeeze out the smaller companies through market capitalization moves and let the next generation deal with the issue in a more head on way. Another way is to create a global situation where war hurts supply while driving up demand in the short term and let the next generation deal with the issue in a more head on way once peace is around again. A third option is to be pivot to the coming rocket industry while still supplying the current need in the car industry.

The first two options are classic and will end in general failure for the company and their investors (who is probably anyone holding a retirement account of any kind). We have seen both options used in the past. We can even see them being used right now in different industries. In terms of the war choice, the Iraqi war can be considered such a war. It brought oil prices up around $100 per barrel, for the price to crash back into the 30’s and 40’s when peace has a greater global hold.

The rocket industry is growing at a very high rate. New companies and new technologies at existing rocket companies are driving this industry forward. SpaceX continues to innovate and increase the number of flights to space. International flights are becoming more common.

There was shift in the oil refining industry 100 years ago that is important to look back on. Most oil was refined into kerosene back then for lighting purposes. That was the key revenue driver. But when electricity came to be found as an alternative, what were oil companies to do? The ones that were led by innovators like Rockefeller did not whine and cry. They did not put all their productive energy into trying to inhibit the electric industry’s ability to innovate the lighting space (although some energy was placed there). No, they researched and found autos to be their next big client. The oil industry today needs to take the same approach when it comes to electric vehicles. They are not going away. Move on to the next opportunity. It looks like rockets.

The oil industry is at a pivot point. The transition from autos being the heavy client to another entity being the heavy client looks more likely each day. The question is will the transition be peaceful or bloody.