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.

Electric and Driverless Vehicles

Electric and Driverless Cars

By Michael Keane

There has been a large progressive move within the car industry in the last decade when it comes to power and ease of transporting. Both of these issues will have a major effect on energy (oil especially), insurance, and local governments  This series of articles will focus on the effects of the moves on these particular industries. It is very important that these industries get ahead of the situation to avoid trouble.

This blog post is the first in a series to cover this topic. It will briefly cover the topics and possible solutions with later posts going into more detail on each topic and solutions to that particular topic. Awareness of the issues at this point is paramount for all involved (industries, customers, etc.) so that nobody can claim ignorance for when a tipping point regarding organizational survival comes upon them. Per disclosure, KeaneVCC has clients who have investments in the car industry, software industry, communications industry, and a bond portfolio that includes local governmental municipal bonds.

At this point, the move to electric vehicles is rolling along well. This past month, Tesla introduced the Model 3. The company has reported that there have already been over 400,000 orders for the car, which indicates a new level of scalability. Nissan, GM, BMW, Toyota, Ford and others are also currently in the market with vehicles.  The prices of electric vehicles are showing up at affordable levels. Competition is growing in the industry and seems to be creating a ceiling on prices. The loss of gas revenue should be a clear red flag for the oil companies. Are they going to sit back with their heads in the sand or will they understand that progressive industries adapt? Government taxing authorities should also take notice as to what the effect will be for them.

To expand on the manner, the movement towards driverless cars is increasing. Leaders in the car, software, and and other industries are committing large amount of resources to this effort. At this point, driverless vehicles have racked up over 1 million miles in planned trips with varied levels of success. Ancillary industries are watching and planning carefully on the progress. Industries that should be paying particular attention are Insurance and local governments. Revenues for both will be affected heavily if driverless cars are adopted.  

**As always, this blog is to be read as opinion. Please do your due diligence before acting on any information read here.**