The world as we know it, will be no longer. The balance of power on a global scale will shift. All in the next decade.
Sounds dramatic right? But independent think tank RethinkX believes it
to be true, because of rapid advances in technology, and specifically
the advent of self-drive or autonomous cars.
First and foremost,
RethinkX co-founder and Stanford University economist and professor Tony
Seba told CNBC's Street Signs that the rise of self-drive cars will see
oil demand plummet, the price of oil drop to $25 a barrel, and oil
producers left without the political or financial capital they have
today.
"Oil demand will peak 2021-2020 and will go down 100
million barrels, to 70 million barrels within 10 years. And what that
means, the new equilibrium price is going to be $25, and if you produce
oil and you can't compete at $25, essentially you are holding stranded
assets," Seba said.
"At $25 a barrel, that means deep-water,
sands, shell oil, fields, most are going to be stranded, and also all
the refineries and pipelines associated with these expensive oils are
also going to be stranded. And that is going to reshape worldwide oil,
geopolitics and so on."
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It's a big call, right? But if you look at what's behind Seba's premise, surprise, surprise, it comes down to money.
He says we are not going to stop driving altogether, just switch to
self-drive electric vehicles, which will become a much larger part of
the sharing economy. And these electric vehicles are going to cost less
to both buy and run.
"The day that autonomous vehicles are
approved, the combination of ride hailing, electric and autonomous means
that it's going to be ten times cheaper, up to ten times cheaper, to
use a robot taxi, transport as a service car, than it is to own a car.
Ten times."
Investment Case
Interestingly enough, if you
believe this thesis, you may want to look at selling out of any exposure
you have to car parks. "In fact what is going to happen, in 80 per cent
or maybe more, parking spaces are going to be vacant. Because we are
going to have, fewer cars on the road" Seba says.
And given that
$25 forecast for oil, you certainly want to look at selling oil, and
expensive oil producers. Oh, and sell the car makers that are slow to
adapt too, given there will be no more petrol or diesel cars, buses and
trucks sold anywhere in the world within 8 years. Which also means no
more car dealers by 2024.
And wait, you can sell insurers too, as
the cost of car insurance will drop dramatically when you take human
error out of the equation, and a much lower direct ownership of vehicles
in general.
But, according to Seba, it is time to look at buying
into anything that will help to produce and manufacture the next
generation of cars, which are "computers on wheels."
He says to
look at companies that make the operating system, the computer platform,
the batteries, mapping software, and those that adapt to the new
environment.
"Imagine a Starbucks (SBUX) on wheels. Essentially
transportation is going to be so cheap, it's going to be essentially
cheaper for Starbucks to run around and take me to work, which is, you
know, 60 kilometers away, and give that transportation for free, in
exchange for going to buy coffee in that hour of commute."
There
is some good news for economic growth too. The savings households make
on cars, will drive higher consumer spending in the U.S., which in turn
will drive business and job growth. Seba forecasts that productivity
gains will boost GDP by an additional $1 trillion.
But on the
other hand, outstanding auto loan debt in the U.S. stands at more than
$1 trillion. And there are those who see the U.S. subprime-auto market
as a big problem already.
Josh Jalinski, president of Jalinski
Advisory Group told CNBC's Street Signs that it's a huge risk. "We have a
potential auto subprime crisis looming in America, the likes we haven't
seen since 2008. … I see the car subprime loan debacle as something
that could be the catalyst of upending the Trump train."
Oil and Cars
Seba is not alone in his predictions, although others believe the shift will take longer, and will not be so dramatic.
China and India are accelerating the adoption of electric vehicles.
China wants to get electric, plug-in hybrids and fuel cell cars to
account for 20 per cent of all auto sales by 2025, while India aims to
electrify all vehicles in the country by 2032.
But as always with
any thesis, there are those who argue for the other side. Oil majors
are the obvious ones, with recent reports from both ExxonMobil (XOM) and
BP (BP.-GB)'s suggesting electric cars will comprise less than 10 per
cent of the global car fleet by 2035.
As for the auto industry
itself, in the latest moves, Ford (F) announced a new CEO, James
Hackett, the head of its self-driving subsidiary Ford Smart Mobility
LLC. That moves speaks for itself.
Also Monday, Toyota Research
Institute ramped up their investment, teaming up with MIT Media lab and
five other companies to explore blockchain technology for the
development of driverless cars.
And of course, there is the
market interest in Tesla (TSLA). The Elon Musk-backed electric automaker
now has a bigger market cap than both Ford and GM (GM).
Trip
Chowdhry, managing director and senior analyst at Global Equities
Research, points out that while some people think Tesla is an Auto
company, it is not.
"It is a cloud computing company, it's a
machine and an artificial intelligence company, it is an app company, it
is an energy company, and just an automobile is nothing more than a
laptop on four wheels."
One point that is agreed, is that the
auto industry will look vastly different in the future. The question is,
just how long will that change take, and who is going to successfully
adapt.
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EITHER WE STOP THE RHETORIC AND REVOLUTIONIZE AGRICULTURE OR WE WOULD BE LEFT STRANDED IN THE NEAREST FUTURE.