Tesla (TSLA), a company that built its millionth car (less than 10% of Toyota’s (TM) annual volume) earlier this year, is now the most valuable automotive enterprise on earth. The financial world is pricing in an imminent electronic vehicle (EV) takeover and the eventual obsolescence of oil.
Oil stocks have been stumbling since their high in the summer of 2014. Global oil production has been on the rise for decades, but it appears that demand has been lagging output, according to the International Energy Agency (IEA). This idea is illustrated in the chart below.
The world is working towards sustainability, moving away from fossil fuels like oil & gas. EVs have been taking center stage in this push towards a more sustainable planet. Tesla has been the primary beneficiary of this movement as its market value soars past the old oil giant Exxon Mobile (XOM), whose market value has plummeted 58% since its 2014 high (down 42% in 2020 alone).
Tesla and the rise of EVs are disrupting not only the automotive industry but long-term oil demand. We are seeing a massive economic shift towards tech, and it doesn’t look like oil is on board.
The COVID Effect
This pandemic has seemingly compressed 5 years of digitalization into only 5 months, and electric cars have continued to perform with this tech-driven tail wind filling its performance sails. Despite the economic recession, Tesla was able to deliver over 90,000 vehicles, blowing analysts 72,000 delivery estimates out of the water.
The world wants EVs, and with Tesla’s China Gigafactory ramping up production and the Berlin Gigafactory anticipating to start production by next, they are ready to give it to them.
Tesla is not the only EV beneficiary of this tech driving pandemic. Nikola (NKLA) recently debuted its shares to the public through an unconventional acquisition, and the share price has been flying ever since. Nikola, a company that has yet to produce a single-vehicle, is now valued at roughly the market cap as the more than a century-old Ford Motor Company (F).
Future Of Oil
Oil businesses used to be the most valuable companies in the S&P 500 even a decade ago, with money pouring into these enterprises, like water from a spring. Historically, as the world population has grown, so has its appetite for oil, but an economic shift is upon us.
The oil & gas industry is just beginning to be uprooted by renewable energies and electric cars. Our oil appetite is dwindling, very slowly let me add, but still diminishing. I expect to see continued consolidation in this field in the years to come, as it is typical of maturing to declining industries.
The Takeaway
The global pandemic may have catalyzed the current slump in gas prices, but it foreshadows what is to come. Innovation-driven businesses like Tesla and maybe even Nikola will drive growth through the next decade while oil companies are forced to cut costs and scale to drive shareholder returns.
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