Oil’s “Kodak Moment”?

Calais – August 2015,  Eurotunnel Tesla super-charger station

As noted in previous posts, I believe the Oil and Gas industries are going to go through a fundamental change in the next decade.   This is a combination of environmental concern, social pressure etc, but fundamentally by technological innovation.  The driving force for the oil industry is the price of oil; this in turn is dictated (outside of various conspiracy theories) by supply and demand economics.  The key point here is that of the c. 93million barrels of oil used daily, only 1 or 2 million of those affect the price – these are the excess or missing barrels that flip us into glut or scarcity.

Of these c.93 million barrels, roughly half goes into vehicular transport – and the majority of that is cars (autos).  So if you remove just some of the demand from the equation, you could create over-supply.  As most readers will be aware, this is not what happened in 2014; that was a supply-side bust, driven (if you’ll excuse the pun) by the success of the US unconventional oil industry.  But in the near future, it may well also be demand driven.

What if those thirsty cars go away?

It seems inconceivable that Exxon could go bust, or that electric cars could replace our petrol-head steeds.  But history tells us that change can happen, it can happen much faster than any one expects (innovation is a kind of exponential effect), and those least likely to see it are those most at risk.  Just ask the (ex) managers of EastmanKodak.

Kodak Chief Executive Antonio Perez, who had once called digital cameras a “crappy business,” said bankruptcy was a necessary step….  

It tried to restructure in the past by closing 13 film plants and 130 photo labs between 2004 and 2007, slashing its workforce by 50,000.  (reuters)

Ironically, Kodak had done much of the early work in digital imaging and even had an in-house study saying that digital was a serious threat and they had 10 years to prepare for it…. (actually they had nearer 20 from the time of that study), and eventual ‘got it’, but too late.

Tesla and the anti-monopoly

Suppose you had developed the technology taking considerable risks to your own net-worth on the way, you had built-out a proprietary network of crucial infrastructure, attained significant scale in core components and you had achieved a brand that Apple could be jealous of….  As an investor I’d be in love with you: you have basically created a massive early-mover advantage in a business with huge barriers to entry – and you are on the verge of the most exciting monopoly in decades….  but wait, what? you did what?  you made all your patents open source and you will open your infrastructure to anyone ?  Ahhh I’m going to cry into my IRR spreadsheet… sob sob.

But this is exactly what Elon Musk at Tesla has done – and this is precisely why change may happen fast, very fast, faster than a Model-S in Ludicrous mode.  Pure speculation on my part, but it looks very much like Elon Musk doesn’t actually care greatly about Tesla – he cares about electric cars in general.  This is a massive distinction, and one with equally massive consequences for oil.  

If you want to get rich (which he already is) you should build and enforce your walled-garden.  If you want to change the world, share.  Elon Musk is a one-in-a-generation visionary who will indeed change the world.  Oh, and Tesla is only what he does when not doing SpaceX, Solarcity and battery projects.   As a friend commented  “In interviews you can see that he is making a tremendous effort to try to communicate on a level that people may  understand, but it is clear that is not the one that he functions on.”

The guy driving the car at the top of this post was proudly wearing a Tesla branded jacket – not many saddo petrol-heads go that far..  

And as a final thought, even the mighty Tesla will need electricity, and I don’t see it coming from coal…

For a really good (and long) read on Elon Musk and Tesla – look here (thanks to FM for pointing me at this!).