February 25th, 2016 by Steve Hanley
Bloomberg wants to tell you about the “S curve.” That’s what happens when a new technology comes along, like the refrigerator, the television, or the smartphone. At first, only early adopters buy one, but then the word gets out, prices fall, and soon everybody and their brother has one. Bloomberg thinks that electric cars are at the point where they will begin to grow exponentially. In other words, they are at the bottom of the “S Curve,” sort of like personal computers were in 1980.
OPEC and ExxonMobil disagree. They predict that electric cars will only comprise 1% of the global automobile market in 2040. Their forecast could not be more different than Bloomberg’s. Somebody is right and will make a lot of money because of it. But if Bloomberg is correct, the oil industry is looking at trillion dollar loses within the next ten years.
Bloomberg notes that the current decline in oil prices was caused because oil from shale and fracking suddenly added 2,000,000 barrels of oil to the world’s supply about 18 months ago. It calculates that by 2023, the increase in electric cars will shrink demand for oil by a similar amount with precisely the same effect — plunging oil prices.
Malcolm Gladwell would call what happens when Tesla, Chevrolet, and most of the world’s major automakers start bringing affordable electric cars to maket a “tipping point.” That’s a place on a timeline when a new idea begins to gain acceptance. Objections fall away and pretty soon something that seemed unlikely becomes mainstream. Air travel is one obvious example. Travel to Mars could be the next big thing, if Elon Musk has his way.
Look at this chart from the Bloomberg video. It depicts what Bloomberg sees happening with electric car over the next 25 years. Of course, predictions are dangerous things. Much of their analysis depends on the price of electric cars coming down while their range goes up. It also assumes the infrastructure for electric cars will somehow come into being as needed.
Obviously, lots of things could go wrong with Bloomberg’s predictions. ExxonMobil, OPEC, and the Kook Brothers hope they do. But if you think Bloomberg’s view of the future is accurate, now might be a lousy time to add oil stocks to your portfolio. You can watch the entire Bloomberg video below and make up your own mind.