The Impending Big Auto/Oil Implosion Explained | In Depth

hey everybody I'm Zack and I'm Jesse and you're watching in-depth on now you know this week's show is sponsored by our friends at the Schaumburg Illinois Fairfield Inn & Suites by Marriott what makes them special Jesse well they are the only hotel in the Chicago area that are solar-powered yeah they are all right so we're gonna be covering in this in depth another fantastic article by Ross Hessian in seeking alpha now you might be saying seeking alpha oh no coz seeking alpha has lots of stories that are very funny right Ross is one of these people who does not write Fudd articles he writes super well research articles and he just publishes them to seeking alpha that's right there are many writers of seeking alpha he is one of them this is one of his articles yeah and we're gonna take you through how Rivia n--'s latest truck reveal and GM's factory shut down now fits in with the decimation of big oil and big auto so let's dive right in alright so I want to start by pulling a gem of a chart out of Ross's article this year sets the stage it shows the adoption of technology in the United States from 1900 to present so what's the first thing you think of when you see this chart just yeah that's a rainbow yeah it looks like a rainbow it's a big messy squiggly bunch of lines hard to understand so let's let's break it down yeah okay the first line on the left is a big dark blue line that shows that the telephone took seven years to be adopted from about 10% adoption to 80 percent adoption Wow who was in like 1960 who didn't have a telephone well think about the lot parts of the country had to be wired so if your town wasn't wired for telephone you know it wasn't cheap like it took a long time to actually physically technologically wire up the country okay next line is electricity and that took 35 years for very similar reasons if you didn't have a line going to your house electricity you didn't have electricity Wow next is ice cars that took 50 years and that's because they're not cheap they're expensive and a bad horses why give up my horse I mean I just feed him some hay and I don't have to go to the gas station but then we start to see some interesting things happen so next is radio and that only took 15 years and that's because radios weren't that expensive and they got cheaper and cheaper refrigerators that took eighteen years because some people sell out ice boxes for a while and it's a good alternative next is black-and-white TVs that only took eight years yeah Wow to 80% adoption that's amazing now color TV took a little longer ten years why do you think that is they had a pretty decent alternative yeah already got a TV I need your color whippersnapper thing right credit cards took a bit longer 35 years and that's because you went from paying cash to using credit which is a huge shift in how you think about spending I think a lot of people Bach did that and still do next is microwave oven so that only took nine years the PC took 25 years but that's because they weren't cheap when they first came out the cost thousands of dollars room size and they didn't do much I mean right be honest word processing next is a cell phone that took nine years now we see this clump of lines and that is internet digital camera mp3 players HDTV social media smartphones tablets what are those lines look like two straight lines vertical they're just going as soon as the technology comes out it's like a matter of weeks and months before you get it right so it's not the years that we're talking about before like maybe I'll get the telephone in in 14 more years something you know some crazy thing like that right it's just like okay Christmas I guess I'll get a an mp3 player exactly so what does this chart look like adoption is accelerating these things that you know usually would have taken decades now take a matter of years right that's because technology is accelerating because when we introduce a new technology it can get to all of us faster and cheaper faster so keep these adoption curves in mind and how they are accelerating now Ross points out that many analysts graphs that try to predict the future of the shift from ice to Evi sales look like this it doesn't really look like those adoption curves that we were looking at before right you see that yellow line right there's like a little there's like a little bit of an s-curve and then it goes up to 80% right it's not how it works not as more people get it more people want to get it in the price technology right exactly Ross says that can't be right so what is going to happen to ice car sales it's not gonna obvious we follow that curve so as Ross points out there are two problems with this graph one doesn't look like a typical disruption curve and two and I'm quoting here the decision to purchase a new car is separate from an independent of the decision to purchase an Eevee instead of an ice vehicle when someone decides their next car will be an Eevee sales of ice vehicles drop immediately however Eevee sales do not grow until that person finds an Eevee with features and price that meets that person's needs so there's a gap basically there's a gap between when someone gets in a Model 3 because I've seen I've seen this mhm people will get in a Model 3 or many different V's you get them in an Eevee you show them what it can do and the switchin area goes wow I this is amazing I don't want to drive my Honda Civic to work anymore many different reasons why you might want to switch to an Eevee right and all of a sudden you're not thinking about okay I'm gonna get a new car you're just thinking about I'm gonna get an Eevee when can I get it and when can I afford it right so it's important to not get lost on this step when someone realizes that they want an Eevee they will wait for up to three or four years until they can buy that Eevee even if TV they want isn't available yet meanwhile what happens to I sales they they plummet they stop happening because that that person who was waiting right who is going to in one or two years buy a nice car doesn't show up at the dealership that day and the dealer goes huh business seems a little slow Oh must be the weather or something like that but in reality the people who were going to be showing up that day are waiting for they're dreaming exactly so based on Ross's analysis and his number crunching ice car sales will approach zero around 2026 and v's will approach 1 billion TVs on the road by 2032 so now let's introduce oil into this equation oil surpluses or a glut of oil is gonna happen around 2023 well I can't quite keep all of this in my head I know what is it look like you know what are we talking about here here's a chart that Ross made to help visualize this blue is ice car sales so what are those doing they are going down Wow red is evey sales what's that look like they are going up yeah s-curve exactly just a regular adoption curve that we're used to seeing exactly and I mean this one is slower than say tablets but I mean that's because cars are more offensive than tablet you got it okay so now green line is ice plus Evy sales so you see how it goes down at first because there's not enough Eevee's being produced and people are waiting for them and then as v's get produced enough it starts to go back up so wait you're saying around 2025 2026 you're saying that there's just gonna be less cars on the road or something like I mean if the if the ice sales are going down and the evie sales are going up but they haven't caught up with each other yet there's gonna be a lot of used ice cars on the road a lot of cars that need repairing so you're saying that like if you're a mechanic shop that's the year that's the year and it's gonna be misleading because you're gonna think oh my god if this trend continues I'm gonna be fixing cars because my life you're seeing you're seeing a graph that goes right you're thinking our business is going up right for mechanics and then it's gonna go as well everyone starts buying new V's doctrine and well they just don't need that kind of maintenance right so we're pointing this out Ross is pointing it out so that you can kind of get a glimpse of what's coming down the road okay so what's this purple line here that purple line is oil in millions of barrels per day so what do you what does that look like it's doing it is dropping off right pretty steadily yeah and so basically by 2023 there's going to be an oil glut so what you need for oil glut is to have less demand for oil and when you hit about a million barrels per day of less demand you get an oil glut so a million barrels per day of overproduction right now we're gonna see that later in the article so hang on to that little nugget of information so let's talk about passenger car sales in the US they are down dramatically and most analysts and big Auto attribute this to what changing consumer preference yeah and they're right about that except for one key point what do they attribute that changing consumer preference to oh well they think that everyone is is ditching their sedans for SUVs and pickup trucks wrong but it wrong yeah why the sales of passenger cars are down because a large number of consumers have realized that EVs are superior and they're either buying v's instead or they're waiting for an Eevee the one segment where there isn't much choice yet is SUVs and pickup trucks and that is why that I segment is still doing ok and that's what's misleading everyone in big Auto but there are already first movers in this space the Rivia nar won t just came out the other day along with the Rivia r1s the Ballinger the workhorse w15 the have allure bison and soon will be tesla who will also be entering the pickup truck space so GM recently said they won't be working on an Eevee pickup truck or SUV and Ross thinks that this is a misdirection why so GM only has two choices they can either say that we're gonna come out with an electric pickup truck right why wouldn't they do that well if they say that what happens to their existing customers who are just about to buy a new pickup truck they won't buy the pickup truck because they're worried about maintenance and it being you know covered and also why why buy a works technology of GM is switching right and it's gonna take GM and Ford years to actually come out with this pickup truck so for years they'll have no sales I see and but what's the other option the other options say we're not working on an Eevee pickup truck or SUV keep buying your your GM and Ford I see so for a while they're basically just lying to everyone saying there you don't need electric pickup trucks keep buying our gas ones instead right well there is a third option okay and that would be that they say we're not working on electric pickup trucks and they're not that's true it's possible I think that that probably would be the worst option that would be the worst option for them Ross thinks that this is a misdirection he thinks that GM and Ford are working on them and just can't tell anyone because the second they do their sales will drop and those sales will start to drop fast because it's hard for big Auto to ramp up production fast enough to catch on to this train it doesn't even matter if they can hold off on this misdirection for long enough because all of these other competitors are entering the space what they were kind of banking on I think was that the vivian was gonna be kind of just a man kind of sort of like a workhorse ii kind of meh ish truck not that workhorse couldn't work or anything like that but i'm saying you know it's not as exciting as the ribbing or that the the Tesla pickup truck wouldn't come out on time or it would be dumb somehow they're just hoping that there would be no one in this space and they would be safe for a while there's this little cell right and let's remind everyone GM is closing factories right now because the cars they're making nobody wants to buy and that's just the passenger vehicles because there's now competition in that field as soon as there's competition in the truck field they'll be closing those plants as well right so let's go to this question that Ross brings up could Tesla acquire Ford when Ford goes bankrupt that's a question yeah so I mean when Elon tweeted back in June that Tesla had hit 7,000 cars in seven days Ford's president for Europe Middle East in Africa he tweeted 7,000 cars circa four hours heart Ford team now as Ross and we pointed out at the time this makes people who don't understand disruptions laugh at how small and inconsequential Tesla seems but we know that this is just ignorance and it's ignoring the new trend right it's kind of like if you were Kodak making fun of a new digital camera company in the beginning of digital cameras going like oh nobody's buying those silly digital cameras right and now try and find a film camera exactly Ford is wasting resources building hybrids and they have two hundred and twenty-two billion dollars in total liabilities on their books billion with a B yeah so look how quickly US passenger car sales market has tanked when Evie options for pickups and SUVs come out this will happen in that segment too and then game over ice and that's the gap that we're talking about that's that gap in total car sales right it's gonna be this weird period where you don't see new cars on the road right and everyone's going to the mechanic shop all the mechanic shops are booked all the time it's a good time to be up again no mechanic as long as you're cutting and running right you gotta sell that shop while it's still a little hot you gonna call it oh you gotta call it you know like Doug's ice and Evie shop yeah maybe it would definitely be smart to be training up some some technician yes on v's all right now let's put oil into this equation right so I mean let's go back to the chart and that Purple Line just kind of slowly dips off you're saying there's gonna be some kind of a bad thing that happens based on so basically what well as Ross points out in 2014 oil producers over produced by about 1.5 million barrels per day and this is what happened to oil prices in that year went from over a hundred dollars a barrel to down around $40 a barrel out just because they were over producing there was still plenty of demand mm-hmm to keep an oil gut from happening these cast of characters and here's the pie chart here showing you who the cast of characters are they have to work together to reduce supplies when v's start increasing demand so here's the cast of characters Russia u.s. Saudi Arabia China Iran Canada Iraq Kuwait they all have to get along and go Oh comrade USA of course we all cut production make less money to make good oil price sounds good but they're good all right not gonna happen can you picture that no here's the thing Eevee's are already reducing demand by 250,000 barrels of oil a day that's already happening because largely because of electric buses right so all we need to do is get to about a million barrels per day and this glut will start to happen when that happens to keep the glut from happening all these oil producers will have to get together and reduce production now you say maybe maybe that could happen Ross isn't the only one saying this can happen this Bloomberg chart shows the same thing that by 2023 that's when we expect there to be this million barrel per day oil glut now you might say well all they have to do is just cut production enough to keep that from happening but let's take a look at this 56 percent of global oil demand comes from transportation problem for oil producers in 2023 will be that each year it will get worse for them as more and more v's are sold so they'll be less and less oil demand and the price of oil will drop more and more and they'll want to sell more and more to make up for that loss right which just increases the supply and therefore it lowers the price right so you're losing money you're an oil-producing country that's your one big revenue source you're losing money from it every year more and more the price is dropping per barrel more and more right you're gonna want to do what sell more sell more that's that's all you've got right this is what's gonna cause that little area in 2023 to be cheap gasoline and so all those used ice cars will be very attractive there'll be a very attractive ice used market out there and so that will mislead people again into thinking like oh EVs are done it's only a short period where this happens Ross goes on to explain that starting in 2016 the u.s. reversed a 40-year ban on selling US crude oil reserves so the US for decades stored oil in case there was a global meltdown right but in 2016 they reversed that and started selling oil why it seems like bad strategy it seems like you're in trouble you're just inviting yourself for trouble they finally figured this out which Ross is just figured out which is that there's going to be a glut of oil and there's no reason to hold it any longer in fact get rid of it at higher prices so you we're just expecting the price to drop on it so why would you hold a useless commodity exactly four years we were told there's gonna be this thing called peak oil and we're gonna run out of oil so you better hoard it now that we've got new technology and we're able to drill pretty much everywhere and find oil there's not gonna be Peak Oil there's gonna be a glut of oil and so that's why even the US this is kind of proving his argument the u.s. is dumping oil if you want to learn more about what oil companies to start shorting I urge you to read at Ross's article all right so to summarize if you've just been kind of zoning out during this because you like there's too many charts and graphs I think this one chart explains it best let's go back to it ice car sales are going to zero quickly an oil glut could happen around 2023 and Evi sales will continue to take off look for big oil and big auto to really start hurting soon especially when the Evi SUVs and pickup trucks start rolling out in full if you're thinking that 2023 still sounds far away because I know you're all thinking you're like well still 2018 right think about what you were doing in 2013 because that's the same amount of time back as we're talking about going forward does 2013 feel to you like it was like back in the old days not really no it's and I mean our new young so that's a big chunk of my life right there right I mean you were in college right and so it's not far away I think so many people think well this is just decades away if Ross is right with his projections and I think they're actually kind of conservative this is all gonna be happening very soon straights again it goes back to the accelerated growth curves that we're seeing things happen faster you can get a factory up and running far faster than you used to be able to before you can get robots in there you can start producing faster and faster than we ever could before and I mean keep in mind in 2013 the Model S was basically the only electric car that could go over 200 miles right now we have so many more options and they are just continuing to grow in number and I mean riffian just followed in Tesla's footsteps they founded a Mitsubishi Factory that was selling dirt cheap they secretly you know start building a luxury SUV and pickup truck it's going to be expensive but it's going to be amazing when it comes out right and and here's one thing that I think that a lot of people kind of miss they they look at the front of the truck and they go oh that thing's ugly no one's gonna buy it and oh it's gonna be so expensive no one's gonna buy it not everyone has to buy the rivey and truck for them to make a huge impact in the market right okay but they have to make a tiny little blip okay cuz right now all they need to do is raise more money and they can do that by selling a luxury high margin exact on the truck just tested it and they don't have to sell it to everyone on the street they just have to sell a few tens of thousands there they're creating a luxury brand name just like Tesla so that when you hear ribbing you'll think luxury then if they release a lower priced pickup truck which shouldn't be hard to do right you'll be like I'm buying a ribbon too right it's it's brilliant it's exactly what Tesla did I think that it's a really really smart move and enemy people think that like Oh Tesla's are too expensive therefore no one buys a Tesla that is not the case people by Tesla's now that the model 3 comes down obviously more people by Tesla's but people have been buying Model S's since it came out and that is kind of what made Tesla possible is people buying Model S's the people buying Model access these are really really expensive cars normal people do not have these cars and now they're finally producing model threes which can actually be bought by normal people now I urge you to read Ross's article fantastic we only kind of touched the surface it's a real deep dive he's got all the facts and figures to back it up and we really want to give a shout out to Ross for writing these fantastic articles so go check that out thank you so much for joining us here on in-depth this week we really appreciate you joining us every week and don't forget subscribe and like our episodes really helps us out a lot alright thank you so much for watching now you know

Channel: Now You Know

Views: 286,005

Rating: 4.6942549 out of 5

Keywords: Ross Tessien, Seeking Alpha, Rivian, Truck, Electric, Adoption, EV, tesla time news, zac, jesse, news, update, elon musk, model x, model s, model 3, model y, supercharger, In Depth, Elon, Musk, Twitter, Supercharger, Network, elon musk twitter, elon, EV sales, Ford, GM, factory, closings, jobs, stock market, R1T/R1S, Bollinger, WorkHorse W-15, Havelaar Bison, Tesla Pickup, ICE

Id: aUC6lsLr04I

Length: 20min 34sec (1234 seconds)

Published: Tue Dec 04 2018

Reddit Comments

[u/rabbitwonker]

This video does a great job explaining the exponential S-curve of product growth, and points to the loss of interest in ICE sedans being about EVs, not SUVs & pickups.

This means that GM’s recent shutdown of sedan production (And Ford’s similar change of direction) may actually represent Tesla’s mission starting to play out in concrete terms.

[u/Bloody_Titan]

Which gas/ICE companies should I begin shorting?

Need to get revenge for tesla :P

[u/[deleted]]

Interesting graph of the adoption of various tech and conveniences in time. It goes to prove why Tesla has to get the $35,000 one right. I'd wager there are still 200,000 people still waiting for one.

Oddly an argument I never see people make when getting a Tesla is savings in gas. If people added, carpayment + gas they would be delighted to find they could own a Tesla.

[u/woooo3]

ICE sale crash would be good for the consumer right? Should drive prices down on ICE vehicles?