Is Shell's Shocking Revelation Good News for Tesla?

fool.com ^ | October 13, 2013 | Tyler Crowe

[ckilmer]

Cats and dogs. Oil and water. Name any cliche about polar opposites and they have probably been used to compare the oil industry and electric vehicles. So, it seems almost impossible that an oil company would make the claim that electric vehicles will be the predominant transportation fuel, but Royal Dutch Shell (NYSE: RDS-A ) is making that very claim.

Is Shell contemplating going into a new business? Are they playing some kind of Jedi mind trick on us?

Let's take a look at some of the things that Shell is saying and see if it is making a compelling case to invest in Tesla Motors (NASDAQ: TSLA ) and the rest of the electric vehicle industry.

Admitting defeat, sort of... This week Shell released what it calls the New Lens Scenarios, a report on what it sees as the future of energy over the next 50 years. Much of the report reads like you would expect from an oil company, but there were some very interesting tidbits that seem to go against what you would expect from a company like Shell. Probably the most glaring example was this little chart.


Source: Royal Dutch Shell

No, you don't need to check your glasses prescription: Shell is saying the rise in the use of natural gas, electricity, and hydrogen as transportation fuels will result in oil having a meager 22% of the global transportation market by 2060. There are lots of factors that went into this prediction, such as increased urbanization, more efficient urban planning, and regulations on CO2 emissions. But the people at Shell believed these factors were so powerful that it made the following claim:

By 2070, the passenger road market could be nearly oil-free

It seems like a pretty bold statement, and one that seems to be endorsing the very technology that could threaten the company's profitability. If you sift through the details, though, you notice that Shell lumps electric and hydrogen into the same group. Also, It just happens to be that that both Shell and Total (NYSE: TOT ) are currently the only two of the integrated major oil companies that have stated in their annual reports that they are actively developing hydrogen based fueling technology for vehicles. So, on the surface it may sound like a dig at its own industry, but it may just be a pitch for what it is developing down the road.

Stamp of Approval for Tesla? Even though Shell may have not intended to endorse a company like Tesla or natural gas designer Westport Innovations (NASDAQ: WPRT ) with this report, seeing estimates that electric and natural gas vehicles could play such a large role in the future of transportation is bound to create some excitement among investors. When you consider total vehicle sales hovered around 80 million last year, the market potential for these companies is immense.

You would never want to buy a company on long-term trends alone, but it does make for a good starting point. If you do want to build an investment thesis for a company like Tesla or Westport using these long-term trends, though, there is one question you need to ask yourself:

Do I have the patience and the temperament to invest in a company based on these long-term trends?

The opportunity for Tesla and Westport are there. Both companies are technological leaders in their respective fields, and their offerings are so attractive that many other companies in the space are lining up to work with them with either joint ventures or manufacturing contracts. But these are growing companies that are bound to hit a bump or two down the road. Right now, Westport isn't expected to generate a net profit before 2016, and even Tesla CEO Elon Musk has said that the company's stock is bound to swing as "confidence waxes and wanes." Your resolve as an investor will more than likely be tested, so be ready for anything the market may throw in your path.

What a Fool believes
For many of us, the first glance at the chart from Shell might suggest one thing, but it could mean something completely different. Also, keep in mind these are predictions on what someone thinks may happen 50 years out from now. If we all have learned anything, it's that we are excruciatingly bad at predicting the future. In the past three months alone, analysts and pundits have predicted oil to both go under $30 and over $150 by 2015. Then again, perhaps we are good at predicting, because we give ourselves such a wide range to work with.

[Reaganez]

1) Big Oil and OPEC countries are constantly predicting the end of oil supplies 50-60 years into the future because it justifies high oil prices but not the urgency to transition to an alternative.

2)This report lumps battery electric vehicles with hydrogen fuel cell vehicles. Fuel cell vehicles are the cars of the future and always will be. Never the dominant technology of the present. Hydrogen is a net negative “fuel”. It uses more energy to refine and distribute than you derive from it. Therefore it is more properly an energy “medium” and not a fuel source.

3) The world consumed all of the known world oil reserves from 1950 in the early 1970’s. No doubt the earth is finite and oil is for all practical purposes finite. Only a fool would think we have found all the recoverable oil on Earth and that oil recovery technology has peaked and can’t be further advanced. We have picked the low lying fruit but there is plenty of fruit in all likelihood further up the tree.

4) The Stone Age ended. Not for lack of stones but for a better idea. The Oil Age will end not for a lack of oil but because there will be better alternatives.

[Rebelbase]

Only in a purely socialist society.

[Myrddin]

ECOtality electric car charging company goes bankrupt, strands 13,000 chargers

[Dr. Sivana]

Imagine, if you will, ANY fifty year period. You could pick 1960-2010, 1950-2000, 1940-1990, 1930-1980, etc. How much would the futurists, even experts in the field, get right on such questions? The 1950, 1960 guy would have nukes leading the pack. This is an exercise in folly. We don’t know when a game-changing technological breakthrough will come, or which one it will be. We don’t know when a game-breaking political situation will arise and change things in a completely different direction. As few as ten years ago, natural gas as a serious automotive fuel was a joke. Now, major truck stop chains are installing them nationwide. We just don’t know.

[Eepsy]

Gee, I wonder if this will shed any light on why we still haven’t reached peak whale oil, yet....

[C210N]

There are lots of factors that went into this prediction, such as increased urbanization, more efficient urban planning...

... and Agenda 21 and ICLEI.

[Zhang Fei]

I think coal is the energy source of the future. It’s cheap and there’s a lot of it. As oil prices go up beyond a certain point ($200/bbl), coal to gasoline plants will become a riskless investment.

[ckilmer]

The Oil Age will end not for a lack of oil but because there will be better alternatives.
........
Agree. My betting is that thorium lftr reactors is behind shells pessimistic predictions about oil use.

[Enchante]

Can anyone make ANY plausible projections or predictions of this kind??

I doubt that anyone alive in 2013 knows what the electric car potential is 50 years from now.

Shell and others can make all the guesses they like about decades to come, why should it affect our personal and public decisions, behaviors, and policies in 2013-2017 (for example).

[Titus-Maximus]

My E-ride!

[Gay State Conservative]

There's at least one serious problem with electric vehicles...in *this* country,at least.Osama Obama (& pals) have declared war on coal.IIRC Osama once promised to “bankrupt” the coal industry.My understanding is that his battle plan is working very well...coal fired power plants are closing left and right.And given that just a few years ago coal accounted for about half of our electricity it's tough to see where the juice to charge all those batteries will come from.It's highly unlikely that it will come from solar or wind.

[Wonder Warthog]

This is no surprise. Shell has always been enamored with the more exotic energy sources. They have for many years seen themselves as an energy supply company and not an “oil company”.

My business partner is a Shell retiree, and he has told me quite a bit about all the exotic “stuff” Shell is “into” on a small project scale.

Even something as exotic as “cold fusion”:

http://newenergytimes.com/v2/reports/shell.shtml

[Wonder Warthog]

"And given that just a few years ago coal accounted for about half of our electricity it's tough to see where the juice to charge all those batteries will come from.It's highly unlikely that it will come from solar or wind."

The only reason coal has such a high percentage is that James Earl Carter (now demoted to the second-worst president of the US in history) forbade the construction of natgas fired plants, because the US was "going to run out of natural gas", and needed to "save natgas to heat homes".

At that time, the only other practical choice was coal.

But I fail to see why any existing coal-fired plant cannot be converted into a combined cycle gas-turbine/steam turbine plant. Surely some bright engineer types could figure out how.

[Paine in the Neck]

"... electric vehicles will be the predominant transportation fuel...

What? Are we going to burn them?

[Ruy Dias de Bivar]

***natural gas, electricity, and hydrogen as transportation fuels ***

Compressed gas. Get in a wreck and Kaboom! Might as well go back to the Stanley Steamer.

[Mr. K]

you can make a gas engine one hell of a lot more efficient if it only has to run at one speed.

Cars would not run very well at one speed, but generators will.

So, you make a tiny, efficient electric generator to power electric motors in a car...

If anyone knows of a good small gas electric that would be suitable for this- let me know, I have an idea for a gas/electric vehicle I want to make

[The Antiyuppie]

“you can make a gas engine one hell of a lot more efficient if it only has to run at one speed.”

This is basically the principle of the engine in the Prius. As I’m sure you know, the cam can only be at peak efficiency at one RPM and one load. The compression ration of this engine and others of its type is fairly mindblowing:

http://en.wikipedia.org/wiki/Atkinson_cycle

Of course, a DIESEL is really the best engine for a serious engine-generator combination. Too bad that it’s basically impossible to sell a simple, efficient one for automotive use in the US, due to certain departments headed for extinction by 2017.

[The Antiyuppie]

I have always thought that a GREAT idea would be an electric car with a diesel powered generator trailer or bolt-on. You could use the electric car during the week and hook up the trailer on the weekend. Again, technically doable, legally impossible.

[maxsand]

I am still waiting for a car that runs on oxygen and kerosene.