Volvo All Electric? Not The Only Presage For The Oil Industry…

Volvo Group recently announced its strategy to produce nothing but hybrid and all-electric vehicles within two years (Volvo All Electric or Hybrid), becoming the first major automaker to eschew the internal combustion engine.  While this development might not seem stunning given the rise of Tesla Motors and increasingly common electric vehicle charging stations, it’s significant given the scope: Volvo produced over 530,000 cars last year on record sales, up 6%.  By comparison, Tesla produced just over 80,000 all-electric vehicles in 2016.  In that context, the rise of electric and hybrid vehicles becomes quite apparent, especially when including the record pre-order sales of the Tesla Model 3, rumored to be well over 400,000.  

Will other major car manufacturers follow suit?  One could speculate so, given the migration in consumer preference toward everything green, combined with regulation that is forcing all industries to change.  Nowhere is that more apparent than in the Golden State, where California law-makers have instituted a legislative trifecta across energy marketplaces, emissions standards, and renewable energy consumption.   On Monday, California legislators, in a bipartisan vote, passed a law extending the state’s cap-and-trade energy marketplace, which makes carbon polluters pay economically for their actions while mandating reduced carbon emissions, through 2030.  California already has the toughest vehicle emissions standards in the U.S., and was granted an exception by the EPA under the Clean Air Act for the stricter standard, and in March upheld plans to require a doubling of fuel efficiency of new cars to 54.5 mpg by 2025.  Finally, the California Assembly looks poised to pass bill SB100 in the current legislative session, which would require utilities within the state to produce 100% of its power from renewable sources by 2045.  As a preparatory step to combat intermittency, or the periods when energy sources such as wind and solar fall short of demand, earlier this year San Diego Gas & Electric unveiled the world’s largest lithium-ion battery energy storage center: a 30-megawatt plant.  If California, the world’s 6th largest economy, is any indication, the migration away from fossil fuels is happening… quickly.

Further, over 100 influential corporations globally have voluntarily agreed to consume all of their energy from renewable sources through the RE100 initiative.  These corporations and the California government may be at odds with a U.S. federal executive branch focused on reneging on global climate deals and relaxing carbon standards, but that conflict appears to be an anomaly on the global stage, with nearly every other western government encouraging renewables adoption, in-line with consumer and corporate demand.  

What do all of these developments presage for the oil industry?  Bad news.  Global warming science was the first domino to fall in this chain reaction of consumer attitude, regulation, and legislative action to curb carbon emissions.  As consumers, corporations, and local governments like California make clear, consuming fossil fuels is like serving haggis for dinner: if you eat it, there’s a physical price to pay, and, regardless, you lose all respect for the dinner hosts.  Not a winning recipe for investment success; best to limit your investments in oil and gas commodities and the corporate producers of them.