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Battery technology may emerge as a trillion-dollar threat to credit markets

392 points by perseusprime11 10y ago

ars 10y ago
Why do they assume auto makers will just sit there and do nothing? I have seen far too many "projections" that assume nothing will change - they are always wrong, and thus worthless (unless it's your job to make the change).
- belltaco 10y ago
  >Why do they assume auto makers will just sit there and do nothing? Because the hype will be with the new, and auto makers will be perceived as "old" even if they release electric cars, which will be tough because they're already behind Tesla. Everyone wants to have that Tesla, and no one wants a Blackberry even if the newer versions have touch and have all the features of an iPhone. It happened in the smartphone industry, with taxi apps etc. etc. It's hard to shake off widespread public perception short of reinventing yourself which is possible, but quite rarely seen.
  - deleted 10y ago
    [deleted]
  - maxerickson 10y ago
    GM is shipping a (practical) mass market electric platform in a few months. They are apparently behind Tesla when it comes to autonomous features, the Bolt looks to be competitive with the Model 3 as a daily driver and will beat it to market.
    - forgetsusername 10y ago
      >They are apparently behind Tesla when it comes to autonomous features I'm not even sure this is the case. Tesla, with AP2.0, seems to be starting from scratch. New cars will have no autonomous features. I'm not convinced they have a technological lead over other players in what is becoming a saturated space.
      - maxerickson 10y ago
        They have a non zero chance of activating it in cars that they are selling now (or at least in the near future). You can't do that trick if you don't commit to the hardware. More broadly I think you are right, it's hard to see where the different groups really stand from the outside.
        forgetsusername 10y ago
        >You can't do that trick if you don't commit to the hardware. I agree, this was a pretty slick move all around. Add the hardware (which is simple and cheap), collect data, iterate on the technology, and sell it now as a "game-changer" and "upgrade". Elon has a knack for packaging things like this.
    - spectrum1234 10y ago
      If only it wasn't ugly as fuck.
      - ams6110 10y ago
        The model 3 is no beauty queen either.
  - rubber_duck 10y ago
    I would have no problem buying an 'old' car if price/performance was right, as would many others, not to mention that outside of hipster circles people value old brands as reliable and trustworthy. You can't comparre brands like VW and BlackBerry.
  - rgbrenner 10y ago
    The difference is that Blackberry spent years ignoring the iphone, pretending they didn't need to change anything. The car manufacturers don't appear to be ignoring tesla at all. In fact, Tesla is being outsold by more than one of the "old" companies electric cars today. If you have to compare it to phones, it's much more similar to iphone vs android. Android might not have been first, but they responded quickly.. a variety of phones/cars allows manufacturers to meet the requirements of more market segments. At the end of the day, Tesla/Apple can only offer a handful of models.. if you don't like it, you're choices are the large variety produced by Android manufacturers. That virtually guarantees Android will have a greater market share than the iphone/Tesla.
    - rbanffy 10y ago
      I have a feeling Tesla is a battery company that makes cars to prove a point and generate demand for their batteries.
      - duaneb 10y ago
        That's reductive, even if it does indicate the competitive edge tesla has.
        rgbrenner 10y ago
        I agree.. but it's interesting to think of Tesla in that way. Powerwall clearly is not a complimentary product of a car. If it was wildly successful, it would have had minimal effect on Tesla's car sales, while having a significant effect on it's battery production. Similarly, SolarCity (which is merging with Tesla) increases demand for batteries.. but again, has little effect on their car sales. In fact, the one thing all of their products share in common (solar, powerwall, cars) is that they increase the demand for batteries. Tesla may be a car manufacturer.. but it would easy to think their primary business is actually batteries.
        greglindahl 10y ago
        More battery production -> lower battery prices -> lower car price -> more car sales.
  - grzm 10y ago
    > Because the hype will be with the new ... > no one wants a Blackberry even if the newer versions have ... I agree that there is a hype aspect to this, but I don't think it's the whole story. You rightly point out that it's hard to shake off widespread public perception short of reinventing yourself. I think that in many cases the perception is earned. As is often pointed out, there are many aspects of the iPhone that are not original to Apple. Tesla isn't the first company to come out with an electric car. I don't think hype alone is going to have people shelling out tens of thousands of dollars for a new car. What prevented the established companies from putting out compelling products themselves? After all, they already have experience in the industry. Clayton M. Christensen's "The Innovator's Dilemma" discusses this in part. And once you've lost the perception of being competitive, you're playing catch up on both marketing and product. Ouch.
    - hilop 10y ago
      Established companies ARE putting out EVs and getting better at them every year.
  - pattisapu 10y ago
    Not necessarily. The Honda Insight hit big Western markets before the Toyota Prius around the turn of the century, but ultimately the Prius became the most popular hybrid vehicle. What customers want in a car is different from what they want in a phone.
    - fragmede 10y ago
      > Honda Insight The (original) Honda Insight was a tiny 2-seater of a car, more tech demo than "ordinary" car, and perhaps it's the gift of hindsight but the Prius' popularity for with people that own one car, as a 4-door 5-seater car vs a non-sportscar 2-door 2-seater car seems all but guaranteed. (How many people do you know that own 2-seaters vs 5-seaters?) Similarly, the vast majority of smartphones these days are (unfortunately) glass bricks, as first popularized by Apple. There were other interesting designs out there, but ultimately the iPhone design became the most popular smartphone design.
      - pattisapu 10y ago
        Good point.
      - coredog64 10y ago
        The first generation Prius wasn't exactly a hot-seller. It was still a compact car and the battery pack reduced the utility even more. The second-gen was the home-run for Toyota. It was about the same size as a Camry for not much more money and a lot of additional utility, especially around 2008-2009 when gas prices were absolutely crazy.
      - hilop 10y ago
        What are the other interesting designs?
  - forgetsusername 10y ago
    >Everyone wants to have that Tesla ...in Silicon Valley. Tesla is far smaller than you think. The market and mind share outside of extremely wealthy sectors of the country is miniscule. Nobody where I live has even heard of them (unless, of course, you are a technically inclined forum reader). HN seems to think Tesla has already won (even though they can't profitably produce a vehicle), and that everyone working for the auto majors are old, stodgy, and stupid. But I'm betting otherwise. I think they see that the writing is on the wall, and they're allowing Tesla to do much of the leg work.
    - daodedickinson 10y ago
      I've seen a lot of electric cars. I've seen one Tesla ever, and I saw it at the end of a long road trip to the Bay Area.
      - WalterBright 10y ago
        I see a lot of Teslas around Seattle.
    - dirtyaura 10y ago
      On the other hand, here in the Northern Europe, people even outside of tech circles talk about Teslas and recognize them on the streets. But I very rarely hear people talking about other electric car models. I think Tesla has already tremendous global brand for such a young company.
      - izacus 10y ago
        And how many people recognise Teslas direct competitors? Audi, BMW, Mercedes, etc.? :)
        dirtyaura 10y ago
        Of course more people recognise the old guard, but that wasn't the point. The point is that Tesla already has a significant global mindshare in electric cars despite the fact that they have only sold less than 200K cars to date. I bet I'm not far off when claiming that almost everyone who is considering of buying a full electric car has heard about Tesla.
  - Animats 10y ago
    Chevy will probably be the largest electric vehicle manufacturer in a year or two. They're #2 right now, and the Chevy Bolt comes out soon. The Bolt is a useful car, the price is affordable, it has more range than the Tesla Model 3, and the Chevrolet Division of General Motors has a track record of building large numbers of cars at low cost.
    - drcross 10y ago
      I think range anxiety is over-played because 1. people don't drive for long distances all the much anyway and 2. battery capacity improves 8% year on year, within 9 years it will have doubled and it will be a moot point.
      - dsfyu404ed 10y ago
        But what about when you do want to drive a long distance? Unless you just want to drive in circles around a major metropolitan area where charging stations are plentiful it's going to require having a planned route/schedule and sticking to it. That's a huge decrease in utility compared to a vehicle you can fuel up anywhere. Unless chargers become close to as common as gas stations EV range will have to be greater than that of traditional vehicles.
        beambot 10y ago
        > Unless chargers become close to as common as gas stations [...] If an EV supports 120V outlets, then chargers are already more common than gas stations by many orders of magnitude. Fast charging is a different story... But for long road trips, taking a break for a couple hours every 400 miles doesn't sound like a bad idea, and we already have ample rest stops along most highways.
        Yaggo 10y ago
        Charging a 60 kWh battery in two hours requires average power of 30 kilowatts, i.e. about ten times more power than available from a regular household outlet. So you really need proper fast charging infrastructure.
  - jacques_chester 10y ago
    > Because the hype will be with the new, and auto makers will be perceived as "old" even if they release electric cars, which will be tough because they're already behind Tesla. Much like how Red Bull completely replaced Coca-Cola. Or that time Microsoft was replaced on the desktop by Ubuntu. Or that occasion when the Segway killed off bicycles.
    - jacquesm 10y ago
      No, more like Apple almost accidentally killed Nokia (with a little help from Microsoft and Samsung).
      - jacques_chester 10y ago
        The point being: Sometimes the incumbent wins. Sometimes they don't. Making sweeping generalisations across all competitive landscapes in all industries isn't a very effective method of forecasting in particular industries.
  - danmaz74 10y ago
    Nobody wants a Blackberry... but hundreds of millions want Samsung, LG etc. etc. etc.
  - ams6110 10y ago
    Not everyone wants a Tesla, that's just absurd. There will be plenty of buyers across the price range from cheap Asian commuter cars to mainstream Ford and GM to luxury BMW and Mercedes EVs.
- dabeeeenster 10y ago
  They are doing something, but I guess it's hard when youve invested hundreds of billions of dollars over the lifetime of your industry doing R+D to perfect the I/C engine. Are they just going to throw that work over the side of the ship? I mean rationally yes they should, but it's easier said than done! They also need to skill up in completely different areas of expertise, which also is hard/takes time.
- stickfigure 10y ago
  Certainly the existing auto makers are developing new cars. But one of the major differentiators of the Tesla is the user interface - the navigation screen, the experience around calculating routes including charge stations, etc. On one hand it seems like developing good UX should be easier than building cars - it's mostly just software right? - but based on everyday experience with electronic goods it seems to be the hardest thing for companies that do not have a long pedigree of UI development. We all have iphones and androids is because of UX, not because of hardware. For most of the history of the automobile, the UX was standard and very simple. Now there's a major expectation-resetting going on. The UX of a Tesla is not something that just can be bought from a third-party supplier and bolted on like a fuel injector or axle or radio. At best, the software departments of big automakers are accustomed to building embedded systems. Making the transition to will not be easy.
  - johansch 10y ago
    Volvo seems to have caught up, more or less: https://www.youtube.com/watch?v=HM1-Yh5fwB8 https://www.youtube.com/watch?v=HM1-Yh5fwB8 Building a good embedded touchscreen UI is not so much rocket science as it was just 5-7 years ago. There are a lot more people with the knowledge nowadays - because of the mobile app revolution.
  - WalterBright 10y ago
    > We all have iphones and androids is because of UX, not because of hardware. The iphone appeared as soon as the hardware shrunk enough to be able to support it. Earlier tablets failed mainly because the hardware just wasn't capable enough.
  - mmahemoff 10y ago
    I'll add that they are building much more than car UI. They are building platforms. The car itself is a complicated platform with many components. How they communicate will affect how easy it is for the developers to build reliable, secure, components. (e.g. braking systems preferably shouldn't be open to everyone https://www.wired.com/2015/07/hackers-remotely-kill-jeep-highway/ https://www.wired.com/2015/07/hackers-remotely-kill-jeep-hig...). Then you have the cloud aspect, which allows users to access car data and functionality from apps, allows the car manufacturer to do analytics, etc. Now you have a car company that's responsible for running safety-critical servers in the cloud. Again, this leads to huge variation in reliability, developer experience, and security (e.g. your car's climate control is best left to yourself and not everyone else https://www.troyhunt.com/controlling-vehicle-features-of-nissan/ https://www.troyhunt.com/controlling-vehicle-features-of-nis...). TLDR Software is eating cars.
- njharman 10y ago
  They don't. They assume automakers will start selling EVs and not PVs, petroleum vehicles. This article was about oil and energy industry. Try reading OA next time.
powera 10y ago
No. [EDIT: headline here fixed to not include the words "death spiral"] The article is a (lousy) summary of a report from Fitch. It has no new content, and its regurgitation of the report confuses most of the fundamentals of the energy and credit industries.
- quantumhobbit 10y ago
  So what does the report from Fitch say? I agree that the article was very click baity, but I am curious about how energy utilities will be affected by cheap batteries. These are some of the most entrenched and connected industries, so disruption, if it happens, won't be easy or fast.
  - sunstone 10y ago
    What you say is true but, one thing they usually cannot do is affect whether not individuals put solar panels on their roofs and batteries in their garages. When the price of these two components become cheap enough for consumers to comfortably go 'off the grid' utilities will have little recourse.
- tptacek 10y ago
  This is by itself a very useful kind of HN comment, but just so you know, it leaves me hungry for a lot more detail. In case having a waiting audience motives you to write more... well, you've got one.
  - powera 10y ago
    Here's the Fitch release about their report: https://www.fitchratings.com/site/pr/1013282 https://www.fitchratings.com/site/pr/1013282 Most egregiously, Bloomberg is cherry-picking the words "death spiral" out of somewhere in the middle of the report and putting it in the headline.
    - tptacek 10y ago
      This is useful, but I'm actually more interested in your opinions and analysis.
SubiculumCode 10y ago
Here is the libertarian response, maybe: I'm not going to feel we should protect the oil industry because of potential economic disruption. Winners. Losers. Free Market. Credit markets are about predicting future trends and credit worthiness. If creditors do a poor job, so be it. This argument is generally pursuasive to me most of the time. Should I be convinced otherwise in the present case. -a layman.
- deleted 10y ago
  [deleted]
- brianobush 10y ago
  The future changes are clearly written on the wall. If the credit markets continue to ignore the trends and the risks of oil, then they deserve to loose money.
  - ams6110 10y ago
    Remember "peak oil" ? Never happened. The death of oil has been greatly exaggerated.
    - brianobush 10y ago
      There hasn't been a contender until recent.
    - JulianMorrison 10y ago
      It absolutely would happen one way or the other, eventually, even with shale oil. Finite amount of oil-bearing rock is finite. But also, even if there was vastly more oil than thought, that wouldn't matter because if you dig it up and burn it, Earth turns into Venus. Peak "oil we can afford to dig out without fucking ourselves over thoroughly" is already in the past and receding.
- cybertronic 10y ago
  Yes. It's just Econ101. https://en.wikipedia.org/wiki/Creative_destruction https://en.wikipedia.org/wiki/Creative_destruction
djyaz1200 10y ago
Those companies have a STRONG incentive to avoid disruption and this co2 to ethanol technology might be helpful in that regard? http://energy.gov/articles/scientists-accidentally-turned-co2-ethanol http://energy.gov/articles/scientists-accidentally-turned-co...
- forgetsusername 10y ago
  >Those companies have a STRONG incentive to avoid disruption A less cynical person might says "Those companies" have a strong incentive to preempt and partake in the disruption. And it is my belief that's the path most of them will take.
  - nine_k 10y ago
    Verily. What you cannot prevent you should lead :)
  - djyaz1200 10y ago
    I hope they choose that path!
- bwghughes 10y ago
  It's the oil industry's Kodak moment. Just an historical blip, but one oft' repeated.
narrator 10y ago
I've surmised from years of reading the economic press that there's really only one bad thing that can happen in a capitalist economy: bondholders not getting paid. Heck, lots of commentators argue that war is good for the economy, a natural disaster is good for the economy, the broken window fallacy is a mainstay of Keynesian economics. However, bondholders not getting paid is something that should be prevented at all costs! The federal reserve is doing $40 billion a month of bond buying with electronically printed money (quantitative easing) so the bond holders get paid! "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." - James Carville
- xal 10y ago
  Planet Money did a great episode on Argentina, which decided at some point to default on its debt. http://www.npr.org/sections/money/2016/03/11/470136949/episode-689-a-hedge-fund-a-country-and-a-big-sailboat http://www.npr.org/sections/money/2016/03/11/470136949/episo...
  - alecco 10y ago
    Argentina didn't decide. It couldn't pay the interests anymore. It was a snowball of crazy high interest rates in a foreign currency. You can't pay your debt if it's much higher than GDP growth even with a surplus. And Argentina had neither growth nor surplus, thanks to the idiotic IMF economic plans with a currency pegged to the US dollar. A better point might be, why were they lent money in the first place?!?
    - Mindcraft 10y ago
      And to a de-facto government.
    - lambertsimnel 10y ago
      Debt to GDP ratios can also be described in terms of how long it takes to produce GDP equal to the debt. Owing 100% of GDP is owing one year's product. Whether that's a significant dividing line depends on rates of interest and growth.
anonymousiam 10y ago
This is wishful thinking. If batteries lasted more than two years under constant use, I might consider them to be a threat to "fossil fuel". As it stands, they are no threat at all. As an aside, should we call the hydrocarbon rich oceans on Titan "fossil fuel" as well? Why does the myth of oil being derived from earlier organisms persist?
chx 10y ago
Um. Good morning? Didn't Germany call for a ban of combustion engines by 2030 just two weeks or so ago? These graphs are wildly optimistic if that happens.
- IshKebab 10y ago
  Yeah but that actually happening is wildly optimistic. In a good way, but still...
- imtringued 10y ago
  I bet those incubents will incube until they finally get shut down in 2030 by the government.
Animats 10y ago
Credit markets dependent on oil survived the "superspike", the decline of output from several Middle Eastern countries, the rise of US secondary and Canadian oil production, the substitution of natural gas for oil in power generation, and the resulting oil glut. Those were fast events, a few years at most. Conversion to electric cars is going to take a few decades. Anyway, batteries are not an energy source, just storage. Somebody has to build generating capacity.
- jogjayr 10y ago
  > Anyway, batteries are not an energy source, just storage. Somebody has to build generating capacity. IIUC, you can generate far more solar electricity during the day than can be consumed. But that electricity isn't available at night because storing it in batteries is too expensive right now. With cheaper batteries there are stronger incentives to build more renewable generating capacity, driving down costs further etc etc.
  - empath75 10y ago
    There's also nuclear.
    - gwbas1c 10y ago
      Nuclear needs a lot of storage. The problem is that nuclear power plants only produce at a steady rate, they can't be brought online and shut down as demand fluctuates. (Natural gas is great for plants that need to handle peak load or spikes.) Back in the 1960s and 1970s when the power industry thought we were going to go nuclear, they built a lot of pumped water storage systems. There's one in Western MA built under a mountain that pumps water from a river to an artificial lake at the top of the mountain. The plan was to pump water at night using extra power generated by nuclear plants, and then run generators during the day to make up the shortcoming. My guess is that the facility now pumps water during the day to act as storage for solar power. The efficiency is about 70 or 80%, from what I remember. Batteries are a much higher efficiency, and can be placed much closer to the load. Thus, mass-produced low-cost batteries will really disrupt the grid, because older forms of storage, like pumped water, will be obsolete. Furthermore, because batteries can be placed much closer to load, the needs for grid capacity change because high transmission lines no longer need to handle peak load.
f137 10y ago
The logic is backward, actually. The low risk that any breakthrough in batteries would happen IS the reason for the vast amount of securities dependent on it.
cm2187 10y ago
Credit markets can sustain expected / anticipated losses. Car makers all have low ratings when they are not fresh out of chapter 11. The problem with credit markets is when there is a big blow in a credit that was deemed to be very safe. Then it hits portfolio that aren't designed to sustain large loses like money market funds or smaller banks or people overleveraging their position. Then you have 2008. But a slowly degrading credit quality to which investors will have years to adjust shouldn't be a problem.
happycube 10y ago
Amusing that we've gone from talking about Peak Oil Supply to Peak Oil Demand...
- marcosdumay 10y ago
  Supply == Demand Why did you ever expected those to not happen at the same time? It's expensive oil that makes people look for alternatives.
- stale2002 10y ago
  OMG, I've been saying this for years! The left was right about peak oil. Just for the wrong reasons. People will stop using oil, not because we ran out, but because the alternatives will just be so much better. I don't think people really understand how much oil is out there. We've got more oil in the Colorado shale formations, than Saudia Arabia does! It is fairly expensive to extract, but its existence means that oil prices will never 'consistently' stay above 100-120$ a barrel for more than a couple years. Nightmare 200$/barrel "peak oil" are just never going to happen.
SmokyBorbon 10y ago
Maybe someone will invent a liquid battery that could be pumped into cars. Of course we would need to invent engines that could release the energy. And we would need a large distribution system with filling stations located all over the country. Would be nice if this battery were naturally occurring and abundantly available. But it's just a dream. Oh, well.
dv_dt 10y ago
When individual jobs are threatened from offshoring, it's just too bad for the workers and is just considered the regular working of the market. When battery technology threatens previous investments in old tech, its a "threat" to the market. Hmmm.
GigabyteCoin 10y ago
Wow... talk about a first mover advantage... Best case scenario, according to the graphs in the article, is if "Low Carbon Policies" come into effect to disrupt the oil industry as quickly as possible... we will still be consuming 50 million barrels of oil per day in the year 2060.
jbpetersen 10y ago
I'm really hoping this ends up being called the "Dirty Bubble" and was a little dismayed that no headline catching names have come up yet.
Torkel 10y ago
I find it strange that articles such as this one states these two things at the same time: 1. Battery cost is falling and EVs will be as affordable as their gasoline counterparts in six years 2. It will take until 2030-2040 until the demand for oil starts contracting It seems to me like you get to pick only one of these statements. Once EVs reach affordability parity with ICE autos my guess is that things will hit the steep part of an S-curve.
- the8472 10y ago
  There is inertia in the market. The existing fleet needs to be replaced. So even if EVs were equally affordable today it would still take years for them to reach a high market penetration. And some ICE cars would also be sold in non-negligible amounts if those cars merely reached parity. You actually want them to be more affordable than the competition.
  - Torkel 10y ago
    I guess that's the reasoning... But factor in cheaper EV cost of driving, and posit: taxis, delivery vehicles - changes fast to cheapest (EV) Private and corporate leases - 2-3 years between replacements. Will move to cheapest option (EV) How much of total driving is made in these categories and how much is "long tail" of private driving in old cars? S curve I say.
- Gustomaximus 10y ago
  6 years takes us to 2022. That gives 8+ years for people to replace the oil demand creating things that can go away like cars, ships, heaters, aeroplanes, generators etc. And general inertia of change. Think more recently how long people held onto blackberries after the glass front smartphone took off. Few would now argue the merits of the keyboard over the full screen (not trying to trigger those of you left!) but a fair chunk held to the traditional view for many years. The same will be for the above machines. From this the timeline seems reasonable for me.
  - erikpukinskis 10y ago
dimino 10y ago
On that first chart, so battery count will drop post-2030? That's what the y-axis is, battery count (is it count? production rate?), but the conclusion drawn is that oil demand will drop, which feels related to the article, but wholly unrelated to the chart. Is the y-axis of that graph actually oil demand?
dimino 10y ago
Is this at all related to the recent cries of "bubble!" in the sub-prime auto loan market that John Oliver did one of his segments on? Or do those folks just shift to selling electric cars, instead of gas cars?
tlb 10y ago
There aren't many precedents for huge global industries that went from AAA-bondable to rapid obsolescence. There are some that should have, like cigarettes, but they found ways of hanging on. Or international toll calls, still a many-billion dollar business. Perhaps oil will be like that: since the marginal cost is so low, producers will keep it flowing many decades after it made sense. And like tobacco, perhaps we'll pay oil fields to not produce.
- JoeAltmaier 10y ago
  Hm. Horses. Trains. Newspapers. Radio. VCRs.
  - tlb 10y ago
    There weren't huge companies with AAA credit ratings making horses. Railroads did have bond financing, but the decline has been extremely slow. VCR companies also made DVD players and other consumer electronics, so no bankruptcies have resulted. Radio is still pretty big. Newspapers might be the closest parallel, but they haven't completely crashed yet and might well bounce back.
    - JoeAltmaier 10y ago
      Zenith? Many individual carriage companies - Columbus Buggy Company for instance. But not world-wide, very local.
- rodgerd 10y ago
  > like cigarettes Who will probably provide the template for the decline of petrol: fight like hell in the courts and lobbies to try and stay relevant in the first world, use ISDS mechanisms and so on, while cranking up campaigns in the third world to cover your losses.
- rodgerd 10y ago
  > like cigarettes Who will probably provide the template for the decline of petrol: fight like hell in the courts and lobbies to try and stay relevant in the first world, use ISDS mechanisms and so on, while cranking up campaigns in the third world to cover your losses.
riphay 10y ago
I used to work in energy corporate finance, and this feels like a pretty alarmist article to me for a few reasons. My logic runs as follows: - The trillions in credit are issued by a wide array of energy companies running the gamut from production, to energy infrastructure, to utilities, etc. - When a company is getting credit, the term is significant to the pricing of the credit. Riskier companies tend not to have access to long-term debt (10 years+); this tends to be open only to companies with more secure revenue streams (utilities, refineries, etc.) - By projecting to 2040, the article assumes creditors won't have a chance to reprice the mosaic of debt many times over until then. Riskier companies may lose access to credit completely (as we've seen during the current downturn in oil prices), while others will have to pay a higher price for their debt. - If the projections are accurate, this market will simply shrink in step with the overall market shrinking. And if past disruptions are any indications, it will be replaced by battery / EV companies needing credit and suddenly looking a lot less risky. - The world doesn't end. Did I miss anything in my logic?
- bbcbasic 10y ago
  > Riskier companies may lose access to credit completely If a riskier company can't renew it's credit, and in general the money is getting more expensive won't this lead to bankruptcy for many energy companies. Those companies won't be able to pay their debt back so ergo the money has to be written off. This would lead to higher IR on any old-energy based debt which could then put even the less risky companies at risk as they need to put more of their profits into servicing their debt. There would be a systemic failure. Unlike the housing crisis it will be due to companies that can't afford their debt in the future, rather than overextended home owners who couldn't afford the debt from day zero. But the effect could be the same. Disclaimer: Armchair economics.
  - Retric 10y ago
    Energy companies make up a tiny fraction of world debt. There is over 200 trillion in total debt world wide. You can find many trillion dollar slices of that that mean next to nothing.
StillBored 10y ago
Uh, ok, so where is all the power for these electric cars going to come from? That oil/natural gas/whatever is just going to get burned at some large newly built plan and transferred using a ton of grid upgrades (all likely paid for using bonds). Moreover, the cars aren't going away, instead of buying one with a ICE, its going to have a battery and some electric motors, the companies producing that will likely need bonds too. So, without attempting to compute the costs of a few dozen gigafactories, rare earth mines, etc, the article seems pretty worthless to me. Frankly, i've been wondering for the past few years what percentage of a modern car's production cost is actually the gas engine. Modern engine complexity seems to have peaked 20 years ago, and declined. Of course safety, comfort and entertainment systems have exploded in complexity in that same time period, but those are things people expect out of modern electric cars too.
- imtringued 10y ago
  >That oil/natural gas/whatever is just going to get burned at some large newly built plan and transferred using a ton of grid upgrades (all likely paid for using bonds). Drivers of electric cars can choose their electricity source. Whether they want to pay more for green electricity is up to them. If there is demand more green electricity will be produced. With a ICE there is no choice. >Frankly, i've been wondering for the past few years what percentage of a modern car's production cost is actually the gas engine. I don't care about that. I've already paid 30% of my cars value just for the gasoline alone. Even if I had to pay 30% more for an electric car then it would still be worth it because of tax benefits and less maintenance.
spditner 10y ago
There's an excellent talk by Tony Seba at the Nordic Enegy Summit that goes into more depth about how batteries and solar are quite possibly going to reach the tipping point sooner than anyone has been forecasting: https://www.youtube.com/watch?v=Kxryv2XrnqM https://www.youtube.com/watch?v=Kxryv2XrnqM
- igravious 10y ago
  Excellent talk, thank you. Really puts a lot of things in one place. Wonder what city councils are going to do to supplement the revenue lost if and when income from parking spot use shrinks due to a combination of smaller fleets and individual cars in the fleet spending less time parked up. Of the 4 exponentially improving technology clusters mentioned: battery storage, electric vehicles, self-driving hw/sw, solar pv -- I'm trying to imagine if any one of them might not ramp up within the 5 to 10 year time scale Tony is talking about. And I guess it would have to be the software[1] part of the self-driving hardware (sensors + compute) / software combo. And perhaps lithium[2] ore extraction. I don't know enough about the technologies of solar pv to hazard a guess. If battery storage happens we definitely get electric vehicles (along with better laptops, tablets, and phones). [1] https://www.udacity.com/course/self-driving-car-engineer-nanodegree--nd013 https://www.udacity.com/course/self-driving-car-engineer-nan... [2] https://en.wikipedia.org/wiki/Lithium#Reserves https://en.wikipedia.org/wiki/Lithium#Reserves
lsc 10y ago
I've been reading a lot about this, and I've been wondering the best way to buy a long term 'call' option on oil is... Ideally, I'd buy stock in an unhedged owner of the right to drill for oil in places where it's only profitable to drill if the price of oil goes up above where it is now. I mean, I'm no 'peak oil' person or anything, I just don't trust that we went so quickly from the idea that we were running out of oil and that it would as a result become super expensive now to this idea that it won't be worth pulling oil out of the ground for much longer; I strongly suspect that the truth is between those two scenarios, and would like to lay some money on that suspicion.
- asah 10y ago
  Danger! Energy demand and alternative energy supplies also affect price.
  - lsc 10y ago
    Oh certainly. I am just saying that right now, the estimated future value of oil is oscillating wildly, I think, more wildly than I think it ought. I would like to lay some money on that over, say, a ten year time span. Not enough to be a huge deal if I am wrong or that I never have to work again if I am right or anything, but I think it would be an interesting bet. (Unlike many people, I don't think I am smarter than the market... But I do think I am less excitable and often have a longer time horizon. And yes, I know that I am probably just as wrong as the people who think they are smarter than the market.)
- jomamaxx 10y ago
  There is no such thing as 'peak oil' because we keep figuring out ways to find more. Think Oil Sands: massive amounts of Oil in Alberta and Venezuela was not considered in reserves just a decade ago because it was not economically feasible to access it. Now it is. Deep Oil drilling, arctic exploration - so much changes so quickly. Heck - most wells are left with a lot of Oil in them because it cannot be extracted. Of course eventually there will be such a thing as 'peak oil' but it's hard to determine.
dboreham 10y ago
So if you have a stable business toady that appears to make money regardless, it will continue to do so for decades to come (or whatever the bond maturity term happens to be). There's never been a case in the past when that assumption didn't turn out to be true, of course..
fatdog 10y ago
Battery technology is a lot like bitcoin and gold in that once it is manufactured, users are not dependent upon a state controlled centralized network for it. It's revolutionary, and will probably be heavily regulated given the amount of independence it will provide people. The big secret in a lot of countries where energy and communications are state monopolies or semi-private corporations is that they are LOADED with debt that the govt used as a private slush fund. If you are looking for "off balance sheet" liabilities in a government, look at its utilities that are exempt from public records laws. This is where a lot of the bodies are buried. If people start dropping off the grid, states will just convert the power bill to a straight up tax bill, but without the pretense of a service attached to it. There are already precedents for charging electric vehicle taxes to make up for the shortfall in fuel taxes they create. Govts say, "well, if they are using the roads, they should pay for them." except gas taxes go into the slop bucket of general revenue, and the roads have been paid for through other taxes. The largest state expense is employee salaries, yet all road maintenance is done by contractors, so the "roads" thing doesn't really wash. When Greece was trying to sort out its default, it outsourced tax collection to its utility companies as part of the bailout. Efficient power storage will be a game changer, like a redrawing of international boundaries game changer.
- spoonie 10y ago
  When Greece was trying to sort out its default, it outsourced tax collection to its utility companies as part of the bailout. Because the utility companies were good at getting paid? It was because everyone in Greece was evading taxes through cash-only businesses and self-employment, so the government had a hard time collecting tax. It's not some big conspiracy.
- pastProlog 10y ago
  > Battery technology is a lot like bitcoin and gold in that once it is manufactured, users are not dependent upon a state controlled centralized network for it. Gold is just a commodity, it does not have any magical properties. Since gold is durable, uniform, divisible and portable, it makes a good currency.
  - 10y ago
rdl 10y ago
Solidly in the "good problems to have" category, at least for humanity overall.
marze 10y ago
If only there was some company poised to capitalize on this shift we could all invest in...
gregpilling 10y ago
Oil is also used for plastics, fertilizer, and many other goods. Not just used for fuel. As the world economy expands, because in 10 years everyone will be on a smartphone, the demand for plastics and fertilizer and rubber and roads etc. that demand should expand more than fast enough to cover the fleet conversion from gas to electric. 200 million vehicles in the USA fleet, and they sell 17 million in a good year. 12 years to replace the fleet; it is currently about 11 years old on average. I think the article is over stating it. There won't be any problem, it will take decades to adjust anyway.
- sunstone 10y ago
  While this may be true, assets can be repriced in a much shorter time frame. Approximately over night, once the penny drops.
kumarski 10y ago
I don't think this is likely, solely based on the limitations of galvanic battery chemistry today. Energy transitions from wood to coal to natural gas to renewables etc... usually take decades to switch over. As well, there's no exponential growth in solar. We may be hitting the S-curve flat line on battery storage. We can't keep moving left on the periodic table. Lead Acid ---> Lithium Ion. Where to move to next? Lithium Fluoride batteries are scary because of the reactivity...got that noble gas, ya know? Zinc ion rumors abound, but those ions are big, really tough. Zinc is a huge ion and thus you can only stick a few in the electrode. Any chemists on hackernews or am I forever alone?
- audunw 10y ago
  Isn't there a huge potential in Lithium air or aluminum air? I get that it's hard to achieve reliable rechargeable tech there.. but if we're looking at theoretical capacity there should be plenty of opportunity, no? As for the shorter term, have you looked at SolidEnergy? If their tech lives up to their promises I think it could really tip the scales for EVs. If it's relevant for grid storage I don't know.
- patrickk 10y ago
  Sodium batteries[1] could be the answer to grid storage batteries. Sodium can be extracted from seawater (e.g. desalination plants, there's a huge supply of salt readily available), and while it's heavier than lithium, it's chemically similar. It's heavier weight probably makes it less suitable for transport, at least initially but ideal for grid storage if/when they figure out how to produce the batteries commercially. [1] https://news.cnrs.fr/articles/a-battery-revolution-in-motion https://news.cnrs.fr/articles/a-battery-revolution-in-motion [Side note: some interesting quotes from the above link... In 2012, the French researcher decided to take the bull by the horns and make the most of France's know-how in sodium batteries. "For lithium, all fundamental research had been conducted in Europe, especially in France," Tarascon points out. "Yet it was in Japan that the technology was transferred and brought to market, allowing Sony to launch its first lithium-ion battery in 1991. As a result, 95% of Li-ion production today takes place in Asia." It is out of the question to repeat history. The CNRS (responsible for fundamental research) and the LITEN-CEA (in charge of technology transfer) have thus joined forces with around 15 industrial players such as Renault, Saft, and Alstom to create the RS2E network dedicated to new-generation batteries. Their stated objective is to ensure research AND development, in order to bring sodium-ion batteries to market on European soil as soon as they are ready.]
Ganoes47 10y ago
"on a trajectory to make electric vehicles as affordable as their gasoline counterparts over the next six years" So, in 6 years, I can replace my Corolla with a Tesla model 3. Cool!
deleted 10y ago
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gjwagfy 10y ago
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paulajohnson 10y ago
Looks like our survival as a species depends on a race between our ingenuity and our ingenuity.
nmstoker 10y ago
The original Fitch report is available here (needs a login but I believe it's available to free registered users, ie non-subscribers) https://www.fitchratings.com/site/pr/1013282 https://www.fitchratings.com/site/pr/1013282

392 points by perseusprime11 10y ago

ars 10y ago

Why do they assume auto makers will just sit there and do nothing? I have seen far too many "projections" that assume nothing will change - they are always wrong, and thus worthless (unless it's your job to make the change).

belltaco 10y ago
>Why do they assume auto makers will just sit there and do nothing? Because the hype will be with the new, and auto makers will be perceived as "old" even if they release electric cars, which will be tough because they're already behind Tesla. Everyone wants to have that Tesla, and no one wants a Blackberry even if the newer versions have touch and have all the features of an iPhone. It happened in the smartphone industry, with taxi apps etc. etc. It's hard to shake off widespread public perception short of reinventing yourself which is possible, but quite rarely seen.
- deleted 10y ago
  [deleted]
- maxerickson 10y ago
  GM is shipping a (practical) mass market electric platform in a few months. They are apparently behind Tesla when it comes to autonomous features, the Bolt looks to be competitive with the Model 3 as a daily driver and will beat it to market.
  - forgetsusername 10y ago
    >They are apparently behind Tesla when it comes to autonomous features I'm not even sure this is the case. Tesla, with AP2.0, seems to be starting from scratch. New cars will have no autonomous features. I'm not convinced they have a technological lead over other players in what is becoming a saturated space.
    - maxerickson 10y ago
      They have a non zero chance of activating it in cars that they are selling now (or at least in the near future). You can't do that trick if you don't commit to the hardware. More broadly I think you are right, it's hard to see where the different groups really stand from the outside.
      - forgetsusername 10y ago
        >You can't do that trick if you don't commit to the hardware. I agree, this was a pretty slick move all around. Add the hardware (which is simple and cheap), collect data, iterate on the technology, and sell it now as a "game-changer" and "upgrade". Elon has a knack for packaging things like this.
  - spectrum1234 10y ago
    If only it wasn't ugly as fuck.
    - ams6110 10y ago
      The model 3 is no beauty queen either.
- rubber_duck 10y ago
  I would have no problem buying an 'old' car if price/performance was right, as would many others, not to mention that outside of hipster circles people value old brands as reliable and trustworthy. You can't comparre brands like VW and BlackBerry.
- rgbrenner 10y ago
  The difference is that Blackberry spent years ignoring the iphone, pretending they didn't need to change anything. The car manufacturers don't appear to be ignoring tesla at all. In fact, Tesla is being outsold by more than one of the "old" companies electric cars today. If you have to compare it to phones, it's much more similar to iphone vs android. Android might not have been first, but they responded quickly.. a variety of phones/cars allows manufacturers to meet the requirements of more market segments. At the end of the day, Tesla/Apple can only offer a handful of models.. if you don't like it, you're choices are the large variety produced by Android manufacturers. That virtually guarantees Android will have a greater market share than the iphone/Tesla.
  - rbanffy 10y ago
    I have a feeling Tesla is a battery company that makes cars to prove a point and generate demand for their batteries.
    - duaneb 10y ago
      That's reductive, even if it does indicate the competitive edge tesla has.
      - rgbrenner 10y ago
        I agree.. but it's interesting to think of Tesla in that way. Powerwall clearly is not a complimentary product of a car. If it was wildly successful, it would have had minimal effect on Tesla's car sales, while having a significant effect on it's battery production. Similarly, SolarCity (which is merging with Tesla) increases demand for batteries.. but again, has little effect on their car sales. In fact, the one thing all of their products share in common (solar, powerwall, cars) is that they increase the demand for batteries. Tesla may be a car manufacturer.. but it would easy to think their primary business is actually batteries.
        greglindahl 10y ago
        More battery production -> lower battery prices -> lower car price -> more car sales.
- grzm 10y ago
  > Because the hype will be with the new ... > no one wants a Blackberry even if the newer versions have ... I agree that there is a hype aspect to this, but I don't think it's the whole story. You rightly point out that it's hard to shake off widespread public perception short of reinventing yourself. I think that in many cases the perception is earned. As is often pointed out, there are many aspects of the iPhone that are not original to Apple. Tesla isn't the first company to come out with an electric car. I don't think hype alone is going to have people shelling out tens of thousands of dollars for a new car. What prevented the established companies from putting out compelling products themselves? After all, they already have experience in the industry. Clayton M. Christensen's "The Innovator's Dilemma" discusses this in part. And once you've lost the perception of being competitive, you're playing catch up on both marketing and product. Ouch.
  - hilop 10y ago
    Established companies ARE putting out EVs and getting better at them every year.
- pattisapu 10y ago
  Not necessarily. The Honda Insight hit big Western markets before the Toyota Prius around the turn of the century, but ultimately the Prius became the most popular hybrid vehicle. What customers want in a car is different from what they want in a phone.
  - fragmede 10y ago
    > Honda Insight The (original) Honda Insight was a tiny 2-seater of a car, more tech demo than "ordinary" car, and perhaps it's the gift of hindsight but the Prius' popularity for with people that own one car, as a 4-door 5-seater car vs a non-sportscar 2-door 2-seater car seems all but guaranteed. (How many people do you know that own 2-seaters vs 5-seaters?) Similarly, the vast majority of smartphones these days are (unfortunately) glass bricks, as first popularized by Apple. There were other interesting designs out there, but ultimately the iPhone design became the most popular smartphone design.
    - pattisapu 10y ago
      Good point.
    - coredog64 10y ago
      The first generation Prius wasn't exactly a hot-seller. It was still a compact car and the battery pack reduced the utility even more. The second-gen was the home-run for Toyota. It was about the same size as a Camry for not much more money and a lot of additional utility, especially around 2008-2009 when gas prices were absolutely crazy.
    - hilop 10y ago
      What are the other interesting designs?
- forgetsusername 10y ago
  >Everyone wants to have that Tesla ...in Silicon Valley. Tesla is far smaller than you think. The market and mind share outside of extremely wealthy sectors of the country is miniscule. Nobody where I live has even heard of them (unless, of course, you are a technically inclined forum reader). HN seems to think Tesla has already won (even though they can't profitably produce a vehicle), and that everyone working for the auto majors are old, stodgy, and stupid. But I'm betting otherwise. I think they see that the writing is on the wall, and they're allowing Tesla to do much of the leg work.
  - daodedickinson 10y ago
    I've seen a lot of electric cars. I've seen one Tesla ever, and I saw it at the end of a long road trip to the Bay Area.
    - WalterBright 10y ago
      I see a lot of Teslas around Seattle.
  - dirtyaura 10y ago
    On the other hand, here in the Northern Europe, people even outside of tech circles talk about Teslas and recognize them on the streets. But I very rarely hear people talking about other electric car models. I think Tesla has already tremendous global brand for such a young company.
    - izacus 10y ago
      And how many people recognise Teslas direct competitors? Audi, BMW, Mercedes, etc.? :)
      - dirtyaura 10y ago
        Of course more people recognise the old guard, but that wasn't the point. The point is that Tesla already has a significant global mindshare in electric cars despite the fact that they have only sold less than 200K cars to date. I bet I'm not far off when claiming that almost everyone who is considering of buying a full electric car has heard about Tesla.
- Animats 10y ago
  Chevy will probably be the largest electric vehicle manufacturer in a year or two. They're #2 right now, and the Chevy Bolt comes out soon. The Bolt is a useful car, the price is affordable, it has more range than the Tesla Model 3, and the Chevrolet Division of General Motors has a track record of building large numbers of cars at low cost.
  - drcross 10y ago
    I think range anxiety is over-played because 1. people don't drive for long distances all the much anyway and 2. battery capacity improves 8% year on year, within 9 years it will have doubled and it will be a moot point.
    - dsfyu404ed 10y ago
      But what about when you do want to drive a long distance? Unless you just want to drive in circles around a major metropolitan area where charging stations are plentiful it's going to require having a planned route/schedule and sticking to it. That's a huge decrease in utility compared to a vehicle you can fuel up anywhere. Unless chargers become close to as common as gas stations EV range will have to be greater than that of traditional vehicles.
      - beambot 10y ago
        > Unless chargers become close to as common as gas stations [...] If an EV supports 120V outlets, then chargers are already more common than gas stations by many orders of magnitude. Fast charging is a different story... But for long road trips, taking a break for a couple hours every 400 miles doesn't sound like a bad idea, and we already have ample rest stops along most highways.
        Yaggo 10y ago
        Charging a 60 kWh battery in two hours requires average power of 30 kilowatts, i.e. about ten times more power than available from a regular household outlet. So you really need proper fast charging infrastructure.
- jacques_chester 10y ago
  > Because the hype will be with the new, and auto makers will be perceived as "old" even if they release electric cars, which will be tough because they're already behind Tesla. Much like how Red Bull completely replaced Coca-Cola. Or that time Microsoft was replaced on the desktop by Ubuntu. Or that occasion when the Segway killed off bicycles.
  - jacquesm 10y ago
    No, more like Apple almost accidentally killed Nokia (with a little help from Microsoft and Samsung).
    - jacques_chester 10y ago
      The point being: Sometimes the incumbent wins. Sometimes they don't. Making sweeping generalisations across all competitive landscapes in all industries isn't a very effective method of forecasting in particular industries.
- danmaz74 10y ago
  Nobody wants a Blackberry... but hundreds of millions want Samsung, LG etc. etc. etc.
- ams6110 10y ago
  Not everyone wants a Tesla, that's just absurd. There will be plenty of buyers across the price range from cheap Asian commuter cars to mainstream Ford and GM to luxury BMW and Mercedes EVs.
dabeeeenster 10y ago
They are doing something, but I guess it's hard when youve invested hundreds of billions of dollars over the lifetime of your industry doing R+D to perfect the I/C engine. Are they just going to throw that work over the side of the ship? I mean rationally yes they should, but it's easier said than done! They also need to skill up in completely different areas of expertise, which also is hard/takes time.
stickfigure 10y ago
Certainly the existing auto makers are developing new cars. But one of the major differentiators of the Tesla is the user interface - the navigation screen, the experience around calculating routes including charge stations, etc. On one hand it seems like developing good UX should be easier than building cars - it's mostly just software right? - but based on everyday experience with electronic goods it seems to be the hardest thing for companies that do not have a long pedigree of UI development. We all have iphones and androids is because of UX, not because of hardware. For most of the history of the automobile, the UX was standard and very simple. Now there's a major expectation-resetting going on. The UX of a Tesla is not something that just can be bought from a third-party supplier and bolted on like a fuel injector or axle or radio. At best, the software departments of big automakers are accustomed to building embedded systems. Making the transition to will not be easy.
- johansch 10y ago
  Volvo seems to have caught up, more or less: https://www.youtube.com/watch?v=HM1-Yh5fwB8 https://www.youtube.com/watch?v=HM1-Yh5fwB8 Building a good embedded touchscreen UI is not so much rocket science as it was just 5-7 years ago. There are a lot more people with the knowledge nowadays - because of the mobile app revolution.
- WalterBright 10y ago
  > We all have iphones and androids is because of UX, not because of hardware. The iphone appeared as soon as the hardware shrunk enough to be able to support it. Earlier tablets failed mainly because the hardware just wasn't capable enough.
- mmahemoff 10y ago
  I'll add that they are building much more than car UI. They are building platforms. The car itself is a complicated platform with many components. How they communicate will affect how easy it is for the developers to build reliable, secure, components. (e.g. braking systems preferably shouldn't be open to everyone https://www.wired.com/2015/07/hackers-remotely-kill-jeep-highway/ https://www.wired.com/2015/07/hackers-remotely-kill-jeep-hig...). Then you have the cloud aspect, which allows users to access car data and functionality from apps, allows the car manufacturer to do analytics, etc. Now you have a car company that's responsible for running safety-critical servers in the cloud. Again, this leads to huge variation in reliability, developer experience, and security (e.g. your car's climate control is best left to yourself and not everyone else https://www.troyhunt.com/controlling-vehicle-features-of-nissan/ https://www.troyhunt.com/controlling-vehicle-features-of-nis...). TLDR Software is eating cars.
njharman 10y ago
They don't. They assume automakers will start selling EVs and not PVs, petroleum vehicles. This article was about oil and energy industry. Try reading OA next time.

powera 10y ago

No. [EDIT: headline here fixed to not include the words "death spiral"] The article is a (lousy) summary of a report from Fitch. It has no new content, and its regurgitation of the report confuses most of the fundamentals of the energy and credit industries.

quantumhobbit 10y ago
So what does the report from Fitch say? I agree that the article was very click baity, but I am curious about how energy utilities will be affected by cheap batteries. These are some of the most entrenched and connected industries, so disruption, if it happens, won't be easy or fast.
- sunstone 10y ago
  What you say is true but, one thing they usually cannot do is affect whether not individuals put solar panels on their roofs and batteries in their garages. When the price of these two components become cheap enough for consumers to comfortably go 'off the grid' utilities will have little recourse.
tptacek 10y ago
This is by itself a very useful kind of HN comment, but just so you know, it leaves me hungry for a lot more detail. In case having a waiting audience motives you to write more... well, you've got one.
- powera 10y ago
  Here's the Fitch release about their report: https://www.fitchratings.com/site/pr/1013282 https://www.fitchratings.com/site/pr/1013282 Most egregiously, Bloomberg is cherry-picking the words "death spiral" out of somewhere in the middle of the report and putting it in the headline.
  - tptacek 10y ago
    This is useful, but I'm actually more interested in your opinions and analysis.

SubiculumCode 10y ago

Here is the libertarian response, maybe: I'm not going to feel we should protect the oil industry because of potential economic disruption. Winners. Losers. Free Market. Credit markets are about predicting future trends and credit worthiness. If creditors do a poor job, so be it. This argument is generally pursuasive to me most of the time. Should I be convinced otherwise in the present case. -a layman.

deleted 10y ago
[deleted]
brianobush 10y ago
The future changes are clearly written on the wall. If the credit markets continue to ignore the trends and the risks of oil, then they deserve to loose money.
- ams6110 10y ago
  Remember "peak oil" ? Never happened. The death of oil has been greatly exaggerated.
  - brianobush 10y ago
    There hasn't been a contender until recent.
  - JulianMorrison 10y ago
    It absolutely would happen one way or the other, eventually, even with shale oil. Finite amount of oil-bearing rock is finite. But also, even if there was vastly more oil than thought, that wouldn't matter because if you dig it up and burn it, Earth turns into Venus. Peak "oil we can afford to dig out without fucking ourselves over thoroughly" is already in the past and receding.
cybertronic 10y ago
Yes. It's just Econ101. https://en.wikipedia.org/wiki/Creative_destruction https://en.wikipedia.org/wiki/Creative_destruction

djyaz1200 10y ago

Those companies have a STRONG incentive to avoid disruption and this co2 to ethanol technology might be helpful in that regard? http://energy.gov/articles/scientists-accidentally-turned-co2-ethanol http://energy.gov/articles/scientists-accidentally-turned-co...

forgetsusername 10y ago
>Those companies have a STRONG incentive to avoid disruption A less cynical person might says "Those companies" have a strong incentive to preempt and partake in the disruption. And it is my belief that's the path most of them will take.
- nine_k 10y ago
  Verily. What you cannot prevent you should lead :)
- djyaz1200 10y ago
  I hope they choose that path!
bwghughes 10y ago
It's the oil industry's Kodak moment. Just an historical blip, but one oft' repeated.

narrator 10y ago

I've surmised from years of reading the economic press that there's really only one bad thing that can happen in a capitalist economy: bondholders not getting paid. Heck, lots of commentators argue that war is good for the economy, a natural disaster is good for the economy, the broken window fallacy is a mainstay of Keynesian economics. However, bondholders not getting paid is something that should be prevented at all costs! The federal reserve is doing $40 billion a month of bond buying with electronically printed money (quantitative easing) so the bond holders get paid! "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." - James Carville

xal 10y ago
Planet Money did a great episode on Argentina, which decided at some point to default on its debt. http://www.npr.org/sections/money/2016/03/11/470136949/episode-689-a-hedge-fund-a-country-and-a-big-sailboat http://www.npr.org/sections/money/2016/03/11/470136949/episo...
- alecco 10y ago
  Argentina didn't decide. It couldn't pay the interests anymore. It was a snowball of crazy high interest rates in a foreign currency. You can't pay your debt if it's much higher than GDP growth even with a surplus. And Argentina had neither growth nor surplus, thanks to the idiotic IMF economic plans with a currency pegged to the US dollar. A better point might be, why were they lent money in the first place?!?
  - Mindcraft 10y ago
    And to a de-facto government.
  - lambertsimnel 10y ago
    Debt to GDP ratios can also be described in terms of how long it takes to produce GDP equal to the debt. Owing 100% of GDP is owing one year's product. Whether that's a significant dividing line depends on rates of interest and growth.

anonymousiam 10y ago

This is wishful thinking. If batteries lasted more than two years under constant use, I might consider them to be a threat to "fossil fuel". As it stands, they are no threat at all. As an aside, should we call the hydrocarbon rich oceans on Titan "fossil fuel" as well? Why does the myth of oil being derived from earlier organisms persist?

chx 10y ago

Um. Good morning? Didn't Germany call for a ban of combustion engines by 2030 just two weeks or so ago? These graphs are wildly optimistic if that happens.

IshKebab 10y ago
Yeah but that actually happening is wildly optimistic. In a good way, but still...
imtringued 10y ago
I bet those incubents will incube until they finally get shut down in 2030 by the government.

Animats 10y ago

Credit markets dependent on oil survived the "superspike", the decline of output from several Middle Eastern countries, the rise of US secondary and Canadian oil production, the substitution of natural gas for oil in power generation, and the resulting oil glut. Those were fast events, a few years at most. Conversion to electric cars is going to take a few decades. Anyway, batteries are not an energy source, just storage. Somebody has to build generating capacity.

jogjayr 10y ago
> Anyway, batteries are not an energy source, just storage. Somebody has to build generating capacity. IIUC, you can generate far more solar electricity during the day than can be consumed. But that electricity isn't available at night because storing it in batteries is too expensive right now. With cheaper batteries there are stronger incentives to build more renewable generating capacity, driving down costs further etc etc.
- empath75 10y ago
  There's also nuclear.
  - gwbas1c 10y ago
    Nuclear needs a lot of storage. The problem is that nuclear power plants only produce at a steady rate, they can't be brought online and shut down as demand fluctuates. (Natural gas is great for plants that need to handle peak load or spikes.) Back in the 1960s and 1970s when the power industry thought we were going to go nuclear, they built a lot of pumped water storage systems. There's one in Western MA built under a mountain that pumps water from a river to an artificial lake at the top of the mountain. The plan was to pump water at night using extra power generated by nuclear plants, and then run generators during the day to make up the shortcoming. My guess is that the facility now pumps water during the day to act as storage for solar power. The efficiency is about 70 or 80%, from what I remember. Batteries are a much higher efficiency, and can be placed much closer to the load. Thus, mass-produced low-cost batteries will really disrupt the grid, because older forms of storage, like pumped water, will be obsolete. Furthermore, because batteries can be placed much closer to load, the needs for grid capacity change because high transmission lines no longer need to handle peak load.

f137 10y ago

The logic is backward, actually. The low risk that any breakthrough in batteries would happen IS the reason for the vast amount of securities dependent on it.

cm2187 10y ago

Credit markets can sustain expected / anticipated losses. Car makers all have low ratings when they are not fresh out of chapter 11. The problem with credit markets is when there is a big blow in a credit that was deemed to be very safe. Then it hits portfolio that aren't designed to sustain large loses like money market funds or smaller banks or people overleveraging their position. Then you have 2008. But a slowly degrading credit quality to which investors will have years to adjust shouldn't be a problem.

happycube 10y ago

Amusing that we've gone from talking about Peak Oil Supply to Peak Oil Demand...

marcosdumay 10y ago
Supply == Demand Why did you ever expected those to not happen at the same time? It's expensive oil that makes people look for alternatives.
stale2002 10y ago
OMG, I've been saying this for years! The left was right about peak oil. Just for the wrong reasons. People will stop using oil, not because we ran out, but because the alternatives will just be so much better. I don't think people really understand how much oil is out there. We've got more oil in the Colorado shale formations, than Saudia Arabia does! It is fairly expensive to extract, but its existence means that oil prices will never 'consistently' stay above 100-120$ a barrel for more than a couple years. Nightmare 200$/barrel "peak oil" are just never going to happen.

SmokyBorbon 10y ago

Maybe someone will invent a liquid battery that could be pumped into cars. Of course we would need to invent engines that could release the energy. And we would need a large distribution system with filling stations located all over the country. Would be nice if this battery were naturally occurring and abundantly available. But it's just a dream. Oh, well.

dv_dt 10y ago

When individual jobs are threatened from offshoring, it's just too bad for the workers and is just considered the regular working of the market. When battery technology threatens previous investments in old tech, its a "threat" to the market. Hmmm.

GigabyteCoin 10y ago

Wow... talk about a first mover advantage... Best case scenario, according to the graphs in the article, is if "Low Carbon Policies" come into effect to disrupt the oil industry as quickly as possible... we will still be consuming 50 million barrels of oil per day in the year 2060.

jbpetersen 10y ago

I'm really hoping this ends up being called the "Dirty Bubble" and was a little dismayed that no headline catching names have come up yet.

Torkel 10y ago

I find it strange that articles such as this one states these two things at the same time: 1. Battery cost is falling and EVs will be as affordable as their gasoline counterparts in six years 2. It will take until 2030-2040 until the demand for oil starts contracting It seems to me like you get to pick only one of these statements. Once EVs reach affordability parity with ICE autos my guess is that things will hit the steep part of an S-curve.

the8472 10y ago
There is inertia in the market. The existing fleet needs to be replaced. So even if EVs were equally affordable today it would still take years for them to reach a high market penetration. And some ICE cars would also be sold in non-negligible amounts if those cars merely reached parity. You actually want them to be more affordable than the competition.
- Torkel 10y ago
  I guess that's the reasoning... But factor in cheaper EV cost of driving, and posit: taxis, delivery vehicles - changes fast to cheapest (EV) Private and corporate leases - 2-3 years between replacements. Will move to cheapest option (EV) How much of total driving is made in these categories and how much is "long tail" of private driving in old cars? S curve I say.
Gustomaximus 10y ago
6 years takes us to 2022. That gives 8+ years for people to replace the oil demand creating things that can go away like cars, ships, heaters, aeroplanes, generators etc. And general inertia of change. Think more recently how long people held onto blackberries after the glass front smartphone took off. Few would now argue the merits of the keyboard over the full screen (not trying to trigger those of you left!) but a fair chunk held to the traditional view for many years. The same will be for the above machines. From this the timeline seems reasonable for me.
- erikpukinskis 10y ago

dimino 10y ago

On that first chart, so battery count will drop post-2030? That's what the y-axis is, battery count (is it count? production rate?), but the conclusion drawn is that oil demand will drop, which feels related to the article, but wholly unrelated to the chart. Is the y-axis of that graph actually oil demand?

dimino 10y ago

Is this at all related to the recent cries of "bubble!" in the sub-prime auto loan market that John Oliver did one of his segments on? Or do those folks just shift to selling electric cars, instead of gas cars?

tlb 10y ago

There aren't many precedents for huge global industries that went from AAA-bondable to rapid obsolescence. There are some that should have, like cigarettes, but they found ways of hanging on. Or international toll calls, still a many-billion dollar business. Perhaps oil will be like that: since the marginal cost is so low, producers will keep it flowing many decades after it made sense. And like tobacco, perhaps we'll pay oil fields to not produce.

JoeAltmaier 10y ago
Hm. Horses. Trains. Newspapers. Radio. VCRs.
- tlb 10y ago
  There weren't huge companies with AAA credit ratings making horses. Railroads did have bond financing, but the decline has been extremely slow. VCR companies also made DVD players and other consumer electronics, so no bankruptcies have resulted. Radio is still pretty big. Newspapers might be the closest parallel, but they haven't completely crashed yet and might well bounce back.
  - JoeAltmaier 10y ago
    Zenith? Many individual carriage companies - Columbus Buggy Company for instance. But not world-wide, very local.
rodgerd 10y ago
> like cigarettes Who will probably provide the template for the decline of petrol: fight like hell in the courts and lobbies to try and stay relevant in the first world, use ISDS mechanisms and so on, while cranking up campaigns in the third world to cover your losses.
rodgerd 10y ago
> like cigarettes Who will probably provide the template for the decline of petrol: fight like hell in the courts and lobbies to try and stay relevant in the first world, use ISDS mechanisms and so on, while cranking up campaigns in the third world to cover your losses.

riphay 10y ago

I used to work in energy corporate finance, and this feels like a pretty alarmist article to me for a few reasons. My logic runs as follows: - The trillions in credit are issued by a wide array of energy companies running the gamut from production, to energy infrastructure, to utilities, etc. - When a company is getting credit, the term is significant to the pricing of the credit. Riskier companies tend not to have access to long-term debt (10 years+); this tends to be open only to companies with more secure revenue streams (utilities, refineries, etc.) - By projecting to 2040, the article assumes creditors won't have a chance to reprice the mosaic of debt many times over until then. Riskier companies may lose access to credit completely (as we've seen during the current downturn in oil prices), while others will have to pay a higher price for their debt. - If the projections are accurate, this market will simply shrink in step with the overall market shrinking. And if past disruptions are any indications, it will be replaced by battery / EV companies needing credit and suddenly looking a lot less risky. - The world doesn't end. Did I miss anything in my logic?

bbcbasic 10y ago
> Riskier companies may lose access to credit completely If a riskier company can't renew it's credit, and in general the money is getting more expensive won't this lead to bankruptcy for many energy companies. Those companies won't be able to pay their debt back so ergo the money has to be written off. This would lead to higher IR on any old-energy based debt which could then put even the less risky companies at risk as they need to put more of their profits into servicing their debt. There would be a systemic failure. Unlike the housing crisis it will be due to companies that can't afford their debt in the future, rather than overextended home owners who couldn't afford the debt from day zero. But the effect could be the same. Disclaimer: Armchair economics.
- Retric 10y ago
  Energy companies make up a tiny fraction of world debt. There is over 200 trillion in total debt world wide. You can find many trillion dollar slices of that that mean next to nothing.

StillBored 10y ago

Uh, ok, so where is all the power for these electric cars going to come from? That oil/natural gas/whatever is just going to get burned at some large newly built plan and transferred using a ton of grid upgrades (all likely paid for using bonds). Moreover, the cars aren't going away, instead of buying one with a ICE, its going to have a battery and some electric motors, the companies producing that will likely need bonds too. So, without attempting to compute the costs of a few dozen gigafactories, rare earth mines, etc, the article seems pretty worthless to me. Frankly, i've been wondering for the past few years what percentage of a modern car's production cost is actually the gas engine. Modern engine complexity seems to have peaked 20 years ago, and declined. Of course safety, comfort and entertainment systems have exploded in complexity in that same time period, but those are things people expect out of modern electric cars too.

imtringued 10y ago
>That oil/natural gas/whatever is just going to get burned at some large newly built plan and transferred using a ton of grid upgrades (all likely paid for using bonds). Drivers of electric cars can choose their electricity source. Whether they want to pay more for green electricity is up to them. If there is demand more green electricity will be produced. With a ICE there is no choice. >Frankly, i've been wondering for the past few years what percentage of a modern car's production cost is actually the gas engine. I don't care about that. I've already paid 30% of my cars value just for the gasoline alone. Even if I had to pay 30% more for an electric car then it would still be worth it because of tax benefits and less maintenance.

spditner 10y ago

There's an excellent talk by Tony Seba at the Nordic Enegy Summit that goes into more depth about how batteries and solar are quite possibly going to reach the tipping point sooner than anyone has been forecasting: https://www.youtube.com/watch?v=Kxryv2XrnqM https://www.youtube.com/watch?v=Kxryv2XrnqM

igravious 10y ago
Excellent talk, thank you. Really puts a lot of things in one place. Wonder what city councils are going to do to supplement the revenue lost if and when income from parking spot use shrinks due to a combination of smaller fleets and individual cars in the fleet spending less time parked up. Of the 4 exponentially improving technology clusters mentioned: battery storage, electric vehicles, self-driving hw/sw, solar pv -- I'm trying to imagine if any one of them might not ramp up within the 5 to 10 year time scale Tony is talking about. And I guess it would have to be the software[1] part of the self-driving hardware (sensors + compute) / software combo. And perhaps lithium[2] ore extraction. I don't know enough about the technologies of solar pv to hazard a guess. If battery storage happens we definitely get electric vehicles (along with better laptops, tablets, and phones). [1] https://www.udacity.com/course/self-driving-car-engineer-nanodegree--nd013 https://www.udacity.com/course/self-driving-car-engineer-nan... [2] https://en.wikipedia.org/wiki/Lithium#Reserves https://en.wikipedia.org/wiki/Lithium#Reserves

lsc 10y ago

I've been reading a lot about this, and I've been wondering the best way to buy a long term 'call' option on oil is... Ideally, I'd buy stock in an unhedged owner of the right to drill for oil in places where it's only profitable to drill if the price of oil goes up above where it is now. I mean, I'm no 'peak oil' person or anything, I just don't trust that we went so quickly from the idea that we were running out of oil and that it would as a result become super expensive now to this idea that it won't be worth pulling oil out of the ground for much longer; I strongly suspect that the truth is between those two scenarios, and would like to lay some money on that suspicion.

asah 10y ago
Danger! Energy demand and alternative energy supplies also affect price.
- lsc 10y ago
  Oh certainly. I am just saying that right now, the estimated future value of oil is oscillating wildly, I think, more wildly than I think it ought. I would like to lay some money on that over, say, a ten year time span. Not enough to be a huge deal if I am wrong or that I never have to work again if I am right or anything, but I think it would be an interesting bet. (Unlike many people, I don't think I am smarter than the market... But I do think I am less excitable and often have a longer time horizon. And yes, I know that I am probably just as wrong as the people who think they are smarter than the market.)
jomamaxx 10y ago
There is no such thing as 'peak oil' because we keep figuring out ways to find more. Think Oil Sands: massive amounts of Oil in Alberta and Venezuela was not considered in reserves just a decade ago because it was not economically feasible to access it. Now it is. Deep Oil drilling, arctic exploration - so much changes so quickly. Heck - most wells are left with a lot of Oil in them because it cannot be extracted. Of course eventually there will be such a thing as 'peak oil' but it's hard to determine.

dboreham 10y ago

So if you have a stable business toady that appears to make money regardless, it will continue to do so for decades to come (or whatever the bond maturity term happens to be). There's never been a case in the past when that assumption didn't turn out to be true, of course..

fatdog 10y ago

Battery technology is a lot like bitcoin and gold in that once it is manufactured, users are not dependent upon a state controlled centralized network for it. It's revolutionary, and will probably be heavily regulated given the amount of independence it will provide people. The big secret in a lot of countries where energy and communications are state monopolies or semi-private corporations is that they are LOADED with debt that the govt used as a private slush fund. If you are looking for "off balance sheet" liabilities in a government, look at its utilities that are exempt from public records laws. This is where a lot of the bodies are buried. If people start dropping off the grid, states will just convert the power bill to a straight up tax bill, but without the pretense of a service attached to it. There are already precedents for charging electric vehicle taxes to make up for the shortfall in fuel taxes they create. Govts say, "well, if they are using the roads, they should pay for them." except gas taxes go into the slop bucket of general revenue, and the roads have been paid for through other taxes. The largest state expense is employee salaries, yet all road maintenance is done by contractors, so the "roads" thing doesn't really wash. When Greece was trying to sort out its default, it outsourced tax collection to its utility companies as part of the bailout. Efficient power storage will be a game changer, like a redrawing of international boundaries game changer.

spoonie 10y ago
When Greece was trying to sort out its default, it outsourced tax collection to its utility companies as part of the bailout. Because the utility companies were good at getting paid? It was because everyone in Greece was evading taxes through cash-only businesses and self-employment, so the government had a hard time collecting tax. It's not some big conspiracy.
pastProlog 10y ago
> Battery technology is a lot like bitcoin and gold in that once it is manufactured, users are not dependent upon a state controlled centralized network for it. Gold is just a commodity, it does not have any magical properties. Since gold is durable, uniform, divisible and portable, it makes a good currency.
- 10y ago

rdl 10y ago

Solidly in the "good problems to have" category, at least for humanity overall.

marze 10y ago

If only there was some company poised to capitalize on this shift we could all invest in...

gregpilling 10y ago

Oil is also used for plastics, fertilizer, and many other goods. Not just used for fuel. As the world economy expands, because in 10 years everyone will be on a smartphone, the demand for plastics and fertilizer and rubber and roads etc. that demand should expand more than fast enough to cover the fleet conversion from gas to electric. 200 million vehicles in the USA fleet, and they sell 17 million in a good year. 12 years to replace the fleet; it is currently about 11 years old on average. I think the article is over stating it. There won't be any problem, it will take decades to adjust anyway.

sunstone 10y ago
While this may be true, assets can be repriced in a much shorter time frame. Approximately over night, once the penny drops.

kumarski 10y ago

I don't think this is likely, solely based on the limitations of galvanic battery chemistry today. Energy transitions from wood to coal to natural gas to renewables etc... usually take decades to switch over. As well, there's no exponential growth in solar. We may be hitting the S-curve flat line on battery storage. We can't keep moving left on the periodic table. Lead Acid ---> Lithium Ion. Where to move to next? Lithium Fluoride batteries are scary because of the reactivity...got that noble gas, ya know? Zinc ion rumors abound, but those ions are big, really tough. Zinc is a huge ion and thus you can only stick a few in the electrode. Any chemists on hackernews or am I forever alone?

audunw 10y ago
Isn't there a huge potential in Lithium air or aluminum air? I get that it's hard to achieve reliable rechargeable tech there.. but if we're looking at theoretical capacity there should be plenty of opportunity, no? As for the shorter term, have you looked at SolidEnergy? If their tech lives up to their promises I think it could really tip the scales for EVs. If it's relevant for grid storage I don't know.
patrickk 10y ago
Sodium batteries[1] could be the answer to grid storage batteries. Sodium can be extracted from seawater (e.g. desalination plants, there's a huge supply of salt readily available), and while it's heavier than lithium, it's chemically similar. It's heavier weight probably makes it less suitable for transport, at least initially but ideal for grid storage if/when they figure out how to produce the batteries commercially. [1] https://news.cnrs.fr/articles/a-battery-revolution-in-motion https://news.cnrs.fr/articles/a-battery-revolution-in-motion [Side note: some interesting quotes from the above link... In 2012, the French researcher decided to take the bull by the horns and make the most of France's know-how in sodium batteries. "For lithium, all fundamental research had been conducted in Europe, especially in France," Tarascon points out. "Yet it was in Japan that the technology was transferred and brought to market, allowing Sony to launch its first lithium-ion battery in 1991. As a result, 95% of Li-ion production today takes place in Asia." It is out of the question to repeat history. The CNRS (responsible for fundamental research) and the LITEN-CEA (in charge of technology transfer) have thus joined forces with around 15 industrial players such as Renault, Saft, and Alstom to create the RS2E network dedicated to new-generation batteries. Their stated objective is to ensure research AND development, in order to bring sodium-ion batteries to market on European soil as soon as they are ready.]

Ganoes47 10y ago

"on a trajectory to make electric vehicles as affordable as their gasoline counterparts over the next six years" So, in 6 years, I can replace my Corolla with a Tesla model 3. Cool!

deleted 10y ago

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gjwagfy 10y ago

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paulajohnson 10y ago

Looks like our survival as a species depends on a race between our ingenuity and our ingenuity.

nmstoker 10y ago

The original Fitch report is available here (needs a login but I believe it's available to free registered users, ie non-subscribers) https://www.fitchratings.com/site/pr/1013282 https://www.fitchratings.com/site/pr/1013282