“To travel hopefully is a better thing than to arrive,” wrote Robert Louis Stevenson in 1881. But investors today, weighing up major shifts taking place in the world economy, appear to have fallen out of love with the journey, even when the destination is a beautiful place.
Exhibit one, right at the centre of the stress of the past few weeks is the market’s extremely negative reaction to the renewed fall in the oil price. Agreed, there are areas of short-term distress associated with falling oil capex and related debt, but we believe that behind the price action, ultimately, there are technological developments that are so good for us that we should be worshipping them like manna from heaven.
Cleaning up
I am not talking about shale. Shale oil and gas are merely a way for us to carry on living like there is no tomorrow for a bit longer. Rather, I am talking about the rapidly improving microeconomics of electric vehicles – enabled by better batteries and a concurrent revolution in clean primary energy capture so that we can charge those batteries up cleanly.
For users, electric vehicles are a better technology path and, as such, we believe that they will make the transition. Tesla’s Model S P85D performs at such a high level that it broke Consumer Reports’ rating system. Initially the car scored 103 out of 100. It was the fastest car it had ever tested, reaching 60mph from a standstill in just 3.2 seconds.
While there are faster cars in existence, the report noted that Model S achieved this despite being “ridiculously energy efficient”. With just 18 moving parts, compared with more than 2,000 from the average petrol-powered car, it is also far less likely to break down. Consumer Reports eventually downgraded the car to 100 out of 100 after making changes to its scoring system, but you get the picture.
The textbook response to this argument is that electric cars are too expensive, and so will surely fail to catch on. However, the enhancements in a number of technologies will result in costs coming down considerably in the near future. Some experts predict that a new model Tesla will be available for $31,000 (£21,600) by 2020. This equates to the median price of a petrol-powered car today.
For investors, the main implication is that a decade from now we may hardly be buying any new internal combustion engines. Now, consider that two-thirds of global oil demand happens to be based on transportation as the end use, and it is clear that we are experiencing a paradigm shift in the global economy.
When I talk about this issue, I am often met with blank faces; at times, pure derision. But consider this: in 1900, you would have been pressed to find a petrol-powered car on New York’s 5th Avenue, but within just over a decade, there were full-scale traffic jams. If you do not believe me, I have got the pictures to prove it. Disruptive technology has the habit of happening gradually, and then suddenly.
I can think of three great things that this means for the world in the long term, each of which is a huge positive for investors, too.
It will remove the shackles from poor countries, such as India, whose growth prospects have been hampered by expensive energy in recent decades.
Mega-oil incomes are deeply corrupting for countries with bad political institutions. Hence, extractive political regimes in energy-producing countries, which have been free to ignore the economy due to the oil windfall, will no longer have this freedom, and must build pro-growth institutions.
Technology has finally opened up a path ahead of us towards a sustainable modern economy.
