Pivot pains for cars and fuels

Carmakers fix the blame while they struggle to pivot to EVs; Oil and Gas pull policymakers closer to diversify their portfolios

The world’s climate conference, COP28, wrapped up with a deal to transition away from fossil fuels in an agreement signed in the UAE, one of the leading producers of fossil fuels. This a smart, strategic pivot by oil and gas to signal their intent to diversify while telling shareholders they are having their hand forced by policy. First, I want to revisit a prediction I made a couple of months ago that Ford and GM would struggle and start to build a media narrative in their favor.

ICE Manufacturing’s Media Blitz

The first article I published was called The ICE Manufacturing Pivot. I talked about how car companies who make most of their money from internal combustion engine (ICE) vehicles will have a choice to make: evolve to making EVs at scale or try to turn public opinion against EVs.

“Ultimately though, there's a great amount of pain coming for ICE vehicle makers unless they can turn the tide of policy and public opinion back in their favor. I expect they'll try to swim against the tide.”

I thought it would take another year before we started seeing the reports on why EVs just aren't going to work but we're | here! The first cracks started showing at the end of October when Honda ended its partnership with GM to develop affordable EVs. Honda wasn't getting strong enough guarantees from GM's Ultium platform to rely on it so they ended it. Then came the production plan cuts for the Chevy Bolt and Ford F-150 Lightning, two of the rising stars in American made EVs. Now we're into the fourth quarter, 2023’s targets look out of reach and it's time to blame soft demand for EVs. 

Then I read the Stellantis Q3 earnings report regarding performance in Europe:

“Shipments +11%, driven by increased shipments of Opel/Vauxhall (in particular Astra), Fiat Professional (led by Ducato) and Peugeot (led by 208), as well as increased demand for BEVs, led by Jeep Avenger”

Jeep Avenger isn't available in the US because Jeep (owned by Stellantis) thinks that Americans won't buy it because it's not big enough. So EV demand is great in Europe, driving Stellantis’s business. Tesla stock is up 70+% in 2023 but US buyers don’t want EVs because gas has gotten cheaper. 

The real story is here:

VW makes more cars than any of the major US based auto manufacturers and Tesla is quite far behind in terms of the total volume of cars delivered, though they’ve begun to close the gap a bit. When we look at trends in EV production, the difference is stark.

VW AG is not complaining about soft EV demand at all and neither is Tesla. Both can't keep EVs in stock despite a growing production line over the last two years in the face of supply chain constraints. The demand problem seems to be only for those companies who don't make that many EVs and have struggled to ramp production to targets that they set out to start 2023. This is what makes the pivot so difficult to pull off. It's very difficult to explain to shareholders why you aren't growing your profitable business that's worked for decades while investing heavily in a business that may not be profitable for years. It's much easier to blame the customer and do a giant stock buyback. It looks like this soft EV demand narrative is an attempt to distract the stock market while they keep ramping EV production. If these companies truly believe demand is falling off, Tesla might just grow into its enormous valuation sooner rather than later.

Oil and Gas strike a deal

Speaking of using marketing instead of making a pivot, oil and gas have been brilliant at repositioning to CCS. At COP28, held in Dubai, oil and gas suppliers continued announcing huge investments in carbon capture and sequestration. It's an excellent strategic move because carbon comes out of the atmosphere, it takes a whole bunch of energy to get that carbon out of the atmosphere, and no one knows better than oil and gas on where to sell that captured carbon. This in no way helps battle climate change or push the world into more efficient and sustainable sources of energy, but it does help extend the game for oil and gas while they make policy-forced pivots into clean(er) sources of fuel like natural gas and mineral extraction. If they extend the game long enough, they might get public opinion on their side again and not have to complete the pivot for even longer. I respect the move from a business standpoint, but policymakers seem to have at least partially seen through it after striking a climate deal at the very end of COP28. From the readout:

“The UAE Consensus includes an unprecedented reference to transitioning away from all fossil fuels in energy systems, in a just, orderly, and equitable manner in this critical decade to enable the world to reach net zero emissions by 2050, in keeping with the science.”

It remains to be seen what will happen if gasoline prices plummet. That's never good for oil and gas companies and we may have reached peak oil demand already. Early 2024’s numbers on oil and gas demand for heating will be especially telling. If demand continues to cool in the harsh winter months, I expect we’ll see stronger signs of diversification starting to show up for the big oil and gas players. That would be the ultimate bellwether for the net-zero transition’s success.