Let's Go
Monday 28 December 2020
A resurrected New York Penn Station will open to the public in the new year. Utilizing the James A. Farley Post Office building, located one block west of the existing Madison Square Garden/Penn Station complex, the architecture firm of Skidmore Owings & Merrill has created a majestic train hall, to be named after former N.Y. senator Daniel Moynihan. The destruction of the original Penn Station in 1963 still stands as one of the country’s gravest urban planning errors. But President-elect Biden is a longstanding fan of rail travel, and there’s broad agreement that no matter how many EV the world may deploy, we will still need constant updating of electrified rail transport. While the new station does not solve the underinvestment problem that plagues much of the country’s rail network, it’s a fresh start, and will serve as an attractor to a system-wide upgrade. Perhaps, after a nearly 60 year nap, America is waking up.
Autonomous water taxis may seem like toys, but a world of surprising innovation is likely to emerge around the electrification supertrend. ZeaBuz, a marine engineering firm base in Trondheim, Norway, has the right idea: if autonomous road vehicles continue to suffer from a last-mile problem, where topographical irregularities continue to frustrate progress, why not apply AV technology to the ocean? Needless to say, the efficiency gains to be realized by adding electrified AV water-taxis to urban transport systems are substantial. On a related note, while not electrified, London has discovered and continues to invest in building out its own water-taxi system.
The trend we want to pay attention to, therefore, is in the subordinate class of electrified transport solutions that don’t necessarily solve problems systemically, but if replicated enough, could amplify the existing trend. BEEM Global, a San Diego based group, is currently producing ready-made EV charging stations whose main selling point is their rapid deployability. Delivered by truck to any parking lot, the EV Arc 2020 requires no construction, no hook-ups or wiring, no permits and frankly, no planning. Is the global need for EV charging station growth going to be solved by a portable, two-car EV charging station? Of course not. The point is that a small law office or accounting firm in a mid-level, suburban commercial development could simply add one of these easily, leaving the big charging station arrays to big corporate parking lots. BEEM Global is also working on an in-transit re-charging network for autonomous drones. Again, this all sounds very niche, but the signal to be respected is that clean, cheap electricity will be a platform for growth and innovation.
China’s vehicle market has mounted an impressive recovery, with EV sales miraculously recovering the previous growth trend. According to the latest data, new energy vehicles (plug-ins, basically) are on track to reach a new all time high, at 1.3 million units this year. Admittedly, this is scant YOY growth from 2019’s 1.206 million units (which itself was below 2018’s 1.26 million units). But crucially, this means EV are finally set to notch the crucial 5% market share level in 2020. In new technology deployment, that tends to be a tipping point for adoption. As important, ICE vehicle sales, while also recovering, are still fated to never return to their previous highs. In the chart below, note the additional data-labels for ICE sales, showing that ICE hit their apex in 2017, at 28.102 million units. This year and next, they will roughly flatline, around 24 million units. All data comes through a mix of reported figures from CAAM, and industry forecasts.
China killed the future of the combustion engine and this was known two years ago. It would be a shame, and not very impressive, if anyone in a policy-making role were to still not understand this truth. Yes, ICE vehicles will be manufactured for years to come. But in Europe and China, the market for them has now entered long-term decline. And not too long from now, all the associated infrastructure required to produce and maintain ICE vehicles will suffer the loss of network effects, as their total share steadily declines. As usual, the American incumbent automakers were the last to figure it out, and take action. While GM’s plan to produce an EV Hummer, and Ford’s plan for an EV F-150 truck are solid decisions, both Detroit automakers should have been in position already to offer a compact SUV/crossover to the suburban market.
The update to Oil Fall, long delayed, is finally due to arrive in Q1, 2021. Perhaps it’s worth explaining, briefly, why the update was pushed back: Already in production at the start of the year, the installment was set to further address the statistical progress of energy transition. But after the pandemic both disrupted and then accelerated that progress, much of that ongoing uncertainty vanished. With the path forward now cleared, the supplement will instead address the ideas, and the economic tailwinds, likely to be accepted and enjoyed by all. For example, the upsurge in market investment in everything related to solar, wind, batteries, and EV is having a kind of double-impact—drawing global capital to the task, but also societal attention to energy transition’s inevitability. The pandemic year appears to have birthed, therefore, a recognition phase. And with that concept in the forefront, the second edition of Oil Fall will proceed.
Just to remind, whether you purchased (or purchase) your copy as a single title, or in parts, all purchasers of Oil Fall in any form will receive the supplement as a new single title, for free.
Bitcoin hit another new high over the weekend, offering a small retort to the view that non-yielding, long-duration assets were about to take a back seat to industrial oriented growth. Using the gold analogy, Bitcoin’s rate of appreciation should be slowing now, not accelerating, as the investment landscape blossoms with myriad opportunities. Why own safety-oriented assets that don’t pay dividends, don’t innovate, and don’t grow at a moment when global growth is about to resume? One possibility is that Bitcoin, and gold also, may convert and participate in reflation. Readers may recall, for example, the period after the tech bubble burst, when interest rates fell to zero. Soon, a commodity boom developed and gold began to participate in reflation along with corn, wheat, silver, iron ore, and oil. Energy transition certainly represents a renewed call on natural resources—lithium, rare earths, and copper come to mind—but our transition is likely to be both deflationary, and oriented towards technology. So, while we cannot know the future—and while Bitcoin is certainly a very unique asset—it may pay to be skeptical that assets like gold and Bitcoin will outperform global industrials the next 24 months.
Is there an EV bubble? Probably. But fighting it could be a losing proposition the next few years. Tesla has already left a veritable killing field of heroic short-sellers in its wake, and one wonders that the current explosion of battery storage, EV, and other energy-tech companies now coming to market will do the same. Here is a simple take on how the next few years may proceed: it will prove damaging to try and fight the supertrend now underway in solar and EV. But, eventually, differentiation will appear, and some solar names, EV names, battery names, and grid-tech names will simply be better—far better—than the rest. Right now, there is a kind of super-thrust upward as just about any new IPO or SPAC draws energy from a less-informed set of market traders. When this phase dies down, however, the background growth globally will keep these sectors center-stage, as the losers and winners will start to diverge. Related: Volkswagen’s Herbert Diess (freshly victorious from an internal strategy battle at VW), said recently that existing battery production capacity in Europe will only cover 5-10% of demand. And, if the Green Deal comes through, Diess further said, VW would need 40 large battery factories on the continent. (Again, this is not a supertrend anyone should try to fight, in the markets, because it will last longer than you can remain solvent).
To give a sense of the mania currently afoot, whispers that Apple was pursuing an EV initiative (and battery innovation) bumped the stock upward in late December. Just to say, Apple probably shouldn’t take on the capital intensive, big-hardware task of vehicle production—unless it has some intellectual property up its sleeve that would make the prospect revolutionary. For example, if it’s new M1 chip is a proxy for Apple’s ability to seriously innovate and harvest efficiencies in an EV drivetrain, well, then, go ahead and do it Apple! It must be said, however: cars always seem like a sexy business but eventually they become a not-so-sexy business. Cuidado, Apple.
Pete Buttigieg was picked for Transportation Secretary, and that’s a big deal. There’s a misunderstanding that the size of departmental budgets are the best proxy for their influence….so the “DOT” budget, around $140 billion, is routinely considered small. But Mayor Pete at DOT could unleash a transformative phase, in which a highly intelligent, rational (and numerate) analyst reorders a long antiquated bias in favor of sullen road-building, and gets to work on land-use issues, transit, and vehicle emissions through targets—and fees. Indeed, it’s enormously helpful that Mayor Pete understand just how much damage road-building has done, to the country.
Without question, the juiciest area yet entirely unexplored in the US highway sector is the introduction of London-like congestion charges, and day-use fees. No city in America can introduce these fees, or programs, without the consent of the DOT at the federal level for various reasons—not least of which that most of the highways impacted by such policies are in fact federal, interstate highways. If you’d like a more detailed explanation of how US laws function around these issues, please see these two excellent essays by Amy Turner of Columbia University: Legal Tools for Achieving Low Traffic Zones, and, What Biden’s Climate Plan May Mean for Cities.
Oxford PV, a UK company pursuing solar perovskite technology, has hit a high efficiency mark in its latest prototype. According to the company’s press release in late December, a cell has been shown to convert 29.52% of solar energy into electricity. That is extremely high, and validates the industry push and scientific interest in “coating existing ordinary solar cells with a thin film of perovskite to better utilize photons.” Yet another example of how capital, momentum, scientific progress, and demand are fusing into a very exciting wave of innovation.
Cambridge, Massachusetts petrol stations will place stickers on fuel pumps, warning about the dangers of climate change. Yes, this is a bit twee. However, it’s the kind of nudge that may have moderate influence over purchasing decisions as consumers increasingly face a market of ICE vs EV. It’s no substitute, though, for actually getting affordable EV into US showrooms.
The Gregor Letter base case for economic recovery remains unchanged, as we await the outcome from the senate elections, in Georgia. Gold, along with Bitcoin are either signaling a reflationary phase dead ahead, or, could equally be reflecting the current speed bump in economic activity as Japan, Europe, and the US struggle with a winter wave of the pandemic. As we go to press, however, the US congress and the President have now passed the latest relief bill. And although that bill is not quite as large as many wanted, its distribution is better than expected—covering everything from unemployment to money for cities and transit, with some decent energy research and tax extenders for wind and solar. In other words, it’s enough to build a bridge until we get to the Biden administration. The sticking point however, as we consider the rate of next year’s recovery, is whether President Biden will encounter stern opposition from a GOP controlled senate; moderate flexibility from a GOP controlled senate; or pedal-to-the-metal freedom from a Democratic controlled senate. For the latter outcome, Democrats need to win both Georgia senate seats, which would put the US senate into a 50-50 configuration, with Vice-President Harris as the 51st vote. In such a scenario, Mitch McConnell loses his majority, and Chuck Schumer takes the helm. To sum up: the outlook is much improved. But a global industrial push at a fast clip will require more than just executive powers from Biden.
—Gregor Macdonald, editor of The Gregor Letter, and Gregor.us
The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.
