There’s a lot of denial and wishful thinking in the oil and auto fields these days, but on the other hand, there are quite a few industry observers who understand that a historic transition is beginning. A recent article in the trade magazine OilPrice.com notes that coal power plants are being retired at “an alarming clip,” and that the EV sector now accounts for a higher stock-market valuation than does the legacy auto industry.
As writer Alex Kimani eloquently puts it, the situation facing oil companies and backward-looking automakers is “eerily reminiscent of the thousands of buggy and whip companies that were rendered obsolete in the early 20th century.” He cites recent research by Morgan Stanley, which argues that selling ICE vehicles will become a money-losing proposition as early as 2030.
Stock market valuations always represent predictions of future prospects, and a growing number of analysts seem to believe that Wall Street is already valuing petroleum-based assets at around zero. Morgan Stanley analyst Adam Jonas, a longtime follower of Tesla, says the market may be assigning zero or negative values to ICE-derived revenues at GM and Ford. In a recent survey of institutional investors, Morgan Stanley found that 17% of respondents think ICE technology has zero or negative value today, and 60% said its value was only slightly positive.
This doesn’t mean the two automakers are doomed — they still have time to be “fast followers” and shift their focus to EVs, and both companies have been taking baby steps in this direction. GM’s recent declaration that it “aspires” to eventually phase out some of its ICE vehicles was far from the radical reorientation that the credulous press reported, but it’s still significant, as it’s the first time a US automaker has announced anything of the kind. Ford’s riposte that it will convert its passenger car offerings in Europe to EVs by 2030 upped the ante. Smaller automakers, including Kia and Jaguar, are also jumping on the green bandwagon, and hopefully we’ll see a healthy rivalry for green cred develop in the industry.
Ford and GM have both seen their stock prices soar of late, and it’s tempting to ascribe this to the companies’ increasing interest in electrification. However, there’s no clear causal link — GM and Ford began their rallies last April or so, along with the rest of the market, following the great COVID crash. The companies’ recent pro-EV moves certainly haven’t hurt their stock prices, but they haven’t caused any noticeable surge. On the other hand, it’s true that GM and Ford shares have enjoyed far better appreciation than those of electrification laggards Toyota and Honda.
It’s interesting to note, as Mr. Kimani does, that the shares of both GM and Ford have handily beaten Tesla’s since the beginning of 2021 — at this writing, GM is up some 32% year-to-date, and F is up 35%. TSLA has risen a mere 9% since January 1. Over the longer haul, however, the leaderboard looks different: while the two legacy firms have delivered excellent returns for the last 12 months (55% for GM, 43% for F), the California carmaker is laps ahead: up 364%.
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