Electric and Self-Driving Vehicles

Chris: Doug, you’ve mentioned how electric vehicles [EVs] will become a huge deal. What makes you say that?

Doug: There’s no doubt that electric vehicles are going to put an end to the internal combustion engine [ICE]. I want to not only explain why – but some related changes that are much bigger, that almost nobody has thought about.

There’s a famous picture that was taken of 5th Avenue in 1901. The whole street is chockablock with horses and buggies. There’s one motorcar in front of a building amongst the mass of horse-drawn vehicles. In 1913 another picture was taken of the exact same place. There’s only one horse and buggy on a street bumper-to-bumper with motor vehicles. Things changed radically in just more than a decade.

That’s about to happen again. From a purely technical point of view, EVs are now vastly superior to ICEs. And I speak as a lifelong car guy. I’ve owned high-performance cars, and played with them my whole life – including racing sports cars, stock cars on ovals, and quarter-mile drag racing. EVs are far superior to ICE vehicles. They’ve got every possible advantage. They handle better because of a much lower center of gravity. They’re more economical. They’re much faster. Much more quiet. And they’re more reliable because they have vastly fewer moving parts. Every major car company in the world is going electric, as we speak. Mercedes, BMW, Porsche, and even General Motors and Ford – who tend to lag behind on everything – are all going to EVs. This is really something. It’s a megatrend. But the average guy is completely unaware of it, because there are as yet very few on the street. Mainly Teslas. Which probably won’t make it as a company. Not because of its cars, but because of its finances. Pioneers are the ones who get the arrows in their backs…

Chris: What are the biggest investment implications of this? Is it the battery metals or something else that nobody’s talking about yet?

Doug: As you know, there’s been a lot of emphasis on the metals necessary for batteries. That’s because the success of EVs relies on the quality of their batteries more than any other factor.

Electric vehicles were around a hundred years ago. If you read Uncle Scrooge comic books you might recall that Grandma Duck drove an electric vehicle – basically a primitive golf cart. In those days the only kind of economically and technologically viable battery was lead-acid, which is what you still find under the hood of ICE vehicles, to start the engine. Lead-acid is cheap, but it’s very heavy and doesn’t hold a charge very long under use. We now have compact lithium batteries that are relatively lightweight and highly efficient, like the battery in your computer. But they’re expensive. In the near future thousands more tons of lithium will be needed. As well as gigantic amounts of nickel, cobalt, and vanadium for various applications. So far, people have been emphasizing metals as the way to play the inevitable triumph of electric vehicles. And that makes sense.

Chris: Yeah, there’s no doubt that demand for the battery metals will explode in the coming years. But what are some second-order effects of EVs?

Doug: The second – and third order – effects are going to be vastly more significant. They’ll change much of the landscape, and the very way people live. Electric vehicles will eliminate the need for 90% of gas stations and repair shops. Just as ICEs largely eliminated stables, farriers, and buggy whip factories.

But EVs are just part of the story. Most of them will also be self-driving. There are already tens of thousands of self-driving trucks and cars on the road. They’re already safer than driven vehicles, but since the technology is improving at the rate of Moore’s Law they’re getting better every day. Further, when most cars are both battery-powered and self-driving, they’ll be safer and faster yet, because they’ll be able to identify each other.

The trend towards these cars is reinforced by the fact people today are much less interested in recreational driving. And for good reason. The roads in the United States – everywhere in the world, really – are way too crowded to enjoy in most places. And they’re full of police anxious to give you tickets. It’s not like it was in the ’50s, ’60s, or ’70s when you could drive fast just for the pleasure of it. Cars are increasingly just for transportation. Evidence is that a lot of millennials don’t even bother getting driver’s licenses. And if they do, they avoid buying a car. It used to be that kids couldn’t wait until they were 16 to get a driver’s license. No more. Self-driving vehicles will compound the changes due to electric vehicles.

Chris: What are the biggest implications of self-driving cars?

Doug: One big change with self-driving vehicles is that you’re not going to need many parking lots. Most cars will be driverless Ubers. A self-driving car will pick people up and drop them off wherever and whenever they want. At least in metropolitan areas, which is where more and more of the population is concentrating. Taxi, limo, and truck drivers will cease to exist within a decade. As will Uber and Lyft drivers.

It’s not just because of technology, it’s economics. The typical car today only spends between two and ten percent of its life on the road, driving. The rest of the time it’s parked on a street, or in a driveway or parking lot. Storing unused cars is a major expense. Commercial lots charge $10 an hour in many places. And over 10% of the square footage of urban buildings is used for parking cars. Plus all the parking spaces on streets, and giant parking lots out in the suburbs. I suspect most self-driving EVs – at least in cities – will be used like taxis, or rented by the hour. They’ll be used 24-7, however, so you’ll need only a fraction of the cars we now have. Self-driving EVs will be much more efficient, and much, much cheaper than the cars we use now.

Because there will be fewer vehicles, and they won’t be sitting in parking lots all the time, there’s going to be a glut of real estate hitting the market. Not sometime in the indefinite future – over the next decade. That goes for a lot of real estate now used for roads as well. If a Martian were to land on Earth today, he’d think that the major lifeform on this planet is vehicles. But that will change as vehicles are used more efficiently. A lot of suburban families have two or three cars. Over the next decade, if they own any at all, it will be just one, mostly for long trips.

Chris: It’s interesting that you mention that. It seems like people across the country are opting to share vehicles rather than own them outright.

Doug: It’s unlikely that I’ll get another Porsche or Ferrari. Cars like that are increasingly pointless with roads being what they are today. Combine that with the effects of the Greater Depression, and in a decade you’ll find exotic cars sitting in barns with flat tires and birds roosting under the hood – which was the case with Duesenbergs and Cords in the ’40s and ’50s. The current boom in exotic cars selling for $100,000 to $1,000,000 is another bubble about to burst. Anyway, if I want to go somewhere today, quite frankly I’d rather have some remote vehicle pick me up and drop me off. So I can read a book while I’m in transit. This change is happening right before our eyes. And it’s going to play out quickly, taking millions of people completely by surprise.

Chris: Doug, what happens to oil as EVs and self-driving cars go mainstream?

Doug: Almost all gasoline is used for vehicles. In fact, something like 75% of oil production is used for transportation. So, this will put a cap on petroleum prices. There’s going to be a glut of oil. Petroleum’s main use is basically going to be a feed stock for plastics and things of that nature. It’s going to collapse the production, if not the prices, of corn, palm oil, and perhaps sugar as well, because so much of those crops are – idiotically – used as biofuels. Based on that, it doesn’t make any sense to own an oil company for the long-term. Pipelines, tank farms, refineries… there will be a lot less of them. The auto insurance industry is going to have to find something else to do for a living. Ambulance-chasing lawyers are going to get less business because there will be fewer auto accidents. Drunk driving won’t be much of a problem.

Chris: I totally agree with your outlook. I mean, we’ll probably see a few more oil and oil stocks rallies in the coming years. But the long-term outlook is not promising.

Doug: This has major geopolitical implications, too. Many countries, mostly in the Muslim world, produce nothing except oil. They got lucky the stuff was buried under their sand, and Westerners showed them what to do with it. However, most of them have frittered away the proceeds, and now they don’t know how to do anything but produce a surplus of unskilled people. Those places are going to collapse. Oil will still be of value, of course – but at nowhere near the gross revenues it is today. So, big geopolitical changes are coming to the Middle East. This will also affect Russia, which is essentially just a gas station with an attached gun store in the middle of a wheat field. It’s going to have a huge positive effect, however, on oil importers – especially Japan. Self-driving EVs will cause a gigantic economic earthquake. And nobody is looking at it or talking about it yet.

Chris: It’s going to be fascinating to see how this all shakes out. Other than oil and battery metals, what other commodities stand to gain or lose the most from EVs and self-driving vehicles?

Doug: Well, I’ve long been a believer that nuclear is by far the safest, cheapest, and cleanest form of mass power generation. Of course, it’s subject to so much mass hysteria and misinformation that it’s highly regulated and highly politicized. That’s why today’s costs are many times higher than they should be. We’re using 60-year-old technology as a result. Which is silly, but still far safer and cleaner than coal or oil. But if the technology had been allowed to evolve in a free market, we wouldn’t be using gigantic, centralized, gigawatt-sized plants. We would instead be using small, self-contained, 50-megawatt units that can be buried, with no need of service for 10 years, until they need to be refueled. The technology is out there, but politics and hysteria have kept these things in the closet. And the fuel doesn’t have to be uranium – which was used because of the U.S. nuclear weapons program. It could be thorium, which is vastly harder to weaponize. But that’s off-topic.

There’s no point crying over past mistakes though. It’s been said that, after hydrogen, stupidity is the most common thing in the universe. One of the real bright sides about the change to EVs is that it will greatly increase the demand for electricity, and there will be a boom in nuclear, which is the only sensible way to provide it. As for technologies like wind and solar, they’re still comparatively uneconomic. Although there’s definitely a place for them in remote locations, and for personal use in houses. Fortunately, their efficiency is also advancing, and their costs declining, at the rate of Moore’s Law. The bottom line is that the whole world is going electric. Fossil fuels are no longer going to be fuels. They’re going to be basically feed stocks – primarily plastics, fertilizers, chemicals, lubricants, and the like. The demand for gasoline and diesel – which is the vast majority of oil usage – is going way down.

Chris: It’s clear you have a lot of conviction in this idea. Have you made any major bets on EVs or self-driving cars?

Doug: Well, I recently made a large investment in a private company that’s accumulating royalties on battery metals. And I generally hate private companies, especially now, when we’re on the ragged edge of a collapse of the financial markets. But it’s a royalty company, and collecting royalties from financing mining operations is by far the safest way to invest in mining. So that’s the way I’m speculating in weird metals that few people can find on the Periodic Table. That includes so-called rare earth elements; they’ll become more and more important as technology keeps advancing. About 80% of them are produced in China. So, there will be opportunities for developing new deposits in more politically reliable parts of the world.

Chris: Yeah, that will be an interesting space to watch going forward. One last question, do you own an EV or plan on purchasing one?

Doug: No, I don’t. It’s impractical here in South America right now. Socialist countries are always technologically backward. I’m here for the lifestyle, not to be on the cutting edge. Self-driving EVs will come first to advanced parts of the world – and this isn’t one of them. And I doubt I’ll get one in the United States. When I want another car, I’ll probably get another ICE. A slightly used one, because their prices are likely to collapse in the near future. I hope I won’t seem an anachronism, driving an ICE in a world of self-driving EVs. Like Grandma Duck, when she drove an EV in a world of ICEs…But the changeover is going to happen very fast – starting right now. Make sure you’re not adversely affected by having money in the wrong places, real estate and energy companies among them

Chris: Thanks for speaking with me today, Doug.

Doug: You’re welcome.

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Courtesy Of Casey Research - USA...