Nov 25, 2020

Axios Generate

Good morning! Today's Smart Brevity count: 1,324 words, 5 minutes

🦃 Generate is taking a Thanksgiving break. We'll return Monday, and please keep an eye on the Axios website for breaking news. Have a nice and safe holiday!

🎸And Friday marks the birthday of the late Jimi Hendrix, whose brilliance takes us into the newsletter...

1 big thing: Tesla's wild rise and European plan
Data: FactSet; Chart: Axios Visuals

Tesla's market capitalization blew past $500 billion (not a typo) for the first time yesterday.

Why it matters: It's just a number, but kind of a wild one! Consider, via CNN: "Tesla is now worth more than the combined market value of most of the world's major automakers: Toyota, Volkswagen, GM, Ford, Fiat Chrysler and its merger partner PSA Group."

What's new: Yesterday also brought some more nuts and bolts Tesla news. CEO Elon Musk said they're planning a small car for European markets to be built at its upcoming German factory, per Bloomberg.

  • "In Europe, it would make sense to do a compact car, perhaps a hatchback," he said at an online battery conference.

The big picture: Stocks move around for all kinds of reasons, but it's safe to say that investors see lots of growth potential for Tesla — and EVs in general, particularly with tailwinds from Joe Biden's win.

Between the lines: Tesla's market stature is also benefitting from its upcoming arrival in the S&P 500. Business Insider looks at what's in store...

  • "Of the 189 large-cap funds tracked by Goldman Sachs, 157 that manage roughly $500 billion didn't hold any Tesla shares as of September 30, the bank's analysts said Thursday."
  • "Those funds are set to buy $8 billion worth of shares once Tesla joins the index, according to Goldman."

Of note: Tesla is not alone. The share price of several public EV companies have been rising, and a whole bunch of others are about to go public.

What we're watching: How much Biden boosts U.S. deployment beyond the existing trajectory.

  • He wants big investments in charging and expanded consumer incentives.
  • The latter in particular would help Tesla, which is well past the 200,000-per-manufacturer limit for the $7,500 consumer tax credit.
  • But Biden's plans will be constrained by likely GOP control of the Senate.

The intrigue: Wedbush Securities analyst Dan Ives, in a note and email exchange, said GOP lawmakers could be on board with some kind of new EV incentives.

  • He argues the big investments that GM, Tesla, Ford and others are making in coming years will broaden their bipartisan political appeal, even though EVs are now just around 2% of U.S. sales.
  • It's partly due to geography, as EV manufacturing is expanding into states like Texas, where Tesla is building a factory, as well as Arizona and elsewhere.
  • All this spending and activity "creates a compelling scenario for many in the Beltway to support," his note states.

The bottom line: Overall, he sees lots of coming demand.

  • That's driven by China (which Ives sees accounting for 40% of Tesla deliveries in 2022), EU carbon regulations, new U.S. support, and a domestic industry that's "laser focused" on EVs (especially Tesla and GM).
2. Oil prices may be breaking free of tractor beam

Illustration: Rebecca Zisser/Axios

Crude oil is trading at its highest levels in eight months and prices may be poised to escape the rather narrow band where they've been stuck since June after coming back from their spring depths.

Why it matters: The gains this week don't just matter for the beleaguered industry's future — they're a sign that traders see the promise of COVID-19 vaccines allowing life to begin returning to the before times.

  • There's also the expectation that OPEC+, at its meeting later this month, will delay plans to lessen their joint production cuts at year-end.

By the numbers: This morning, Brent was trading around $48.23 and WTI $45.25.

What they're saying: "The energy sector is threatening to slam the door on Covid era struggle, and ride positive vaccine economics to the next level," Mizuho Securities USA analyst Robert Yawger writes in a note.

  • Rystad Energy's Bjornar Tonhaugen says, "The oil price comeback seems unstoppable since news of positive vaccine trials arrived and the rise has sidelined other short-term concerns, even lockdowns and increasing crude inventories."

Yes, but: For now the pandemic is raging, which isn't lost on OPEC and Russia.

  • HSBC analyst Gordon Gray, in a note this morning, says he sees "significant" demand improvement during 2021, but there's still lots of uncertainty.
  • "[U]ntil this demand outlook becomes much clearer we would expect OPEC+ to remain extremely cautious about unwinding its cuts too much," Gray writes.

The intrigue: While prices are on the upswing, the pandemic is nonetheless changing the outlook even beyond this year's crisis.

  • The Wall Street Journal, citing internal documents, reports this morning that Exxon has "lowered its outlook on oil prices for much of the next decade."
3. A power giant's $190B push for cleaner future

Illustration: Aïda Amer/Axios

Enel Group, the Italy-based global power giant, is planning to spend $190 billion over the next decade in a push that includes a huge expansion of renewables and wider clean-energy infrastructure and business lines.

By the numbers: The company, already a big renewables player, said yesterday that it's devoting $83 billion toward plans to grow its installed renewables capacity to 120 gigawatts by 2030, up from about 45 GW now.

  • The plan also includes investments in storage, hydrogen, digital networks and electrification more broadly.

Why it matters: It's part of a wider push by some of the world's largest energy companies to bet their future on huge new investments in low-carbon power and services.

Catch up fast: Earlier this month, the Spain-based multinational Iberdrola unveiled plans to invest almost $89 billion over the next five years, with most of the money going to renewables growth and grid enhancements.

Go deeper: Europe’s biggest utility company to ramp up spending on wind and solar power (WSJ)

4. K Street SCOTUS briefs push back on climate suits

Powerful lobbying groups are throwing their support behind oil companies' efforts to keep climate-related lawsuits against the industry out of state courts.

Driving the news: The U.S. Chamber of Commerce and National Association of Manufacturers, among others, filed amicus briefs this week supporting Big Oil companies in a pending jurisdictional case before the Supreme Court.

Why it matters: Big K Street groups' interest in the case show the stakes of both the narrower technical question at hand, and the wider climate-related claims.

Catch up fast: The case is a jurisdictional tussle about the city of Baltimore's litigation against BP, Exxon and others seeking damages for climate-related harms.

  • But it's also relevant to roughly a dozen similar lawsuits nationwide by local and state officials that plaintiffs want litigated in state courts.

Where it stands: The briefs address the topic at hand: defendants' ability to challenge certain decisions that send cases back to state courts, not federal venues that industry prefers.

  • They also, however, argue that the nature of those specific climate-related damage claims means the cases belong in federal courts.

What they're saying: "This case presents a question of appellate procedure that is important to the Nation’s business community far beyond the specifics of this case," the Chamber's brief states.

  • But it also argues that when it comes to climate, the problem is "inherently global" and should be addressed via the executive and Congress.
  • "[A]d hoc and unpredictable decisions of individual state courts" are not a good idea, they argue.

Go deeper: States and cities scramble to sue oil companies over climate change (The Washington Post)

5. What the left wants from Biden

I mean, plenty, but here are a couple of things that crossed my screen...

Driving the news: "Progressive environmentalists are mounting a long-shot bid to get President-elect Joe Biden to go beyond naming a climate czar and declare an environmental national emergency, borrowing a tactic employed by President Donald Trump to fund part of his border wall," Bloomberg points out.

What they're saying: Evergreen Action, which includes former aides to Elizabeth Warren and Jay Inslee's campaigns, is out with a list of ideas for Treasury Secretary nominee Janet Yellen.

  • Atop the list: Using existing powers under the 2010 Dodd-Frank law to designate fossil fuel producers as "non-bank systemically important financial institutions."
  • Per their memo, this would, among other things, allow the Fed to limit fossil fuel investments "on the basis of their prospective risks to financial security, even to the point of forcing fossil fuel divestment by certain institutions."
6. What's new in energy finance

Vestas, the big Danish wind power manufacturer, this morning said it's creating an in-house venture capital arm that will invest in early-stage startups.

  • Investment areas will include long-duration storage, ways to electrify and decarbonize heavy transport and industry with tech including hydrogen, and waste reduction and recycling tech.

Separately, "Plug Power has raised about $1 billion in a bought equity transaction to fund its plan to build what could be the first U.S.-wide network of green hydrogen production facilities to supply fuel-cell-powered vehicles, including its own, with carbon-free fuel," Greentech Media reports.