Nov 18, 2019

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning, welcome back! My latest Harder Line column takes a look at a bunch of high-stakes lawsuits flying (relatively) under the radar. 

I'll share a glimpse of that, and then Ben Geman will get you up to speed on the rest of today's news.

Today's Smart Brevity count: 1,216 words, ~4.5 minutes.

1 big thing: Climate-change court battles

Illustration: Sarah Grillo/Axios

Forget the campaign trail and Congress. The real debate on climate change is happening in the courtrooms.

The big picture: With federal policy gridlocked, advocates are pushing an ever-growing list of long-shot lawsuits blaming big oil companies and the government for the planet’s hot mess.

Why it matters: Lawsuits are one key piece of the puzzle to getting big change on energy and climate policy. Even if advocates don’t win in court, they still draw media attention and put pressure on their targets.

  • The more pressure grows, and if a ruling in advocates’ favor emerges as a possibility, the more likely corporations and/or the government would support policy addressing the matter.

Driving the news: Numerous cases are piling up that rest on various legal theories. Let's touch on three timely developments, and read my full column for more details.

  1. A ruling is expected next month on a closely watched fraud lawsuit from the New York attorney general alleging ExxonMobil misled investors on its handling of climate-change costs. The Massachusetts AG just filed a similar lawsuit.
  2. Several lawsuits blaming a handful of big oil companies for rising temperatures are moving forward in courts across the country.
  3. After hearing oral arguments in June, a three-judge federal panel has yet to rule on a high-profile case where children are alleging the government failed them on climate change.

These three developments represent the latest round in what has been years' worth of climate litigation. Indeed, despite all this effort, climate advocates have not actually succeeded (yet) in legally pinning the blame on, well, anyone, including oil companies and the government.

“There are plenty of procedural pitfalls that these cases still have to navigate. That having been said, there are a diverse set of legal theories currently being tested in a variety of jurisdictions, so there is some reasonable chance that one or more will ultimately survive.” — Michael Livermore, a University of Virginia law school professor who is not involved in the lawsuits.

What I'm watching: How these legal fights come up on the campaign trail. At least two Democratic presidential candidates, Elizabeth Warren and Bernie Sanders, have said they would pursue legal battles against big oil companies under similar arguments. 

2. Ford's big electric unveil

Mustang Mach-E electric SUV (Photo: courtesy of Ford)

Ford unveiled a high-performance electric SUV, the Mustang Mach-E, on Sunday ahead of the LA Auto Show, a sign of its new approach to electrification, Axios' Joann Muller reports.

Why it matters: The Mach-E is no "compliance car," like the lackluster Focus Electric compact it previously sold to meet federal fuel economy standards. Instead, the Mach-E is meant to be fast, fun and exciting, like the iconic Ford Mustang sports coupe.

  • Instead of building econoboxes no one wants, Ford says its strategy is now to "play to its strengths" by adding electric powertrains to its best-selling vehicles, including the Mustang, F-150 pickup and its extensive lineup of SUVs and commercial vans.

Between the lines: The strategy shift came in late 2017 after CEO James Hackett joined the company.

  • Ford had been working on its first dedicated EV model to satisfy regulators, but Hackett feared it wouldn't stand out in a sea of expected plug-in models.
  • He pulled the plug on the effort and pushed engineers to come up with a new, "aspirational" design in just six weeks.
  • They tapped into what makes Mustangs exciting and translated it into an electric SUV.

Details: The Mach-E goes on sale in late 2020, and will be available with standard range (230 miles) and extended-range (300 miles) battery options, and both rear-wheel-drive and all-wheel-drive configurations.

Ford is now taking $500 deposits for the Mach-E, which is expected to range in price from about $43,895 ($36,395 after federal tax credit) for the standard battery and around $50,000 for the extended-range version.

Go deeper in the Axios stream

3. Saudi Aramco's shrinking IPO

Saudi Arabia’s decision to abandon a $2 trillion valuation for the Aramco IPO underscores hurdles facing Crown Prince Mohammed bin Salman’s plans to use the company as a tool for diversifying the kingdom’s crude-reliant economy.

Driving the news: ICYMI, over the weekend Aramco announced preliminary pricing on the offering that signals an estimated valuation of the world's largest oil-producing company in the $1.6-$1.7 trillion range.

They also announced that just 1.5% of the company — or 3 billion shares — would be offered, and it's not clear when or if there will be a subsequent sale that would approach the 5% initially envisioned.

What's new: There are other signs of hurdles facing the effort. One is that it's increasingly clear that it's essentially a regional affair.

"Saudi Arabia has called off plans to formally market shares of its state oil company outside the kingdom and other Gulf countries ahead of its long-awaited initial public offering," the Financial Times reports Monday.

By the numbers: The initial pricing estimate announced Sunday of 30-32 Saudi riyals, or roughly $8-$8.50 per share, on the kingdom's domestic exchange would bring an IPO in the $24-$25.6 billion range.

It might be the world's largest, depending on where it falls, but it's far from MBS's initial goals. The final offer price will be announced on Dec. 5.

Bonus: What they're saying about Aramco

AB Bernstein analysts, in a note, said the proposed $1.6-$1.7 trillion valuation is "above our estimates and above what many institutional investors we have spoken with would deem to be reasonable."

But, but, but: However, they also note that cornerstone investors, sovereign wealth funds and local investors could still enable them to achieve the target, given the "strategic interests" of those parties.

The intrigue: Bernstein also points out that the valuation implies a lower dividend yield than other oil majors. Bloomberg analysts Chris Hughes and Liam Denning similarly note the valuation would put the yield behind Shell, BP, Total and others.

  • "True, those companies don’t have Aramco’s supercharged profitability. On the other hand, they don’t have to fund a country with their earnings," they write.

The big picture: Despite the pared-back ambitions, an S&P Global Platts analysis published Monday points out that finally launching the IPO will still bring a big cash infusion.

"The pressure is now on for Crown Prince Mohammed bin Salman to deliver on his vaunted Vision 2030 roadmap and transform the change-resistant kingdom into a dynamic, diverse economy that can persevere once the world has moved beyond oil," they report.

4. Here's comes Tesla's pickup

Another big EV reveal this week will be Tesla's pickup, which will be unveiled Thursday in L.A. near the SpaceX rocket factory, Joann reports.

  • CEO Elon Musk has said the electric truck, which was first announced in 2013, will have a starting price of less than $50,000.

Why it matters: There's an unmet customer need for an electric truck that can also power a worksite, and both GM and Ford have electric pickups on the way.

Joann's thought bubble: Tesla's truck will find an audience among high-end, tech-savvy buyers, but it's hard to imagine they'll steal many traditional truck customers from Chevy, Ford or Ram.

Pickup truck owners are fiercely loyal, and productivity is their primary concern.

5. Catch up fast: IEA drama, climate, auto regs

Climate: Via Reuters, "Fatih Birol, the head of the International Energy Agency (IEA), faced renewed pressure on Monday to overhaul the organization’s influential projections for fossil fuel demand from investors and scientists concerned about climate change."

More climate: AP reports Monday: "At least 60 percent of U.S. Superfund sites are in areas vulnerable to flooding or other worsening disasters of climate change, and the Trump administration’s reluctance to directly acknowledge global warming is deterring efforts to safeguard them, a congressional watchdog agency says."

Regulations: ICYMI Friday, The Washington Post reports: "California and 22 other states sued the Environmental Protection Agency on Friday, asking a federal court to block the Trump administration from stripping the nation’s most populous state of its long-standing authority to set its own fuel-efficiency standards on cars and trucks."

Ben GemanAmy Harder