Aug 14, 2018

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning and welcome back!

Dire Straits' Mark Knopfler celebrated a birthday over the weekend, so his otherworldly guitar skills animate today's intro tune...

1 big thing: Saudi Arabia's long-term plans
Illustration: Rebecca Zisser/Axios

The prospect of Saudi Arabia backing Tesla provides a glimpse into the kingdom's oil and economic strategy, and it's not as simple as a hedge against crude's long-term decline.

Why it matters: Saudi Arabia is OPEC's dominant producer and holds massive reserves, but the kingdom wants to diversify its economy away from crude oil. The moves come at a time when some analysts see a global demand peak beginning to appear over the long-term horizon.

Driving the news: Tesla CEO Elon Musk offered new details Monday about his discussions with the Saudi Arabian sovereign wealth fund, called the Public Investment Fund (PIF), about bankrolling his take-private plan.

  • And that follows recent revelations that PIF has already acquired a nearly 5% stake in the Silicon Valley electric automaker.

Between the lines: While EVs remain a niche market today (less than 2% of global sales), the Saudis are keen to invest in growing tech sectors — even one that will help erode oil's dominance in transportation.

But that doesn't mean they're envisioning the end of the oil age. They're also pouring massive resources into expanding state-owned petrochemicals giant SABIC, signaling deepening interest in oil's use beyond transportation fuels.

  • SABIC last year announced plans with Aramco, the state oil giant, for a massive $20 billion crude-to-chemicals plant in the country that could process 400,000 barrels-per-day.
  • Petrochemicals, used for plastics and other materials, are projected to be a major growth sector for oil use in coming decades, even as greater efficiency and electric cars eventually sap oil demand for transportation.

What they're saying: Randy Bell, who heads the Atlantic Council's Global Energy Center, sees a connection between Saudi Arabia's Tesla investment and SABIC's expansion:

“It’s probably better thought of as a set of diversification strategies when it seems increasingly hard for the Saudis, over the medium term, to be a price setter.”

Go deeper: Read the whole story in the Axios stream.

2. Tesla board announces take-private review...

Breaking Tuesday: Tesla said its board of directors has formed a special committee of three members and retained the firm Latham & Watkins to review Musk's plan to take the company private.

  • "The special committee’s grant of authority provides that no Going Private Transaction will be consummated without the approval of the special committee," the announcement states.

Why it matters: It signals how the board plans to start formally interacting with Musk's bombshell announcement last week of plans to take the electric automaker private at $420-per-share.

The details: The board members on the panel are Brad Buss, Robyn Denholm and Linda Johnson Rice.

What they're saying: Per the announcement, "The special committee has not yet received a formal proposal from Mr. Musk regarding any Going Private Transaction nor has it reached any conclusion as to the advisability or feasibility of such a transaction."

The intrigue: In the same announcement, the company says it "has separately retained Wilson Sonsini Goodrich & Rosati as its legal counsel in this matter."

3. ... while Musk offers more details on plan

Last night, Tesla CEO Elon Musk tweeted the names of legal and financial firms, including Goldman Sachs, that he'll personally work with on the newly-announced plan to take the electric automaker private.

Why it matters: Naming the team enables Musk to claim a tangible step in what remains a vague and uncertain proposal to go private.

One level deeper: Reuters, citing a source familiar with the matter, reports that Silver Lake — a technology investment firm — is working with Musk for free and hasn't been hired in an "official capacity."

  • A Tesla spokesperson tells Axios that the companies have been retained by Musk personally, rather than by Tesla.

Buzz: The New York Times, meanwhile, has some revelations about Musk's bombshell announcement last week about the plan.

  • They report that his tweet was "dashed off with little forethought, and had not been cleared ahead of time with the company’s board."

More intrigue: The NYT piece also offers more information to challenge Musk's explanation yesterday for his "funding secured" comment last week.

  • ICYMI: Yesterday, the CEO said his recent discussions with the manager of Saudi Arabia's sovereign wealth fund left him with "no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving," and that they were "eager to proceed."
  • Yes, but: The NYT reports, "[T]hree people familiar with the workings of the Saudi fund cast doubt on his account. They said the fund had taken none of the steps that such an ambitious transaction would entail, like preparing a term sheet or hiring a financial adviser to work on the deal."
4. On my screen: oil, solar, EPA

Solar power: Greentech Media explores the evolution of solar energy powerhouse SunPower's corporate strategy, reporting:

  • "The company’s utility-scale self-development team is now down to around 10 employees, as SunPower executes on its strategy to focus on residential and commercial and industrial projects, said CEO Tom Werner, in a recent interview."

Oil-and-gas: Via Bloomberg, "From liquefied natural gas in Mozambique to deep-oil in Guyana, the world’s biggest energy companies are gearing up to sanction the first slate of mega-projects since the price crash in 2014, Wood Mackenzie Ltd. analysts including Angus Rodger said in a report."

  • Why it matters: The execution of big projects will be a test of the companies' vows of capital discipline since the oil price collapse a few years ago, per Bloomberg citing WoodMac. Before that, a number of huge projects went way over budget.

EPA: E&E News reports on multiple upcoming moves that will show whether acting EPA Administrator Andrew Wheeler breaks with predecessor Scott Pruitt's controversial approach to science policy.

  • "One early test will be Wheeler’s picks for EPA science advisory boards, which are expected in the next month or so," their story notes.
5. Chart of the day
Screenshot of chart in the latest "Fact of the Week" from the Energy Department's Vehicle Technologies Office

The chart above, via this short Energy Department report, shows the length of one-way vehicle trips last year.

By the numbers: The big takeaway is that almost two-thirds of all trips are less than six miles.

  • "In fact, three-fourths of all trips are ten miles or less. Another 8.4% of trips were between 11 and 15 miles, with the three longer trip distance categories about 5% each. Of all the trips, 95% were 30 miles or less," DOE notes.

Quick take: While "range anxiety" is often cited among the barriers to greater adoption of EVs, the data underscores how the vast majority of trips are well within their capacity on a single charge.

  • To be sure, that's cold comfort on much longer journeys, which is why the build-out of publicly accessible charging infrastructure is important.
6. Three more EV things

Finance: The China-based electric car company Nio said Monday that it's going public on the New York Stock Exchange and hopes to raise $1.8 billion, according to this filing with the Securities and Exchange Commission.

  • "Nio sees itself as a pioneer in the market for premium electric vehicles in China, and for the moment, it's planning to only sell its cars in that country," CNBC reports.
  • Per Reuters, it will be the "biggest U.S. listing by a Chinese automaker."

Batteries: Over in our Expert Voices section, Eric Wachsman sizes up growing efforts among automakers to develop high-performance solid-state batteries.

  • "Solid-electrolyte batteries gained prominence in the lab a decade ago, but are just now achieving the cell performance to make the automotive industry take notice, with Volkswagen specifically citing performance demonstration 'at automotive rates of power,'" writes Wachsman, who directs the Maryland Energy Innovation Institute at UMD and is a founder of Ion Storage Systems.

Buses: Over at UC-Berkeley's Energy Institute at Haas, economist Meredith Fowlie explores the Co2 and air pollution benefits of electric buses, but warns against proposed state mandates in California.

  • "[I]f the mandate imposes costs on strapped transit agencies, this could crowd out needed service quality improvements. This would hurt the low-income communities that are disproportionately dependent on public transportation," she writes.
  • Read her entire post here.
Ben GemanAmy Harder