Jul 17, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Welcome back! Today's Smart Brevity count: 1,316 words, 5 minutes.

🎵And at this moment in 1989, Soul II Soul was atop the Billboard R&B charts with today's terrific intro tune...

1 big thing: U.S. driving may never fully bounce back

Illustration: Aïda Amer/Axios

A new KPMG analysis projects that increased working from home and use of e-commerce will be "powerful and enduring" in the U.S. — potentially enough to reduce auto miles traveled by up to 9% going forward.

Why it matters: The behavioral changes that stick around once the COVID-19 crisis passes will affect power use, driving levels and oil demand — with repercussions for all those industries.

  • The KPMG report takes a stab at specifically quantifying the potential long-term driving effects in the U.S., and what it means for the auto sector.

The big picture: While driving has recovered a lot from the depths of the pandemic, KPMG analysts say that going forward, U.S. vehicle miles traveled could drop by a range of 140 billion to 270 billion miles per year.

  • The consultancy estimates that car ownership also could fall, from 1.97 to 1.87 vehicles per household.
  • "That may not sound like much, but it could translate into 7 million to 14 million fewer vehicles on U.S. roads," the report notes.

What's next: That change would cut into car sales, but the stickiness of the pandemic lifestyle could also shake up the industry in other ways by increasing demand for delivery vehicles.

  • "Both incumbent automakers and startups are working on innovative delivery-van designs, new power-train systems, and autonomous capabilities," they note.

Quick take: Look for intensifying competition in the electric delivery vehicle market, where several startups — notably Rivian, which has a huge deal with Amazon — and legacy players are in the mix.

The intrigue: The ultimate effects of the pandemic on auto and plane travel could hasten the peak of global oil demand, and some analysts think it may have already happened.

  • "Energy demand and certainly mobility demand will be lower even when this crisis more or less [is] behind us. Will it mean that it will never recover? It’s probably too early to say," Royal Dutch Shell CEO Ben van Beurden tells IHS Markit's Dan Yergin in an interview posted this week.

Yes, but: KPMG energy analyst Regina Mayor, in an email exchange, cautions against assuming that our new work and driving habits on their own will have a major long-term effect on motor fuel use.

  • She notes variables like how much shopping trip reductions are offset by delivery truck miles, the potential for people to move out of urban areas, and avoidance of public transit and planes in favor of cars.

My thought bubble: It's possible to see a scenario where oil demand has peaked, but it would mean several forces — not just more remote work and shopping — moving in the same direction.

  • Others include changes in trade and shipping patterns as countries look to localize supply chains, as well as economic recovery packages steering lots of resources into efficiency, EVs and mass transit, and the jury's still out there.

Go deeper: Work-from-home culture will cut billions of miles of driving (Bloomberg)

Bonus: The energy stakes of working from home
Reproduced from IEA; Chart: Axios Visuals

An interesting International Energy Agency analysis finds that remote work produces net energy savings in households that otherwise commute by car, because the drop in motor fuel use outweighs increased residential energy needs.

Why it matters: It's one thing that will influence carbon emissions levels going forward.

  • "[F]or people who commute by car, working from home is likely to reduce their carbon dioxide (CO2) footprint if their journey to work is greater than about 6 kilometers," they note.
  • The average one-way commute in the U.S. is 18 kilometers, while in Europe it's 15 and in China it's 8, the short study notes.

Read the full analysis

2. Oil's recovery is stuck as COVID-19 rages
Data: FactSet; Chart: Axios Visuals

"Oil prices slipped on Friday amid growing uncertainty about the global recovery in fuel demand as coronavirus cases surged in several countries, while major producers were set to ease output curbs," Reuters reports.

Why it matters: The oil price recovery has stalled, as the chart above shows, with prices stuck in a fairly narrow range the last month after the previous recovery from rock-bottom (even negative) prices in the spring.

3. Why Tesla symbolizes ... really everything

Illustration: Sarah Grillo/Axios

Tesla is the company of the moment — the prime exemplar of just about any big and important trend that you might care about, Axios' Felix Salmon reports.

Why it matters: Almost every reader of finance and business news will have at least one strongly held opinion about Tesla.

What you might not realize is just how widely those opinions range, and how much they map onto much broader views of the world about big topics including...

1. Climate change: Tesla, especially after its merger with Solar City, sometimes feels like a Utopian project — an attempt to populate a carbon-neutral future with fast, efficient vehicles that don't contribute to global warming.

  • Tesla would benefit from Joe Biden's policies if they're enacted. His plans aim to vastly boost EV deployment and renewable power.

2. Economic policy: Tesla has already benefited from the Fed's zero-interest rate policy following the global financial crisis — a policy designed to incentivize capital-intensive investment.

  • A $465 million federal loan in 2010 helped too, and federal tax breaks for EV purchases helped drive Tesla's early sales.

3. The product: Capitalists love and fear natural monopolies. Tesla's flagship product — the cars, software and charging network — is years ahead of the competition.

4. Markets: For millions of traders and CNBC addicts, the word "Tesla" doesn't mean cars — it means TSLA, one of the wildest large-cap stocks the world has ever seen.

  • On Monday alone, Tesla opened $114 higher than its previous close, then gained another $136 within 15 minutes, then dropped by $324 before the market closed.

5. The billionaire economy: Depending on whom you talk to, Tesla CEO Elon Musk is the archetypal cartoon-villain billionaire — or else he's the archetypal planet-saving billionaire.

Read more in Felix's newsletter, which you can sign up for here.

4. Two EV developments worth watching

New York State regulators approved a plan Thursday to provide up to $750 million to bolster EV charging infrastructure and help electrify bus fleets.

Why it matters: Building more charging can help spur EV deployment by helping consumers overcome "range anxiety." And replacing diesel buses helps cut carbon emissions and air pollution.

How it works: The state's utilities commission greenlighted a plan under which the state's utilities would provide up to $701 million spread over five years to finance around 50,000 charging points.

  • Over $200 million of the financing will go to "equitable access and benefits for lower-socio-economic and disadvantaged communities."
  • Separately, the state's environment department is using almost $50 million from the settlement of VW's diesel scandal to finance charging as well as help school and transit bus fleets electrify.

Go deeper: New York utility customers will subsidize $700M electric vehicle program (Politico)

* * *

The Detroit Free Press reports that GM is providing new details about its EV lineup as the company looks to bring at least 20 electric models to market by 2023.

  • Driving the news: That includes a bunch of Cadillacs, the unit playing a leading role in GM's plans. "Cadillac ... will see new all-electric SUVs that mirror many of its internal combustion engine models already in the lineup."
  • One will be a "globally sized luxury three-row SUV" that's akin to its current XT6 SUV, and GM's report yesterday also pledges a model with "attainable luxury — similar to today’s Cadillac XT4," among others.
5. Catch up fast: FERC, Facebook, DOE

Electricity: "The Federal Energy Regulatory Commission on Thursday unanimously rejected a plea to declare all state solar net-metering policies illegal, a victory for solar industry groups and state policymakers." (Greentech Media)

Climate change: "Sens. Elizabeth Warren, Tom Carper, Brian Schatz, and Sheldon Whitehouse are demanding more information from Facebook CEO Mark Zuckerberg about a reported 'loophole' for climate misinformation in Facebook’s fact-checking program." (Vox)

Electric vehicles: "Electric-car batteries and other advanced vehicle technologies will get a boost with $139 million in federal funding, U.S. Department of Energy Secretary Dan Brouillette said on Thursday while visiting General Motors Co.'s Warren Technical Center to see the Detroit automaker's electric-vehicle development firsthand." (The Detroit News)

Ben GemanAmy Harder