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 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 Saudi Arabia's sovereign wealth fund, called the Public Investment Fund (PIF), about bankrolling his take-private plan.
- And that follows recent revelations that the 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 state oil giant Aramco for a massive $20 billion crude-to-chemicals plant that could process 400,000 barrels-per-day in Saudi Arabia.
- 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, tells Axios he sees a connection between Saudi Arabia's Tesla investment and SABIC's expansion.
Tesla investment could be a hedge against oil's peak in transportation, or...
- “There is a scenario where it becomes a win-win, where electric vehicles grow but transportation fuel demand doesn’t peak,” Bell says.
- He sees the prospect of a “bifurcated” scenario where there’s widespread electrification in China, the U.S. and elsewhere, but oil’s use in transportation keeps growing thanks to fossil fuel-powered vehicles remaining dominant in fast-growing India and Africa.
The intrigue: A separate question is why cash-burning, still-unprofitable Tesla in particular is interesting to Saudi officials. Bell says it's consistent with other PIF investments in companies like Uber and the SoftBank group.
The big picture: Sarah Ladislaw, an energy and geopolitics expert with the Center for Strategic and International Studies, sees a three-pronged Saudi approach:
- Growing investments outside the oil sector entirely.
- Going "deeper down the value chain" with petrochemicals.
- Wider investments in the automotive sector.
"I think this is a risk mitigation strategy against a world in which oil demand growth slows and plateaus," Ladislaw says. "They want to be competitively positioned no matter what."
The big question: Nobody really knows when worldwide oil demand will peak. Competing analyst and industry projections range from as soon as the late 2020s to beyond 2040.
Go deeper: Elon Musk confirms Saudi interest in Tesla.