Is Shell's Shocking Revelation Good News for Tesla?

Cats and dogs. Oil and water. Name any cliche about polar opposites and they have probably been used to compare the oil industry and electric vehicles. So, it seems almost impossible that an oil company would make the claim that electric vehicles will be the predominant transportation fuel, but Royal Dutch Shell (NYSE: RDS-A  ) is making that very claim.

Is Shell contemplating going into a new business? Are they playing some kind of Jedi mind trick on us?

Let's take a look at some of the things that Shell is saying and see if it is making a compelling case to invest in Tesla Motors (NASDAQ: TSLA  ) and the rest of the electric vehicle industry.

Admitting defeat, sort of... 
This week Shell released what it calls the New Lens Scenarios, a report on what it sees as the future of energy over the next 50 years. Much of the report reads like you would expect from an oil company, but there were some very interesting tidbits that seem to go against what you would expect from a company like Shell. Probably the most glaring example was this little chart. 

Source: Royal Dutch Shell

No, you don't need to check your glasses prescription: Shell is saying the rise in the use of natural gas, electricity, and hydrogen as transportation fuels will result in oil having a meager 22% of the global transportation market by 2060. There are lots of factors that went into this prediction, such as increased urbanization, more efficient urban planning, and regulations on CO2 emissions. But the people at Shell believed these factors were so powerful that it made the following claim:

By 2070, the passenger road market could be nearly oil-free

It seems like a pretty bold statement, and one that seems to be endorsing the very technology that could threaten the company's profitability. If you sift through the details, though, you notice that Shell lumps electric and hydrogen into the same group. Also, It just happens to be that that both Shell and Total (NYSE: TOT  ) are currently the only two of the integrated major oil companies that have stated in their annual reports that they are actively developing hydrogen based fueling technology for vehicles. So, on the surface it may sound like a dig at its own industry, but it may just be a pitch for what it is developing down the road.

Stamp of Approval for Tesla?
Even though Shell may have not intended to endorse a company like Tesla or natural gas designer Westport Innovations (NASDAQ: WPRT  ) with this report, seeing estimates that electric and natural gas vehicles could play such a large role in the future of transportation is bound to create some excitement among investors. When you consider total vehicle sales hovered around 80 million last year, the market potential for these companies is immense. 

You would never want to buy a company on long-term trends alone, but it does make for a good starting point. If you do want to build an investment thesis for a company like Tesla or Westport using these long-term trends, though, there is one question you need to ask yourself:

Do I have the patience and the temperament to invest in a company based on these long-term trends?

The opportunity for Tesla and Westport are there. Both companies are technological leaders in their respective fields, and their offerings are so attractive that many other companies in the space are lining up to work with them with either joint ventures or manufacturing contracts. But these are growing companies that are bound to hit a bump or two down the road. Right now, Westport isn't expected to generate a net profit before 2016, and even Tesla CEO Elon Musk has said that the company's stock is bound to swing as "confidence waxes and wanes." Your resolve as an investor will more than likely be tested, so be ready for anything the market may throw in your path.

What a Fool believes
For many of us, the first glance at the chart from Shell might suggest one thing, but it could mean something completely different. Also, keep in mind these are predictions on what someone thinks may happen 50 years out from now. If we all have learned anything, it's that we are excruciatingly bad at predicting the future. In the past three months alone, analysts and pundits have predicted oil to both go under $30 and over $150 by 2015. Then again, perhaps we are good at predicting, because we give ourselves such a wide range to work with. 

We like Tesla, but it's not too late to grab another stock The Motley Fool loved in 2013

One thing is for certain. Until we make that transition away from oil, it will become more expensive and more challenging to get it out of the ground, and there is one behind-the-scenes energy company looking to make the industry better at it. This little known stock has such a bright future helping the industry unearth better resources The Motley Fool's chief investment officer has named it "The Motley Fool's Top Stock for 2013." Our analysts have put together a comprehensive report that details how this company is changing the industry. You gan get free access to this report where you will get the name of this under-the-radar company by simply clicking here.

Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 13, 2013, at 11:52 AM, speculawyer wrote:

    Yes, Virginia, Peak oil is real. Even the oil companies know it. The only thing to argue about is WHEN it will happen, not IF it will happen.

  • Report this Comment On October 13, 2013, at 12:22 PM, dhspar wrote:

    Regarding your third sentence, how can a "vehicle" be considered a "fuel"?

  • Report this Comment On October 13, 2013, at 5:22 PM, nonStitZealot wrote:

    Peak oil has been with us since 2005 .

    I'm waiting for super-peak oil .

  • Report this Comment On October 14, 2013, at 9:44 PM, JPWhiteHome wrote:


    I believe they made a grammatical error. However there is a way one could regard a vehicle to be fuel. Many fuels are burned to release energy. We have seen recently that Tesla's burn. So a vehicle could be considered a fuel (for a steam train).

    Seriously though, it is very refreshing to see Shell compare oil to natural gas, electric and hydrogen. It does appear they see themselves in the energy business, not just the oil business and are readying themselves and their investors for a change.

  • Report this Comment On October 15, 2013, at 6:23 PM, jeffhre wrote:

    I don't see it as admitting defeat. With oil more expensive to find, planes trains trucks and ships to fuel. A myriad of industrial and chemnical processes to feed. Heating and a small slice of passenger car transport needs to fulfill, oil companies will have their hand full with as much business as they can handle for decades to come.

    And oil companies are just now treating their gas (NG) divisions as thought they are part of the business and not unwanted step kids.

    With the loss of a portion, even a large portion, of the passenger car fuel business, it won't mean the collapse of oil companies.

  • Report this Comment On October 15, 2013, at 7:11 PM, jeffhre wrote:

    A small slice of the global passenger vehicle miles in 2060 (22%) could well be the same as nearly 100% of the smaller automotive fuel market of 2013. How much of a concession is this by Shell in the aggregate? Lubricants, non road going transport, petrochemicals will continue to grow substantially - all things considered, is this a concession at all?

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