A ‘Must Watch’ Disruptive Video

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Earlier today our Australia Correspondent @nicktudor100 sent round a link on the tweets to a YouTube video by Tony Seba entitled ‘Clean Disruption - Energy & Transportation’, which lasts slightly over 1 hour but I strongly recommend you grab a brew of some sort (or a FEVR enhanced intoxicant if you prefer) and take a bit of time out to watch this:

https://www.youtube.com/watch?v=2b3ttqYDwF0

It covers how ‘Disruptive’ technologies can grow exponentially (the ‘S’ curve) with plenty of examples like Smartfones and it makes the point that once the economics of switching make sense to the End-User, then adoption is extremely rapid. As always he cites the usual example of how fast Kodak declined - believe it or not they reported record Results in just the year 2000.

The key thrust here though is about how Transportation will be transformed by Electric Power and the rise of Autonomous Cars - I think he says that these things will be totally dominant by the year 2030. OK, it sounds nuts but even if he is out by several years, it has a profound impact on how we live our lives and the Economics of many business models that already exist. For instance, Electric Cars will probably need far less maintenance because they have as little as 10% of the Moving Parts in an Internal Combustion Engined (ICE) vehicle - what does this mean for Garages with operations very reliant on Servicing Cars? 

Car-Sharing is another big thing he talks about and the idea that we will just ‘use’ Cars as a Service, like we do with so many other things in life. At the moment we probably use our Cars for just 5% of the time we own them but they sit on the drive for 95% of the time - it is actually quite daft when you think about it, especially with costs like Tax and Insurance etc. Electric Cars with full autonomy will be able to cover perhaps as much as 1 million miles in their lifetimes (a conventional Petrol Engine is stretching things if it does 150k miles) and this will enable them to be in almost continual use as they pick up and put down Users for all sorts of journeys.

The next big theme he goes on about is Energy use and how Solar Power will become the dominant Power Source very soon - the costs are falling so fast and it is already the cheapest form of Electricity Generation apparently. He is talking about advances in Battery technology allowing Solar to be stored for a very low cost and this will transform how things are done. At the moment, generating Power by Gas, Coal, Nuclear etc. at a Central Power Station is hugely expensive and inefficient and then you have the costs of distributing the Power to where Users need it. With Solar all of this goes away and it will have a dramatic effect on costs with your bills tumbling. Once the Economics gets to a ‘Tipping Point’ then adoption will be very fast because the savings for Users will be immense. I wonder what this will mean for the more obscure Power Generation methods such as Wind and Wave Power? I suspect they might be in big trouble.

Anyway, that just gives a flavour of what is in the Video but I really suggest you watch it - time well spent. It throws up 2 groups of thoughts for me - firstly what Stocks will benefit from these changes and secondly how will it impact Stocks I already hold?

In terms of Future Winners there is a huge risk in buying all the usual AIM Junk suspects with their fairy tale Stories and it is obvious that most of these will get nowhere and fail - so any Stocks we buy to play these themes need to be very carefully selected and we must not lose our minds and just buy any old loss-making trash in large Stakes. The obvious beneficiaries (and they are proper Money Making businesses already) are the Big Mining Groups such as Glencore GLEN which I already hold and they themselves say that Copper, Zinc and Cobalt will be the key metals in an Electric future. Mining Funds such as Black Rock World Mining BRWM and City Natural Resources CYN might also be worth a look but we must be careful buying any Small AIM Miner as most of them make terrible investments and come with extremely high risks.

Many people have mentioned Cap-Xx CPX to me which is a specialist in Super Capacitors (these are similar to batteries) and that could be worth a look but it is early stage and high risk. If you do fancy something like CPX, perhaps the sneaky way is to buy a smallish Stake and then to add as the Story develops, providing that proper progress towards sustainable profitability is made.

Of course there is good old Tesla TSLA but the valuation on that is simply insane and the idea that they will have the whole Electric Vehicles market to themselves is rather stretching things - the major established Car Makers are swiftly building competing Products and won’t just sit back and watch TSLA steal their industry - even Dyson are looking at Cars. Tony Seba also talks about Battery ‘Megafactories’ and of course we all know TSLA is famous for this but I doubt many Readers knew that there are something like 20 other such Factories being built around the World - I just hope Somero Enterprises SOM are providing the machines for the Concrete Floors in these !!

There are of course the wider plays via Technology Funds (I hold Henderson Technology but recently trimmed my holding as valuations are looking pretty stretched in Tech generally) such as Herald Investment Trust HRI and Polar Capital Technology PCT and Scottish Mortgage SMT might be worth a look because it holds a lot of Tech but also has ‘normal’ businesses to some extent.

Anyway, I won’t go on and on about this but the key point here is that these kinds of Disruptions to Transport and Energy seem highly likely to come true and there will be big opportunities for us to exploit - so keep your eyes and mind open for anything good that might crop up. I will most certainly be looking to do so.

In terms of my existing holdings it is actually quite scary. There are some very obvious ones like National Grid NG. which could be massively impacted (probably in a negative way) and Cambria Automobiles CAMB which would suffer hugely not just in the lack of Servicing but also because demand for New Cars would just vanish if we all in effect just ‘rented’ our Cars as and when we need them.

Telit TCM is a funny one as we all know (is it a Fraud or not?) but if it manages to survive the latest traumas, then the ‘Internet of things’ stuff that it provides (or maybe it doesn’t  !!) could be very much in demand for Autonomous Cars and suchlike. On the subject of Hounds, would Utilitywise UTW have a business if Energy was to be generated by Companies on-site via Solar Panels for extremely low cost? (This would apply to Inspired Energy INSE also, which I don’t hold).

Royal Dutch Shell RDSB might clearly suffer if Petrol/Oil goes out of fashion - obviously there will be a bit of demand for Lubricants but that will never be enough to get anywhere near the Revenues that RDSB would lose. Tony Seba makes the point that any Oil that costs more than something like $25 a barrel to get out of the ground would soon become ‘stranded’ (i.e. it is uneconomic to get the Oil out as the Selling Prices are so low that it becomes unusable). On the other hand, Diversified Gas & Oil DGOC with costs as low as $6 a barrel or something might actually have a future.

That just gives some thoughts on what the ideas in this Video could mean - there are many more impacts. These changes won’t happen overnight but once we get to the Tipping Point then change probably will be very rapid - this is the experience of many Disruptive Technologies before as the Video shows clearly. There is no need to panic with regards to holdings we already have but it is worth thinking things through and if we see a need to Sell them then a plan for doing so is worth drawing up.

Enjoy the Vid, and a Special Big THANKS to Nick for shoving it around - so great to experience the truly superb benefits of Twitter when it is used properly by sane people !!

Cheers, WD.