As Brent Crude reaches $129 and the price of oil continues to climb, the EV revolution could be about to accelerate.
The Tesla (NASDAQ: TSLA) share price began 2022 at a near-record $1,200 after record quarterly deliveries of its electric vehicles (EVs). However, rising inflation and Omicron worries saw it fall to $764 by 23 February.
Then Russia began its invasion of Ukraine, and Tesla shares rocketed to $880 on 2 March as the implications for oil were laid bare. Now trading at $824 a share, the time could be ripe for a new bull run.
Tesla share price: oil skyrocketing
Right now, Brent Crude is at $129 a barrel. For context, the benchmark averaged $70 in 2021 and only $43 in 2016. On Monday, it struck a 14-year high of $139 as investors were spooked by the spectre of a western oil and gas embargo against Russia.
That spectre is now reality. US President Joe Biden claims the move targets ‘the main artery of Russia’s economy’ but admitted it will be ‘not without cost at home.’ UK PM Boris Johnson concurs, saying the UK’s plan to phase out Russian oil by the end of 2022 will ‘add to the pressure we're already seeing on Russia.’
Meanwhile, the European Commission plans to reduce EU demand for Russian gas by two thirds, with the bloc currently relying on the alienated state for 40% of its gas and 30% of its oil. About 8% of US and 6% of UK oil comes from Russia.
Russian Deputy PM Alexander Novak had previously threatened to ‘impose an embargo on gas pumping through the Nord Stream 1 gas pipeline’ and that ‘rejection of Russian oil would lead to catastrophic consequences for the global market,’ causing Brent to rise to $300 a barrel.
Goldman Sachs is predicting Brent will average $135 this year, while JP Morgan is predicting a rise to $185 by summer. As analysts dissect the implications of the embargo, even higher price predictions could be hitting the front page soon.
The implication for Tesla’s share price is obvious. In the UK alone, petrol is already at 153p and diesel at 159p a litre. The cost of filling up a 55-litre family car has risen by £2 in a week. If Brent rises to previously unimaginable highs, the transition to EVs could accelerate even faster than previously predicted.
Tesla shares: Berlin Gigafactory and semiconductor shortages
Wedbush analyst Dan Ives believes a ‘major overhang’ on Tesla has been removed after it secured delayed German approval to start production at its new Gigafactory in Berlin. With a $1,400 target, Ives ‘cannot stress the production importance of Giga Berlin to the overall success of Tesla’s footprint in Europe and globally,’ as Tesla expects to eventually ramp up production at the plant to 500,000 cars a year.
And Global Equities Research analyst Trip Chowdhry is targeting $1,500, believing the company’s production, shipping, and delivery momentum are currently ‘extremely solid,’ helping to set another deliveries record this quarter.
However, CEO Elon Musk warned that ‘in 2022, supply chain will continue to be the fundamental limiter of output across all factories. So, the chip shortage, while better than last year, is still an issue.’ And this was before the Ukraine crisis sent the cost and availability of EV critical Palladium, Neon, and Nickel to record highs. Nickel alone is at a record-busting $100,000/tonne, forcing the London Metal Exchange to suspend trading in the commodity indefinitely.
In addition, Musk is in yet more trouble with the US Securities and Exchange Commission. After agreeing that his Tesla-related tweets would be vetted by a lawyer before being posted in 2018, he is now arguing he was coerced into the deal, as ‘Tesla was a less mature company and the SEC’s action stood to jeopardize the company’s financing.’
Musk wants to block a SEC subpoena for records of legal pre-approval of his November Twitter poll asking the public whether he should sell 10% of his stake in the company. Tesla argues Musk’s tweet was ‘behaviour the SEC should encourage: a CEO’s transparency.’ But another legal battle with the powerful US regulator is a distraction the company could do without.
Politically, there’s better news. Biden called out Tesla as ‘our nation’s largest electric vehicle manufacturer’ in a speech about EV chargers last week. Previously, Musk has made no secret of his disapproval of Biden’s $7.5 billion Bipartisan Infrastructure Law and had previously called the President a 'damp sock puppet.' But the potential forthcoming oil crisis could now be focussing political minds on a speedier EV transition.
Legacy competitors Ford and GM are still amid their transition to electric, while newer rivals Lucid and Rivian are struggling to ramp up production. But Tesla is aiming to double sales to 2 million cars this year, as the higher up-front cost of EVs becomes more palatable than the running costs of ICE cars.
The Tesla share price could be racing back to $1,200 before long.
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Charles Archer | Financial Writer, London
09 March 2022