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30 July 2020

Energy through the looking glass

Rethink Energy will publish a report this week, speculating what stock markets will look like on the other side of the energy transition. The truth is that it will be barely recognizable, and the ‘Tesla effect’ of innovation storming a market will become a commonplace phenomenon through the second quarter of this century.

Energy through the looking glass is a kind of manifesto document to show how the analysts at Rethink Energy see the energy transition going. It’s not only good news either and shows how major market distortions will occur which represents huge risks to both investors and energy companies.

Sure, renewables wins the race for electricity generation, that’s a given. But until you realize the size and enormity of that task, and its timing, it’s easy to think that it is only about wind, solar and batteries, it’s not.

Already we have a stock in Tesla which has almost no-one on Wall Street recommending, which is flying sky high. Stocks fly on fundamentals, advice from Wall Street, or because a bunch of non-investors believe in them and are ignoring Wall Street’s advice. There is going to be a lot of that.

Tesla is a new market leader that has come unhinged from its fundamentals and has a life of its own. Rethink Energy can see that at least another 15 other stocks will come out of the energy transition, eating up the market capitalization that sits in 100 stocks of companies that are over 100 year old. Out of 60 car manufacturers we expect no more than 15 to survive.

So while Tesla has overtaken Toyota and General Motors in value, other stocks will knock out truck makers, railway builders, boiler and central heating manufacturers, and many systems which sit inside homes and industrial buildings, such as lighting and air conditioning. For any sector that is touched by the energy transition which has eight or ten 100 year old companies, there will be one or two “mega” stocks replacing them. In each case the US stock market engine will lose control of that stock, and recommend against it, but fail to prevent it.

This will happen multiple times in each of the next three decades. The paper “Energy through the looking glass,” isolates the marketplaces where this will be inevitable. There will be at least one in distributed energy management, and at least one software giant in EV charging reconciliation and management. This is from an analyst that predicted in 2003 that Apple would be the largest consumer electronics firm in the world (it was valued at $9.8 billion then), and who in 2010 said that Netflix will be worth more than Disney and Comcast, when it was worth $4 billion.

If you want to see what Alice saw through the looking glass, read this report.