Incredible article, again. Agree 100% on increasing ICE efficiency, this should be a no brainer. Being from Canada also a huge fan of #FreeCanadaFromMis-GuidedClimateNDCAccountingIsanity. LOL
Dec 10, 2022·edited Dec 10, 2022Liked by Arjun Murti
Thanks for this Substack and the podcast. Just discovered it after hearing you on George Noble's podcast. The SuperVol framework is a great paradigm. The capex cycle analysis is also very helpful. So my takeaway is long term-good investment for the next decade or more, but because of SuperVol, we can see big price swings, so use the demand destruction downswings to build a long term position (possibly next year as Fed induced recession comes to fruition in the U.S. and general global economic slowdown continues).
I think of CAPEX as actually being reactionary to the ROCE cycle. The hardest thing with the long term ROCE cycle is to get the structural (as opposed to cyclical or short term) inflections. Not sure I have a great answer other than it's a mixture of oil and nat gas S/D, project queues, etc.
Good on you for calling the low energy capex for what it was. As for ICE bans, they won’t go ahead if EVs haven’t come down in price enough for the average buyer. Fully agree on more stringent mileage standards. Another cool policy is EV subsidies specifically for “gasoline superusers”.
I agree with you and with Arjun that higher mileage standards on ICE cars is a more realistic policy. EV subsidies are a more complex issue. I live in NYS (suburbs outside NYC) where our state followed CA with a ban on new ICE vehicles by 2035, with interim percentage sales requirements for ZEV vehicles starting in 2026. When I go up and down the streets around here with all the cars parked on both sides of the street, I think to myself the municipalities either have to put chargers on both sides of each street or dedicate football fields to charging stations. Not to mentions all the apartment complexes which have their own fields of cars outdoors. If you're not a single family homeowner with a garage to put a charger in, I don't see how these ICE bans work until an awful lot of charging infrastructure gets built. Right now there are only a handful of public chargers located in one of my town's local shopping centers.
James, spot on...it is exactly why a ban makes no sense. For what its worth, I don't see how there is any chance the bans really last or take effect. Or you'll have to come to NJ or PA to buy an ICE vehicle. Phoenex and Reno dealership values likely increase for Californians.
Completely agree. Battery innovation will help here so that range and charging speed much more closely resemble filling up at the gas station. Whether that takes 10 or 20 years who knows.
Thanks for your sharing your work. Have you in the past written about 'why' ROCEs were lower in the period ending in '19?
Thank you Dylan. Yes on the right side of the Super-Spiked website you'll find the ROCE series that goes through the history.
Incredible article, again. Agree 100% on increasing ICE efficiency, this should be a no brainer. Being from Canada also a huge fan of #FreeCanadaFromMis-GuidedClimateNDCAccountingIsanity. LOL
Thank you Bob!. My FreeCanada movement is growing!!!
Thanks for this Substack and the podcast. Just discovered it after hearing you on George Noble's podcast. The SuperVol framework is a great paradigm. The capex cycle analysis is also very helpful. So my takeaway is long term-good investment for the next decade or more, but because of SuperVol, we can see big price swings, so use the demand destruction downswings to build a long term position (possibly next year as Fed induced recession comes to fruition in the U.S. and general global economic slowdown continues).
Thank you James. And yes, that largely captures my view.
Do you find CAPEX/FCF to be a leading indicator of ROCE at the firm level?
If not, what do you look for at the firm level to predict ROCE?
I think of CAPEX as actually being reactionary to the ROCE cycle. The hardest thing with the long term ROCE cycle is to get the structural (as opposed to cyclical or short term) inflections. Not sure I have a great answer other than it's a mixture of oil and nat gas S/D, project queues, etc.
Good on you for calling the low energy capex for what it was. As for ICE bans, they won’t go ahead if EVs haven’t come down in price enough for the average buyer. Fully agree on more stringent mileage standards. Another cool policy is EV subsidies specifically for “gasoline superusers”.
https://www.coltura.org/gasoline-superusers
I agree with you and with Arjun that higher mileage standards on ICE cars is a more realistic policy. EV subsidies are a more complex issue. I live in NYS (suburbs outside NYC) where our state followed CA with a ban on new ICE vehicles by 2035, with interim percentage sales requirements for ZEV vehicles starting in 2026. When I go up and down the streets around here with all the cars parked on both sides of the street, I think to myself the municipalities either have to put chargers on both sides of each street or dedicate football fields to charging stations. Not to mentions all the apartment complexes which have their own fields of cars outdoors. If you're not a single family homeowner with a garage to put a charger in, I don't see how these ICE bans work until an awful lot of charging infrastructure gets built. Right now there are only a handful of public chargers located in one of my town's local shopping centers.
James, spot on...it is exactly why a ban makes no sense. For what its worth, I don't see how there is any chance the bans really last or take effect. Or you'll have to come to NJ or PA to buy an ICE vehicle. Phoenex and Reno dealership values likely increase for Californians.
Completely agree. Battery innovation will help here so that range and charging speed much more closely resemble filling up at the gas station. Whether that takes 10 or 20 years who knows.