Why Tesla's Model 3 sales should scare the oil industry

Tesla Model 3
Tesla's unprecedented sales pipeline should make fossil fuel investors worried about how quick technology demand can change.

The auto industry has never seen anything like this. Apple may be used to people queueing round the block to buy its latest iWhatever, but the car industry does not traditionally have to cordon off pavements to manage the rush of people trying to buy the next Ford Mondeo. Until now, that is.

The response to the unveiling of the all-electric Tesla Model 3 and the 276,000 orders lodged inside three days (all backed by refundable cash deposits) has taken everyone by surprise.

Even Elon Musk, Tesla founder and the bullishly optimistic entrepreneur's bullishly optimistic entrepreneur of choice, sounded surprised at the scale of the demand. Writing on Twitter last week, he admitted he "thought it would slow way down today, but Model 3 order count is now at 198k. Recommend ordering soon, as the wait time is growing rapidly." Musk's final update over the weekend revealed orders had hit 276,000 orders on Saturday night, creating a sales pipeline of close to $11 billion, with the potential for further sales this week.

It is too early to weigh the full implications of this unprecedented sales surge, but it is easy to see why some serious analysts are declaring this a tipping point for electric vehicles and perhaps even the moment at which we say "adios" to fossil fuel-powered cars.

Tesla faces a considerable challenge delivering its huge order pipeline and supporting charging and maintenance infrastructure, not to mention its bold ambitions to reshape the entire automotive sector. But what last week's sales surge shows is considerable pent-up demand for electric vehicles with an impressive range and adequate charging networks. Moreover, this rapid growth in demand comes ahead of the predicted early 2020s inflection point when the cost of purchasing and running an electric vehicle is expected to slip decisively below that of conventional vehicles.

For years the straw environmentalists and green businesses have clutched at in the face of ever worsening climate projections has been the historic potential of technology adoption curves to jag exponentially upwards with little or no warning. The IT and mobile phone industries have been the template, demonstrating it is possible to transform the global economy within a few decades and create world-beating companies in a couple of short years.

One of the many exciting aspects of Tesla is in how it has shown that the marketing buzz and engineering savvy of Silicon Valley can be applied to a different clean tech industry — and now it has the Apple-esque queues to prove it.

Tesla's initial sales surge could yet have huge implications for the oil and conventional auto industry, just as demand for the early mobile phones had huge implications for conventional telcos.

A few hundred thousand relatively well-heeled customers opting for a new electric car may amount to little more than a drop in the oil slick-covered ocean of global oil demand. But the risk is there for the oil majors that this could prove the start of something much bigger, and they would be foolish in the extreme to dismiss it out of hand (as some already have attempted to do).

As the Financial Stability Board climate disclosure taskforce was arguing at precisely the same time as Tesla's order hotlines were ringing off the hook, companies need to let investors know about the material risks presented to their operations by climate change and related clean technologies. For oil companies, Tesla and its peers are one of those material risks.

We are moving into unchartered territory. Oil industry execs should be keeping a very close eye on Tesla's order pipeline, because one way this could play out is with the surprisingly rapid decline of one of the fossil fuel industry's biggest cash cows.

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