Shifts in energy patterns can make and break fortunes, so I spend a lot of time thinking about long-term trends. While I pay attention to the current consensus, in many cases I find that my own analysis contradicts it. In such cases, I have learned to trust myself.

Over the years, I have correctly projected trends like exponential growth in solar power and coal’s major decline well before these became the conventional wisdom. I have been correct in forecasting continued growth in oil demand, despite a chorus declaring that it has peaked or will soon. Over the past few years we have made several timely calls on refiners, the latest last September when we recommended that investors rotate out of the sector.

My record isn’t infallible. In 2013 I was already suggesting that rapid shale oil production gains were increasing the downside price risk for oil. Yet it was mid-2014 before prices actually fell. Last year I predicted that oil prices would bounce back faster than they did. I got in too early and lost money, but I also doubled down earlier this year and recovered somewhat.

I often tell people that my objective is to be right more than I am wrong. If that’s the case, and I am not making disproportionate bets (e.g., allocating three times more capital to a bad idea than a good one), then over time I should make money. And in the past 10 years, that’s been the case every year except for 2008 and 2015.

This brings me to my point, which is forecasting the long-term effect of current automotive trends on oil prices. I am increasingly encountering analysts who argue that electric vehicles (EVs) spell big trouble for the oil industry. Yet each time I engage them, a lot of hand waving ensues. The EV enthusiasts tend to assume growth rates far beyond those seen to date. I see a lot of magical thinking and much less rigorous analysis.  

Last week, in a Twitter exchange, an EV advocate likened the future growth rate of electric vehicles to the rapid spread of smartphones. Yet, as I pointed out, smartphones came packed with features that simply didn’t exist before. That’s a very, very different situation from trading in a vehicle powered by gasoline for one that runs on electricity.

The gasoline car already gets you from Point A to Point B. Are there compelling reasons to shift to an EV? For some small proportion of the population, perhaps. But most people simply want to get where they need to go at the least cost and inconvenience.  This is in no way analogous to a smartphone providing consumers with lots of new features. We aren’t talking about personal hovercraft here; we are talking about you getting behind the wheel of a car that you drive on the road to your destination. Whether that car employs internal combustion or runs solely off an electric battery doesn’t make a huge difference to most of us.  

In light of this, my view is that the many brave predictions about the near-term impact of EVs are mostly hype. Yes, the EV fleet will continue to grow, but it will struggle to gain market share. As I have noted in several recent articles, last year the number of gasoline-powered cars sold in the U.S. increased to 17.5 million from 16.5 million in 2014. Meanwhile, the number of EVs sold declined from 122,000 to 116,000.

While EV sales in the U.S. are trending back up this year, the big takeaway from these numbers is that the growth in sales of conventional cars was an order of magnitude greater than the total number of EV sales. Electric vehicles’ market share declined from 0.73% of new cars sold in 2014 to 0.66% last year.

I see a few investment implications. Since the likely rate of adoption of EVs is being grossly overestimated, some of the companies involved in producing EVs and related parts are significantly overvalued. Tesla Motors (NASDAQ: TSLA), which has a market capitalization nearly as great as Ford (NYSE: F) or General Motors (NYSE: GM) is one such. However, Elon Musk has a very large cult following on par with that of Steve Jobs, which could keep Tesla’s valuation irrationally high for a long time. I have seen such distortions persist before, so I don’t view Tesla as a good short candidate even though I think the share price will ultimately fall.

If I am correct, this also has implications for oil demand. Some are forecasting a peak in demand for oil over the next decade, in which case there would be tremendous and relentless pressure on oil producers. Should oil demand continue to grow, as I believe it will, there will continue to be many investment opportunities in the oil patch.

So I don’t believe EVs will be a truly disruptive technology. I believe the numbers will continue to grow over time, just not as dramatically as many proponents believe. However, there is one technology in the automotive sector that I believe will be disruptive. I believe it will have an impact far beyond that of EVs.

I am presently based in Chandler, Arizona, a suburb of Phoenix. Every day on the roads here I see several of these:

Chandler is one of the test sites for Google’s fleet of self-driving cars, aka autonomous vehicles, or AVs. The fleet is made up of Lexus RX 450h SUVs. I have encountered them daily over the past few months. I even had a close call with one when I pulled out into the roadway just as one came around a blind curve. In any case, I think this is the automotive future, and it’s going to arrive much faster than a market takeover by EVs.

The Lexus SUV above is a hybrid, but I often see them parked and idling (probably to recharge the batteries). Whether self-driving cars are EVs will be driven by economics, but fleets that drive around all day would probably need to be based on internal combustion. While some will buy EVs for their novelty and perceived environmental benefits, for most people it’s going to come down to the cost of the car and the convenience and cost of fueling it.

According to Jennifer Haroon, head of business operations for the Google self-driving car project, “our ultimate goal is to create fully autonomous vehicles that can take anyone from point A to point B at the push of a button.” A car that will free me from the chore of driving while getting me to my destination with less risk of accident — now that’s a winning proposition. Now you have something more akin to an iPhone. A one-hour commute is suddenly not a big deal for me as a passenger, because I can get some work done or entertain myself on the drive.

Ironically, this is a trend that may increase demand for oil, as it is likely to get more people out on the roads. I have heard from a number of reluctant drivers that AVs would likely increase their travel. This is especially true for older people who are starting to become concerned about the effect of aging on their driving skills.

The evidence of a fast-approaching turning point for AVs isn’t anecdotal. BMW, Ford, and GM have all said they plan to have self-driving cars on the road within five years. But you won’t have to wait until then. Last week, for the first time ever, self-driving taxis began picking up passengers in Singapore. Uber plans to dispatch AVs to pick up customers in downtown Pittsburgh within weeks. For now, the cars will still have humans in the driver’s seat just in case, but as consumers become more comfortable with the technology the human failsafe will become obsolete.

Conclusions

A shift to AVs, if it plays out as I think it will, would have a huge impact well beyond the automotive world. But what are the implications for you as an energy investor? For the most part, it’s too early to tell. It could be that most AVs turn out to be EVs, in which case the demand for oil will be at risk (though prices will also depend on the supply situation). In fact, GM has stated that its first AVs will be based on the Chevy Volt. But there is no obvious reason why AVs will need to be EVs.

We will be watching this fast-moving trend very closely to identify threats as well as investment opportunities.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)