Saudi Arabia has the whole Vision 2030 plan in motion. The general thrust is they want to diversify the country away from being a petrostate. The headline numbers for state investment in renewables are nothing to scoff at: https://www.bloomberg.com/news/articles/2018-01-16/saudi-ara...
I can’t find the link right now, but Bloomberg did a short ~30 minute documentary 4-5 years ago on Saudi efforts to build a biofuel research center.
I’d also posit that now is the ideal time to take money from the Saudis, if there ever was a time. The Aramco IPO is going nowhere fast, so a key pillar of Vision 2030 is dead in the water.
I’d humbly suggest that you read up on the Saudi youth bulge. Every Saudi receives an annual Alaska-style oil dividend. A huge portion of the youth population is unemployed. The thousands of US dollars paid out to each idle youth is not sustainable long-run, even if oil prices were to increase.
Assuming this Saudi deal is some kind of preferred stock or hybrid equity-debt structure, Tesla can probably get the most favorable terms possible from the Saudis because they are somewhat desperate at this point.
Ethics? Do you think Tesla is bad for selling cars to China? No country has intact ethics, your comment is ridiculous. Sa is one of the biggest and most promising investors in renewables precisely because of their oil background. Oil is going to implode soon and they know it. Their economy and foreign policy rely heavily on oil, so they are carrying out a transition away from it now rather than wait. So yes, "selling out" to them is more than ok -- it's brilliant.
There are a bunch of reasons, but the basic background is this.
-Vision 2030, which first mentioned the IPO, was announced back in 2016
-Oil prices sit around $66/barrel today. This represents a recovery from the low-point of ~$40/barrel. However, Aramco’s valuation is obviously tied to the price of oil, and the Saudis want to wait (hope?) for higher oil prices
-Even at today’s depressed oil prices, the Saudis have slapped a $2 trillion valuation on Aramco. Keep in mind that Aramco has always been private, and specifics on the size of the oil reserves in Saudi Arabia are still opaque.
-The Aramco IPO proposes to sell 5% of the company, which would mean raising $100 billion in public markets. This would easily be the largest IPO ever. It’s unclear if there are enough institutional investors to buy into this.
-The Saudis can’t afford to discount the valuation too far, since to make the math work for their renewables and diversification projects they are counting on the IPO proceeds
-Take a look at this link, and select the 5-year view to see how far the country’s foreign exchange reserves have been depleted:
https://tradingeconomics.com/saudi-arabia/foreign-exchange-r.... 1 USD is roughly equivalent to 3.75 SAR at today’s exchange rates.
I think this IPO could happen sooner than you think. The Saudis seem to have quite a bit of influence on the current US presidential administration and I wouldn't be surprised if the Saudis played a role in the decision to sanction Venezuela, who was at the time was the #1 oil exporter in the world, and the decision to sanction Iran, another huge oil exporter. They've recently coordinated oil supply cuts through OPEC and also isolated Quatar, another large oil exporter. I think the claim that peak oil is behind us is reasonable conjecture, especially with the rise of economically viable alternative energy sources. I think the Saudis are well aware of this and they're currently making what looks like a very effective short term play at cashing out as much as they can.
A little side bit to this is that Saudi Arabia's King Salman named his 31-year-old son Mohammed bin Salman (MS) as crown prince on June 21, 2017, removing his nephew, Mohammed bin Nayef, as heir and one of they key platforms on which MS has sought to earn favor from other ranking figures has been the promise to make this IPO happen asap. The longer it takes the bumpier his transition to power will be, so you can bet he is well incentives to cut the needed deals to drive that price of oil as high as he can as fast as he can.
Nothing is impossible, so sure it's not impossible I'm wrong, and Aramco goes public soon.
Given that they've already signaled that it won't happen this year, you do wonder why 2 years on there's no meaningful progress. They've announced the underwriting banks, but there's been no roadshow, no news of meetings with institutional investors. I still think it's quite unlikely you could float a $100 billion IPO today.
IPO aside, I think several of your claims about geopolitics and oil in general are at the very least heavily debatable, and in some cases just factually incorrect.
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> The Saudis seem to have quite a bit of influence on the current US presidential administration and I wouldn't be surprised if the Saudis played a role in the decision to sanction Venezuela
In 2014, H.R. 4587 passed the House. The bill's rationale was to sanction Venezuelan officials who were alleged to have retaliated against opposition voters and politicians.
The bottom line is that US-Venezuelan relations have been fraught since the days of Chavez.
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> ...and the decision to sanction Iran, another huge oil exporter
Maybe? Trump ran quite openly on punishing Iran and tearing up the nuclear deal. I'm not sure if you can attribute this to Saudi influence given he and his family have business ties and taken meetings with everyone from the UAE to Bahrain to Qatar.
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> They've recently coordinated oil supply cuts through OPEC and also isolated Quatar, another large oil exporter.
Qatar exports ~1.25 million barrels a day. The Saudi-Qatari standoff has little to do with oil. Qatar sits on one of the world's largest natural gas fields: https://www.vox.com/world/2017/7/2/15882682/saudi-arabia-qat.... Saudi Arabia and Qatar are jockeying for political influence in the Middle East, over everything from the war in Yemen to Qatar's friendliness with Iran. This is analogous to how the war in Yemen was for the longest time a proxy war between Saudi Arabia and its allies vs Iran.
Scroll down to the "Price and Production" section of this Bloomberg visualization: https://www.bloomberg.com/graphics/opec-production-targets/. Notice how OPEC cut production sharply in late 2016. Is there any trend between OPEC output and overall oil prices?
I think the 5% sale is more like pre-selling their oil, they will do it at it's highest value. They probably have 50/100 year plan to slowly sell rest of the 95% and move all that risk out of their country.
At the end it will be investors in the rest of the world holding the bag instead of Saudi people. Saudis will buy stake in Tesla/FB and emerging technologies with all that Aramco $$.
I can’t find the link right now, but Bloomberg did a short ~30 minute documentary 4-5 years ago on Saudi efforts to build a biofuel research center.
I’d also posit that now is the ideal time to take money from the Saudis, if there ever was a time. The Aramco IPO is going nowhere fast, so a key pillar of Vision 2030 is dead in the water.
I’d humbly suggest that you read up on the Saudi youth bulge. Every Saudi receives an annual Alaska-style oil dividend. A huge portion of the youth population is unemployed. The thousands of US dollars paid out to each idle youth is not sustainable long-run, even if oil prices were to increase.
Assuming this Saudi deal is some kind of preferred stock or hybrid equity-debt structure, Tesla can probably get the most favorable terms possible from the Saudis because they are somewhat desperate at this point.