Why Investors are Salivating Over Elon Musk

Elon Musk and the Inconvenient Truth for Utilities

By
Wednesday, March 5th, 2014

When Elon Musk talks, people listen. And with good reason.

Beyond the fact that he is the next Steve Jobs — with a heavy dose of Tony Stark — there's just a certain pied piper-like affect he has on people. And his arrogant charm is no match for skeptical investors and dreamers alike.

Making tech geeks swoon and Wall Street fat cats salivate like malnourished honey badgers, Musk has made the impossible possible. He launched an electric car company during one of the worst economic downturns in U.S. history and actually turned it into a highly profitable venture while standing behind one of the most successful stock runs most of us have ever seen.

He's succeeded in creating a company that manufactures re-usable rockets, and most believe his design for a super-fast hyperloop system that'll put the fastest high speed rail trains to shame will be one of his greatest accomplishments.

Maybe it will, maybe it won't. With this guy, anything is possible.

So it's not surprising that when Elon Musk has something to say, people listen to every word.

A Major Transition is Underway

Last week, Elon Musk made a very bold statement at a meeting with the California Public Utilities Commission. And in the world of energy investors, it spread within minutes.

Before I share that statement with you, let me set up the scenario...

Musk made this statement in response to a discussion addressing climate change.

Now, I have no intention of using these pages to sell or deny climate change. As an investor, my opinions on this issue are irrelevant. However, how the climate change issue affects our investment strategy is very real, and we would be incredibly stupid to ignore it.

Musk knows this, too, and I suspect this is one of the reasons he continues to argue for a carbon tax. He even noted that he was still stunned by the continued heavy reliance on fossil fuels, saying, "It's amazing that we burn oil — it has much higher value in plastics. It's like burning the furniture in your house instead of firewood."

While this particular statement garnered a decent amount of attention, it was the next one that poked energy investors with all the subtlety of a cattle prod. Check it out...

"There will be some amount of strife for existing utilities, particularly ones heavy into fossil fuels. There will be a bit of a hardship for them. But we have no choice. We have to decide if we're going to have clean, sustainable energy or not and if we decide we want a good future. And the only good future is one with clean energy."

Following that statement, CEO of SolarCity Lyndon Rive chimed in, saying...

"What we don't want to have happen is the innovation, and then the old business model continues. We don't want two energy infrastructures. At some point someone has to shut down, and if you fast forward 10 to 20 years, I don't think we'll be shutting down cleaner energy."

As an advocate of cleaner energy, I agree with most of what both men said.

Based on the data I continue to analyze, there is no doubt in my mind that we are at the dawn of a major transition in our energy economy. The end result will be an energy economy that is heavily weighted toward renewable energy. It will ultimately be the dominant form of power generation.

How quick we get there? Well, that's another story altogether.

Hard Times Ahead?

If we really wanted to, we could expedite this transition to a new energy economy where renewable energy is the dominant source of power generation. But the truth is, there are too many special interests involved, too much of a monopolistic hierarchy in the energy space, and not enough urgent demand to make this happen.

I don't say this to be critical. This is merely an observation of truth.

Bottom line: Fossil fuels are, and will continue to be, the dominant source of power generation and transportation fuel for decades to come.

It is true that some will thrive while others dwindle. Certainly in the United States, coal will continue to lose market share to cheap natural gas and the higher availability of solar and wind. But overall, I don't think renewables will sit at the king's table for at least another thirty years.

That being said, the day of reckoning is coming. And really, this will just be the result of basic economics. Fossil fuels will continue to cost more to produce and consume, while renewables will only continue to see significant cost reductions.

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So, if that's the case, is Elon Musk right? Should the utilities that shun renewables start preparing for hard times?

I suppose it depends on who you ask.

Certainly many of the utilities run by dinosaur CEOs and crotchety old naysayers will brush off Musk's cautionary words as lunacy. Meanwhile, hardcore renewable energy zealots will not only carry Musk's statements across the nation like loyal stewards of obese kings in Medieval Europe, but they'll do so without considering the fact that evolution is a slow process.

And make no mistake, the transition to a new energy economy is an evolution... albeit one that will be much faster than the evolution of man.

Lazy Money

The way I see it, we'll be wise to play both sides of the fence.

Of course, I'm heavily invested in the renewable energy space, thankful for the success of stocks like Tesla (NASDAQ: TSLA) and SolarCity (NASDAQ: SCTY). My recent calls on Hannon Armstrong (NASDAQ: HASI) and U.S. Geothermal (AMEX: HTM) have also proven to be excellent picks in the clean energy space this year.

I also continue to do very well in fossil fuels. I've traded Arch Coal (NYSE: ACI) with an enormous amount of success, and there isn't a single oil and gas play I haven't made money on since I decided last year to only follow the advice of my colleague Keith Kohl.

In fact, his latest pick, which is essentially a retirement plan that allows you to collect rent from big oil companies, is crushing it.

I also like the fact that it's easy. Just pony up a few bucks, sit back, and collect your cut every quarter.

I have to admit, I can be a bit lazy from time to time. And this is certainly the lazy way to make money in the oil and gas space.

You can read more about this special oil and gas retirement plan in this prospectus.

To a new way of life and a new generation of wealth...

Jeff Siegel Signature

Jeff Siegel

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