10 Nov

TSLA, UBER, & Saudi Aramco: Connecting the Dots

WRITTEN BY Mohit Oberoi, CFA

Saudi Aramco has finally released the prospectus for its long-awaited IPO. While the prospectus has scant details, like how the company plans to use the raised funds, we can draw a link between Saudi Aramco IPO, Tesla (TSLA), and Uber (UBER).

Tesla and Saudi Aramco

Saudi Aramco released its IPO prospectus. The company would sell up to 0.5% of its shares to retail investors. Reuters reported that Aramco might be valued at $1.5 trillion according to bankers. Previously, Saudi Arabia hoped for a higher valuation. However, the slump in crude oil prices and the expected structural decline in crude oil demand is weighing heavily on energy companies’ valuation.

Electric vehicle maker Tesla reported strong growth in sales this year. Most observers are projecting that electric car sales would rise in the next decade. Although estimates vary, electric cars are expected to give a tough fight to gasoline cars in the next decade.

Rising deliveries and IPO connection

Notably, Tesla delivered a record number of cars in the third quarter. Looking at its guidance, the company should deliver a record number of cars in the fourth quarter, too. Also, other automotive companies like Volkswagen and Ford are betting on electric cars to revive their fortunes.

However, rising electric vehicle sales are a long-term risk for energy companies like Saudi Aramco. Notably, markets have been bearish on gasoline carmakers as well as energy prices. This might also have hit Aramco’s valuation. Read How’s Tesla Pressurizing Saudi Aramco’s Earnings for more analysis.

On the face of it, Tesla might not have any connection with Aramco’s IPO. That said, Saudi Aramco listed electric vehicles as a risk in its prospects. When we think of electric vehicles, it is very natural to think of Tesla. Tesla popularized electric vehicles and helped make mainstream what was a niche segment. Tesla frequently mocks gasoline cars as well as gas stations.

The Uber and Lyft connection

Along with electric vehicles, Saudi Aramco listed ride-sharing as a potential risk. Notably, car sales sagged globally including in China, the world’s largest automotive market. Indian finance minister Nirmala Sitharaman said that ride-hailing apps like Uber are behind the country’s falling car sales. While several factors, including an economic downturn, are hurting sales, the rise in ride-sharing might be contributing. Ride-sharing, while beneficial for the environment, might lead to lower gasoline demand.

To sum it up, apart from the risks of terrorist attacks, Aramco faces challenges from the likes of TSLA and Uber. That said, some observers predict that Aramco might be the next Apple. Read Why Saudi Arabia’s Aramco Won’t Be the Next Apple for more analysis.

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