Mad Hedge Technology Letter
September 16, 2024
Fiat Lux
Featured Trade:
(DOMINATING THE BATTERY MARKET IN EUROPE)
(CATL), (TSLA), (NKLA), (BYD)
Posts
In a sign of the times, the world’s most important EV battery maker is now a Chinese company that is dominating Europe.
It also shows how far Chinese technology has come in terms of value-added products in such a short time.
Europe and Tesla are falling asleep at the wheel and need to figure out how to combat the Chinese from taking over the EV and EV battery industry.
Contemporary Amperex Technology (CATL) is the name, and they plan to expand rapidly in Europe to avoid paying any tariffs on products coming from China.
Circumventing tariffs is the game, and the Chinese are very good at it.
CATL unveiled new technologies and products for heavy-duty vehicles and ships, including a battery with a 15-year and 2.8 million-kilometer lifespan.
The company is already partnering with several European manufacturers, including Daimler Truck Holding, Volkswagen Commercial Vehicles, and Volvo.
It’s involved in early-stage product design as well as research on the infrastructure needed for broader adoption of electrified commercial transport.
CATL is expanding its commercial-vehicle battery business in Europe as the continent moves to slash carbon emissions from trucks, buses, and ships.
It is definitely cheaper to use batteries exported from China, given the maturity of the supply chain there, but the company could ramp up production in Europe based on clients’ needs and other local production requirements.
It already has a plant in Germany, which kicked off production in 2022, and it’s building another in Hungary.
Much like the smartphone business, with every type of technology that the Chinese master, they solve the economies of scale problem and are able to manufacture these products for significantly less than their competitors.
This is why they can sell great driving EVs for $10,000 per vehicle.
Very few companies can compete with China on cost alone.
With inflation staying stubbornly higher and burning a hole in the consumer wallet, many strapped buyers are opting for Chinese substitutes instead of Tesla’s or German EVs.
This is a harbinger for things to come as many lucrative manufacturing jobs in Germany could be lost and replaced by a lower-paid Chinese EV job.
My guess is that BYD and CATL, both Chinese companies, are about to muscle out the competition in Europe before they go back to the drawing board to figure out how to do the same in the United States.
BYD has also signaled its strategy to get its cars into the US by building a factory in Mexico.
They plan to tell us publicly their Mexico strategy after the US election is over.
One area that is under consideration was around the city of Guadalajara. That region has emerged over the past decade as a technology hub sometimes described as Mexico’s Silicon Valley. BYD sent a delegation to the area in March.
I do believe the entire world, and not just the Global South, should start getting comfortable with driving Chinese EVs with Chinese-produced batteries.
Many are still are shocked that the Chinese were able to corner the EV market so quickly after Tesla’s first mover advantage kept them top dog for many years.
Although this would not be a reason to bet on the Chinese economy, it would be a good reason to stay out of Tesla shares and to even short companies like Rivian and other small firms such as Nikola.
Unfortunately, BYD and CATL are listed on an exchange in Shenzhen, China, so I would steer clear of that and focus on the knock-on effects on companies in more investable nations.
Mad Hedge Technology Letter
August 9, 2023
Fiat Lux
Featured Trade:
(YOU’LL BE DRIVING CHINESE SOON)
(BYD), (TSLA), (GM), (LCID), (SAIC), (GEELY), (CATL)
You’ll most likely be driving a Chinese car soon.
It’s not because I want you to.
The trend is headed that way and the trend is usually your friend in economics and the stock market.
In the past year, China has blazed past Germany and Japan to become the world’s biggest exporter of cars for better or worse.
They shipped 1.07 million abroad in the first quarter of 2023.
At the same time, net zero rules are set to outlaw the sale of conventional petrol cars from 2030 in the UK and 2035 across the rest of Europe.
This is a golden opportunity for entrenched Chinese brands including SAIC, BYD, and Geely.
With rivals such as Volkswagen, Ford and Toyota scrambling to catch up, Chinese manufacturers are poised to offer cars costing as much as €10,000 (£8,600) less than their European, Japanese, and American competitors.
Beijing has sought to dominate the electric vehicles global market as part of its Made in China 2025 strategy.
More than half of the electric cars on roads worldwide are now in China, according to the International Energy Agency, while in 2022 the country accounted for around 60pc of all BEVs sold.
They have been focused on having an industrial upgrade in China, moving from lower value-added production to higher value-added, higher-technological production.
The strategy has worked like clockwork as Chinese-produced cell phones have achieved flagship levels.
Contemporary Amperex Technology Limited (CATL), based in the city of Ningde in the Fujian province, is now the world’s biggest lithium battery manufacturer.
In 2023, the country is set to export 1.3 million BEVs, up from 679,000 last year when government lockdowns were still in force.
Not only are these vehicles tick the box of high quality, they also boast long ranges, attractive designs, and smart interiors, they are also extremely cheap.
One brand British motorists should expect to see more of is BYD, which recently unveiled an electric hatchback that it plans to sell for less than £8,000 – far cheaper than many petrol-fueled models.
The approach contrasts sharply with that of America, where Joe Biden is showering firms that set up BEV factories with subsidies and hitting Chinese car imports with tariffs of 27.5%.
Ominously, however, China’s lead in EV technology is now so great that it “cannot be bridged” by 2030 – when Britain and Europe will impose restrictions on the sale of new petrol cars – and Europe should cut its losses by encouraging Chinese car makers to set up factories here instead.
For US EV makers like Tesla, the protectionist restrictions placed on foreign EVs will mean that it will take longer for the Chinese EVs to penetrate the US vehicle market.
However, the tsunami of deflation is coming whether the Chinese need to add an intermediary or not before they can start pouring the products into the United States.
If China is able to breach the US market, this would pose a severe test for US EV makers like GM, Tesla, Ford, and Lucid.
The Europeans are asleep at the wheel and could expose their consumers to a bevy of Chinese cars.
Don’t be shocked to see a stream of Chinese EVs when you cruise around Rome instead of Fiats and Vespas.
I expect restrictions to ramp up even more against foreign-made EVs and lithium batteries in the short term.
This could also set the stage for Tesla getting kicked out of Shanghai and a massive forced technology transfer which the Chinese are famous for.
The Chinese are playing the long game and that’s highly negative for American EV makers who are hell-bent on short-term profits.
Mad Hedge Technology Letter
May 22, 2018
Fiat Lux
Featured Trade:
(THE BIG WINNERS IN THE SPORTS BETTING DECISION),
(LSE:PPB), (LSE:WMH), (LSE:888), (BYD), (IGT), (SGMS)
Up to my elbows in the market for the past 50 years, I have seen my share of paradigm shifts transforming the world and markets with it.
The Supreme Court delivered another momentous decision overturning the 1992 decision to ban sports betting in most states.
The aftermath is decisively pro-business with a profusion of domestic and international winners that can bask in the glow of a future windfall swelling the industry coffers to the tune of $150 billion per year.
The estimated amount of illicit sports gambling activity that goes unreported is $150 billion, and that will migrate to official channels, but I bet the sum is vastly higher.
Sports betting is as American as apple pie.
This is highly evident each year with the NCAA men's basketball tournament sucking in eyeballs resulting in more than $5 billion in lost worker productivity.
The annual Super Bowl is practically an institution in this country as well as quarterback Tom Brady's starting spot on Super Bowl Sunday.
Not only is this ruling pro-business, but the verdict is another overwhelming win for technology and the state of Nevada.
Nevada was one of the few states to receive an exemption from the 1992 ruling, and its sports betting books have developed uninterrupted for the past 26 years.
The 26-year head start will mirror Amazon's seven-year head start in the cloud catapulting existing operations to the top of the food chain.
Sports team owners from all the major sports leagues are jumping with joy as the team valuations of each franchise received another boost with fresh capital pouring in like an overflowing dam.
This development effectively creates a digital sports industry operating parallel to the official leagues and will have business synergies galore.
Sports leagues are about to welcome a new tidal wave of viewer interest that seeks to capitalize on the new synergies.
Options derivative contracts on sports games could be another product down the road for this budding industry.
The two best tech companies in position to take the court ruling and turn it into material business are the leading fantasy sports providers DraftKings and FanDuel, which are both private companies.
In 2016, these two companies attempted a merger that would have given the company a 90% monopolistic market share and more than 5 million customers.
The following year, the Supreme Court blocked the merger as DraftKings continued to grow in excess of 8 million users.
Fantasy sports and the entire e-sports genre is experiencing skyrocketing popularity with youth (physical) sports participation falling off a cliff.
New York-based FanDuel and Boston-based DraftKings have a wide-reaching digital footprint in fantasy sports that is supported by rich tech architecture.
The abundance of tech capabilities will make the crossover into sport wagering seamless.
NumberFire, a sports big data company, was bought up by FanDuel in 2015, and has close to 1 million subscribers parsing through its analytics.
The sports big data movement was christened by Bill James who coined the study of statistics in baseball as sabermetrics. That was the platform used by the Oakland Athletics' General Manager Billy Beane that later developed into a movie and book called Moneyball written by Michael Lewis starring Brad Pitt.
FanDuel was able to poach an entire team of sports tech developers when Zynga 365 Sports went bust after a few sports titles failed to stick and FanDuel picked up 38 of the 42 leftover developers in 2015.
DraftKings has pounced its increasing headcount from 425 to 700 at its Boston headquarters taking advantage of the new legislation to ramp up the required staff.
Plundering talent across the pond, too, leaving no stone unturned is a statement of intent.
DraftKings anointed Sean Hurley, who cut his teeth as head of U.K. B2B sports betting technology supplier Amelco and niche online sports book Whale Global, as its new head of sportsbook.
Tapping the U.K. for sports tech talent makes sense.
The U.K. legalized sports betting in 1961. The Brits bet more than $20 billion last year.
There is an affluence of sports betting tech know-how for hire in Europe. American companies would be naive not to pursue staff reinforcements at a time when companies are fortifying talent levels.
Thus, opening up an extensive market full of sports-crazed fans gives U.K. firms a tasty new opportunity to pursue with existing foundations in place.
Upon the announcement, online sports book outfit 888 Holdings (LSE:888) exploded 15% on the London Stock Exchange.
It's subsidiary 888sport was the first foreign company to receive a license to operate by the Nevada Gaming Commission in 2013.
Paddy Power Betfair (LSE:PPB), based in Dublin, is another company poised to benefit and has launched a takeover bid for FanDuel to seize further gains in market share.
Discussions are ongoing.
This all comes after buying U.S. headquartered Draft, a fantasy sports rival, for $48 million.
There are obvious synergies between fantasy sports and sports betting as they both process ample amounts of data that help set the odds for each game.
Online sports betting is another industry that is waiting for Artificial Intelligence (A.I.) to enhance the betting products, creating a plethora of new business opportunities.
British firms use the same in-game add-on product strategy that is popular with e-gaming franchises such as Fortnite.
In-game bets allow gamblers to wager on specific events within a game such as the first scorer of a soccer match or the first player to receive a yellow card.
Niche betting has proved hugely popular.
Paddy Power has already made inroads in America with a horseracing and greyhound racing TV channel and sportsbook called TVG and an online casino in the state of New Jersey.
Cross-border talent poaching will heat up as premium dollars are up for grabs favoring the first movers that can retain business.
The last clear-cut U.K. winner is William Hill (LSE:WMH), which already has an outsized presence in America by way of its purchase of three Nevadan sports books: Lucky, Leroy's, and Club Cal Neva, for a grand total of $53 million.
The deal gave William Hill an 11% market share of sports book revenues in Nevada. The British bookmaker's sports book can be seen dotted all over Las Vegas and Reno thoroughfares.
CEO of William Hill, Philip Bowcock chimed in saying America will benefit with an injection of "100,000 new jobs" stateside, and consumer safety will increase with the need to bet under the table swept into the dustbin of history.
The U.S.-based fantasy sports powerhouses, U.K.-based sports betting sites, and the State of Nevada are the unwavering victors.
The last stratum of indirect winners are the companies that manufacture sports betting equipment.
No doubt that states will likely set up brick-and-mortar sports betting establishments. Companies such as Boyd Gaming (BYD), Scientific Games Corporation (SGMS), and International Game Technology (IGT) could see a nice revenue bump stemming from the equipment they manufacture.
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Quote of the Day
"Cybersecurity is not only a question of developing defensive technologies but offensive technologies, as well," said President of the United States Donald J. Trump.
