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
July 15, 2022
Fiat Lux
Featured Trade:
(THE HUNT FOR RAW MATERIALS)
(TSLA), (F), (GM), (CATL)
Tesla (TSLA) CEO Elon Musk has been in the headlines a lot lately, and I don’t write about him because I idolize the guy.
He is simply the richest man in the world and straddles the vanguard of space technology and EV technology, all while failing to purchase one of the biggest social media platforms in the world.
Naturally, his point of contact in the business world is immense, the man moves markets and we need to acknowledge it.
His latest quip has to do with natural resources - particularly lithium.
He defined the term energy independence for a world full of electric cars: You simply need the batteries.
His tweet of “lithium batteries are the new oil” is an updated variation of “data is the new oil.”
It doesn’t mean lithium is the new data but in a conceptual future when lithium batteries power the potential iPhone on wheels product, it gets close to or at the very minimum, it is complicit in accelerating data generation.
Batteries may be the future. But for now, oil is still the new oil.
About 20 million barrels of oil are consumed in the US every day. (About eight million barrels are imported.)
About two-thirds of oil ends up in gas tanks, according to the US Department of Energy.
Outrageous oil prices is why the American consumers want to buy an EV, there is a massive backlog of orders.
The American Automobile Association reported that 25% of new car buyers surveyed are considering an EV as their next car.
But, as Musk said, EVs can't completely solve the energy independence problem. Because the oil problem is simply replaced by the problem with lithium-ion batteries.
OPEC countries don't produce many lithium-ion batteries.
They are mainly produced in Asia. The Chinese company Contemporary Amperex Technology, better known as CATL, manufactures about 30% of the electric car batteries produced worldwide, according to Ford CEO Jim Farley.
CATL has grown into the 800-pound gorilla in the room with a market capitalization of $200 billion, it competes with Toyota and competes well.
Most automakers, including General Motors (GM) and Ford (F), predict that by 2030 around 50% of new cars sold will be battery-powered. That corresponds to up to ten million EVs per year in America alone.
Manufacturing batteries in the US is part of a strategy to become independent in the lithium-ion battery space.
Another factor is the raw materials required for the batteries. Lithium is mainly mined in South America and Australia and mostly processed in China.
Other raw materials such as nickel and cobalt come from many other countries like the Congo.
Automakers, including Tesla, may be considering investing early in the battery value chain. This could protect them from commodity price shocks like those experienced by US consumers in 2022.
Musk hopes to front-run the situation and that means investing in Lithium-ion solutions instead of one day held hostage by Chinese price gouging.
The communist Chinese are the ones who hope to corner the market with state subsidies.
There are many things I envy about Musk, but I particularly appreciate his knack for pre-emptively looking for unique solutions before problems get out of hand.
That can’t be said for most American corporations that are held hostage by the short-termism of quarterly earnings reports.
Musk has a longer leash, and he certainly uses it to abandon which is why he can handle a higher risk tolerance.
Tesla shares were only recently at $1,200 and at $700, this represents immense value for long-term buy and hold investors.
