Author: Lewis Jackson

US and Europe fight for electric vehicles

Europe and the United States want more of the electric vehicle supply chain at home. Car factories, battery plans and refineries create jobs and useful know-how that countries want for themselves. Factories at home are also less likely to get caught up in trade wars.

But there’s a finite number of car factories, battery plants and refineries. Everyone wants them. Not everyone can have them.

To encourage manufacturers to choose Alabama over Aalborg, the US is giving lots of money to companies who build electric vehicle factories. It’s working!

From a FT story about how Volkswagen is prioritising a new EV factory in the US:

Another executive said: “We’ve been contacted by many US states and they all highlight the IRA. When we put the figures together, the conditions they offer are much more interesting than the conditions they offer in Europe.”
VW said no decisions had been made on the locations of its plants in North America or Europe and it was committed to its plan to build more cell factories in Europe. “But for this we need the right framework conditions.

“Right framework conditions” is a fun way to say “more money please”

Industrial policy like this is full of clever rules to force companies to use subsidies wisely instead of growing fat and slow on the government teat: Half the money upfront, half on completion; government share in the profits; more money if the company exports lots and proves to be internationally competitive. There might also be rules so companies who take subsidies commit to government priorities, say paying workers fairly or offering child care.

But there’s only so many factories! Will competition cause governments to lower standards? A race to the bottom on industrial policy? At the very least governments are likely to pay up. Let’s see how many framework conditions the EU offers.

Saudade

Former imperial powers can struggle to let go. The Portuguese, some five hundred years past their peak, even have a word for it. From The Rest is History’s four-episode romp through Portuguese history (start at the beginning):

The famous Saudade of the Portuguese is a vague and constant desire for something that does not and probably cannot exist. For something other than the present, a turning towards the past or towards the future. Not an active discontent or poignant sadness but an indolent dreaming wistfulness.

The show draws the quote from the book In Portugal by A.F.G Bell

Saudade has a Wikipedia entry with an arresting painting by the same name (below).

Saudade (1899) by Almeida Junior

Companies Are Leaving China, It Doesn’t Mean What You Think

Here’s a popular story: After decades of outsourcing to China, many companies are having second thoughts. Trade wars with the United States, political interference from the Communist Party and the threat of war over Taiwan are making China a riskier place to do business, and companies are looking abroad.

AirPods maker Goertek is expanding its facilities in Vietnam and considering a move to India. iPhone-maker Foxconn is reportedly planning a $700 million factory in India. Volvo has committed to a new factory in Slovakia. BYD Electronic, which builds iPads in China, is opening a factory in Vietnam.

This is meant to be a story about Chinese decline. The symptom of US commercial pressure and Communist Party error.

But, is that the right conclusion to draw? Airpod maker Goertek is a Chinese company. Billionaire founder Jiang Bin was elected to China’s National People Congress last week. Volvo is owned by Chinese automaker Geely. BYD is listed on the Hong Kong stock exchange. What does it mean for Chinese power if Chinese companies are part of the exodus?

A few thoughts:

  • It (partly) reflects the success of Chinese development: Factories are moving offshore for the same reason they left Britain’s north or the US rust belt, the workers are well paid. And Chinese workers are well paid because they’re rather good at what they do. This isn’t new. Back in 2010, rising wages in coastal provinces had companies moving inland looking for cheaper labour.

    The days of low-cost manufacturing in China are probably numbered. The number of workers employed in Chinese industry peaked in 2012. “Made in China”, just like “Made in Japan” before it, is shedding a reputation for poorly crafted, cheap goods. In its place: cars, bullet trains, mobile phones. China is now the world’s largest automaker, a notoriously difficult technology to master (when did you last see a Proton?).

    So companies are leaving China, in part, because it is wealthier, more educated and more productive. The exodus is a symptom of Chinese strength. By joining the emigration, Chinese companies prove themselves globally competitive businesses. Apple still works with Goertek, it just wants the AirPods package to say “Made in Vietnam”.

    I don’t want to overstate the case. Clearly, there are companies leaving China to avoid technology theft, harsh rules or geopolitics. And many companies aren’t Chinese. Foxconn is Taiwanese. Samsung, which is cutting back it’s China footprint too, is South Korean.
  • Could it birth a new type of firm? A Chinese company building widgets for an American client across Shenzhen, Chengdu and Zhengzhou has different priorities to one building widgets in India, Vietnam and Cambodia. Networks of Chinese manufacturing plants across south and east Asia—what the Economist is calling Altasia—could create a constituency within China that is pro-China, pro-business and pro-trade. It’s a vision for the region quite at odds with the cold-war-decoupling-trade-blocks one.

    It’s also why I find the Altasia v China binary from yesterday’s otherwise excellent Economist article from yesterday insufficient. If Altasia does develop, then Chinese companies will be part of it.
  • The ambiguous impact of commercial pressure: Apple is worried worsening US-China relations put it’s factories in China at risk. Apple asks Goertek to open a factory in India. Goertek makes AirPods in India and exports them to the US. Is this a success for the US? In one sense, yes. If China invades Taiwan, the AirPods factory in India continues as normal.

    But there’s also a sense where the US attempt to stymie China’s economic power has failed. Goertek is making money. Some of that money is paid in Chinese taxes. China spends that money on missiles or advanced semiconductor plants, which the US would rather it didn’t.

There’s lots more on this to discuss!

Made In ?

Companies are considering moving out of China because of tougher politics and higher wages. The Economist looks at an alternative:

The question for Dell, Samsung, Sony and their peers is: where to make stuff instead? No single country offers China’s vast manufacturing base. Yet taken together, a patchwork of economies across Asia presents a formidable alternative. It stretches in a crescent from Hokkaido, in northern Japan, through South Korea, Taiwan, the Philippines, Indonesia, Singapore, Malaysia, Thailand, Vietnam, Cambodia and Bangladesh, all the way to Gujarat, in north-western India. Its members have distinct strengths, from Japan’s high skills and deep pockets to India’s low wages. On paper, this is an opportunity for a useful division of labour, with some countries making sophisticated components and others assembling them into finished gadgets. Whether it can work in practice is a big test of the nascent geopolitical order. This alternative Asian supply chain—call it Altasia—looks evenly matched with China in heft, or better. 

Do read the whole thing. It’s an interesting take but I don’t think a China v. alternative binary helps us understand what’s going on. But more on that tomorrow.

Pizzapreneur Falls On Hard Times

Don Meji is a pizzapreneur. Head of Dominos Pizza Enterprises, he oversees an empire of 3,700 slightly-cramped, brightly lit stores from Australia to Germany. Don Meji is also a little hard up.

Who isn’t? Interest rates are rising and banks are sending polite letters to people who owe them money, asking them to pay a little more money on the money they owe. At least some of the people eyeing Dominos “Value Max Range” for a Pepperoni pizza ($6.99) are economising. So is Don! From an announcement to the Australian Stock Exchange on Thursday:

Domino’s Pizza Enterprises Limited (the Company) advises that the Managing Director, Mr Don Meji, has sold 150,000 shares. The funds from these transactions will be used to take a prudent approach to reduce Mr Meji’s personal borrowings in a period of rising interest rates”

Prudently reducing personal borrowings is a sensible thing in a period of rising interest rates! Even if you run a company that made $165 million last financial year. Especially if you run a company that made $165 million last financial year.

Don sold his shares on February 23 for A$8,302,000 or, as a pizzapreneur surely prefers, 1,187,696 pepperoni pizzas and change.

“I appreciate there is no ideal time to sell any shares but my long-term track record shows my alignment with the future of our business and interests of shareholders and franchisees,” Mr Meji said

I dunno Don. I can imagine more and less ideal times to sell shares. For example, shares in Dominos lost a quarter of their value on the 22nd, the day before his sale (people are buying fewer pizzas!). Seems a less than ideal time to sell shares.

But don’t cry for Don, he still owns about twelve million pepperoni pizzas worth.

5 Climate Charts

Stumbled across a fantastic climate presentation from Nathan Bullard, who writes a widely read decarbonization column for Bloomberg. There are some snapshots in a Twitter post, but I recommend taking 20 minutes to flip through the full presentation. Some of my favourites:

Will extractive industries shrink? The biggest miners and oil and gas companies are behemoths today. But even after adjusting for the fact that green energy metals like lithium are far more expensive on an equal weight basis, an extractive industry digging up far less stuff is likely to be smaller.

Which way will this go? Self service gas stations/electric recharging stations, or bigger, better staffed rest stops where people eat, drink and play while they wait for their electric cars to recharge.

A compelling argument against nuclear I’d not heard. Cost overruns usually come with delays too.