Made in China

With China much further ahead than the rest of the world in EV production, will it soon mean that everything will be Made in China?

‘Gravity’ is to be built on the former Royal Ordnance Factory site near Bridgwater, Somerset, just down the road from Hinkley Point C and will create 4,000 jobs. The £4bn investment will make batteries for Jaguar Land Rover and will eventually provide almost half of the UK’s car battery production by 2030.

While a positive development for the local economy and supportive of the UK’s long-term electric car production plans, it does also highlight how far we are behind China. While Europe is starting to build its own ‘gigafactories’, China already has first mover advantage with established battery plants and the control of many of the key rare earth minerals used in EV battery production. China’s BYD Automotive is already one of the world’s leading battery and EV manufacturers after Elon Musk’s Tesla.

The competitive threat from China has been highlighted by the head of BMW who has warned that ‘the base car market segment will either vanish or will not be done by European manufacturers.’ The share of Chinese electric cars in the European EV segment has risen from 0.5% in 2019 to 8.2% in the first seven months of 2023 -that is 86,000 cars. European manufacturers are worried about a potential price war. The head of Stellantis, owner of Peugeot and Fiat has warned that ‘their competitiveness is 25% against us.’

In the UK, the best-selling electric car in the first seven months of 2023 was Tesla’s Model Y and although higher interest rates/range anxiety has led to a recent slowing in EV sales to consumers, fleet EV demand remains robust. The second best-selling EV in the UK was the MG4 EV. MG Rover collapsed in 2005 and was taken over by China state-owned SAIC. The third top EV seller in the UK, was the Polestar 2 which is a brand of the joint venture between China’s Geely Automobile and Sweden’s Volvo.

Meanwhile, BMW is reported to be investing £600m at its Cowley plant in the UK to build two new electric Mini models from 2026.

China looks a lap ahead in the EV race. Can Europe chase them down?

What have we been watching? 

Markets took encouragement from the latest moves by the Chinese authorities to support the property sector, which was helped by Country Gardens avoiding default, although the sector is not out of the woods yet. However, this optimism was countered by yet more disappointing Chinese economic data. The market’s mood was not helped by the ongoing technological trade spat between China and the US with reports that China is banning its government officials and state-owned companies using Apple’s iPhone.

Elsewhere investors took comfort from Goldman Sachs, which reduced the chances that the US will slip into recession over the next 12 months, pointing to recent labour and inflation data. However, this was countered by another broker highlighting the potential significant headwind to US consumer spending as accrued interest on student loans that was deferred during the pandemic is due for re-payment. According to the Federal Reserve, US student loan debt is over $1.7trillion and exceeds credit card debt.

There was disturbing news for central bankers on the inflation front, as oil prices moved higher as OPEC+ extended output costs.     

 

In the UK, PM Rishi Sunak appears to have been forced back onto the back foot ahead of two key by-elections due to the RAAC crumbling school crisis. Meanwhile, Andrew Bailey, governor of the Bank of England told MPs that he thought ‘we are much nearer now to the top of the interest rate cycle.’ Sterling hit a new three-month low of $1.25.

 

Germany’s Ifo research institute warned that ‘contrary to expectations so far, the recovery is unlikely to materialise in the second half of the year. The slowdown is continuing and the trend is towards slackness in almost all sectors.’

 

Chinese economic data continued to look lacklustre. Growth in China’s services sector slowed in August with the Caixin services PMI indicator dropping from 54.1 in July to 51.8. The pace of new order growth slowed partly due to weaker foreign demand for Chinese services.  Meanwhile, China’s exports and imports sank again in August, falling by 8.8% and 7.3% respectively.

Read our latest investment insights from Alpha PM

 

Brent oil moved up to $90 as Saudi Arabia and Russia announced an extension of their voluntary supply cuts, amounting to 1.3million barrels a day for another three months until December.

Finally, following last week’s Alpha Bites -Dire Straits. Chinese lenders are reported to have quadrupled debt support to Russian banks to $9.7bn. They have replaced western lenders which have been restricted by sanctions. This may also reflect Beijing’s efforts to promote the renminbi as an alternative global currency to the US dollar. Besides propping up Russian banks, China has been buying vast amounts of cheap Russian natural resources, particularly oil.

 

Read Last Week’s Alpha Bites – G – Force

 

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