Three ways to gain from China’s ‘new energy vehicles’

Tuesday, 16 April 2019
Adelaide, Australia
By Bernd Struben

  • Love it or hate it…why not profit?
  • Don’t let the revolving door hit you in the back…
  • ‘New South Wales’ Top Secret Marijuana Farm’

I have never known much good done by those who affected to trade for the public good.’

Adam Smith, The Wealth of Nations

If your friends all jumped off a bridge, would you too?

Your mom probably asked you this question — or some version of it — more than once when you were growing up.

The question may be rather trite. But the idea behind it is sound, which is to teach kids to think for themselves because the masses often get it wrong. And even when the masses aren’t completely off base, what’s right for the herd may not be right for you.

Taking it to a broader level, what works in one country won’t necessarily work in another.

It’s a lesson that looks to have been lost on Bill Shorten. At least when it comes to the world of electric vehicles (EVs).

Many socialist leaning European governments are taking a big stick approach to EVs. Trampling Adam Smith’s ‘invisible hand’.

You’re likely familiar with Smith’s theory. It states that when everyone pursues their own individual interests it tends to benefit society as a whole.

It’s classic free market thinking. And in the auto industry, it’s seen incredible innovations in safety, comfort, efficiency and power over the past decades.

But in Europe — along with China — carmakers now have little incentive for new innovations with combustion engine vehicles.

France, the UK, Germany and the Netherlands (among others) are all planning to ban new petrol and diesel cars by 2030 or 2040.

In our neck of the woods, Bill Shorten is eager to see Australia jump off that same bridge. He wants 50% of all vehicles sold in Australia to be EVs by 2030.

Never mind that Australia is far larger and much less densely populated than any of these nations. Or that when governments push through measures the market isn’t ready for, it inevitably leads to more problems than solutions.

If it’s good enough for France then it must be good enough for us.

Now Shorten’s 50% EV target by 2030 will almost certainly fall well short. And he likely knows this. But with the federal election just six weeks off, Shorten is pandering to his environmentalist base. A base, that Scott Morrison points out, probably doesn’t include families who depend on bigger cars or tradies who need utes for their work. Not to mention financial newsletter editors with a fondness for V8 power.

But let’s get back to the world of making money.

As an investor in today’s globalised world, it really doesn’t matter whether 50% of new cars in Australia are EVs by 2030…or whether it’s something more like 5–10%.

What matters is what happens in the far larger markets like the EU and US. And even more importantly, China.

More, after the markets…

Markets

Overnight, the Dow Jones Industrial Average closed down 27.53 points, or 0.10%.

The S&P 500 closed down 1.83 points, or 0.06%.

In Europe, the Euro Stoxx 50 index finished up 2.63 points, or 0.08%. Meanwhile, the FTSE 100 was flat at 0.00%, and Germany’s DAX closed up 20.35 points, or 0.17%.

In Asian markets, Japan’s Nikkei 225 is up 56.69 points, or 0.26%. China’s CSI 300 is up 1.35%.

In Australia, the S&P/ASX 200 is up 19.86 points, or 0.32%.

On the commodities markets, West Texas Intermediate crude oil is US$63.43 per barrel. Brent crude is US$71.16 per barrel.

Turning to gold, the yellow metal is trading for US$1,287.00 (AU$1,794.93) per troy ounce. Silver is US$14.99 (AU$20.90) per troy ounce.

One bitcoin is worth US$5,029.28.

The Aussie dollar is worth 71.71 US cents.

Love it or hate it…why not profit?

When it comes to a big stick government approach, no one does it better than the Chinese.

And China, late to the game in the petrol car market, is intent on being a world leader in EVs.

You can see the Chinese government’s ambitious EV target (in black) compared to the ICE, or internal combustion engine production, (in blue) below:



chart image
Source: Bloomberg
Click to enlarge

While combustion engines will still outnumber EVs by 2025, the growth outlook in China alone over the next six years is tremendous.

Now, as Bloomberg reports, China’s ‘green credit’ system that’s driving this process forward is already distorting free market efficiencies:

Chinese carmakers may have found the secret to survival. Their foreign rivals should beware.

As manufacturers rush to meet the requirements of China’s policy to promote electric cars (known in the country as “new-energy vehicles”), locally-owned automakers have been busily accumulating special credits, which are awarded for how many electric cars they make and for cutting fuel consumption in their combustion engine vehicles.’

As an investor you may or may not find these kinds of market distortions distasteful. But that doesn’t mean you can’t capitalise on them.

Of course, it’s not just China. The Middle Kingdom may be leading the push into EVs. But as you can see in the chart below, the global market is expected to see a huge surge from the US and Europe as well.

Australia, presumably, is somewhere in the green ‘rest of the world’ category. Regardless of when we achieve our 50% EV ‘goal’.



chart image
Source: Bloomberg
Click to enlarge

If you need any more convincing about China’s seriousness in forcing through this major structural change, just have a look at the government’s R&D splurge and the massive rollout of charging stations.

From MarketWatch:

The ruling Communist Party has spent billions of dollars on research grants and incentives to buyers. State-owned power companies have blanketed China with 730,000 charging stations, a vastly larger network than any other country.’

730,000 charging stations. That’s not the kind of investment you turn your back on.

Indeed, Shanghai’s upcoming auto show drives home the point. Also from MarketWatch:

This year’s Shanghai auto show highlights the global industry’s race to make electric cars Chinese drivers want to buy as Beijing winds down subsidies that promoted sales.

Communist leaders are shifting the burden to automakers by imposing mandatory sales targets for electrics, adding to financial pressure on them amid a painful sales slump. Chinese purchases of pure-electric and hybrid sedans and SUVs soared 60% last year to 1.3 million — half the global total — but overall auto sales shrank 4.1% to 23.7 million.’

Clearly this is a huge global growth trend showing little sign of slowing down. One where big money can be made…or lost.

This is where I might normally point you to Harje Ronngard’s recent 5G related recommendation in Wealth Eruption. One that could see EVs driving themselves sooner than you might believe.

Or Sam Volkering’s lithium stock play — critical for supplying the surging EV battery market — over at Australian Small-Cap Investigator.

Here’s what Sam writes about this next generation lithium battery all-rounder:

They started off as a humble graphite supplier. But they were far too smart to stay there. Now they’ve stepped up their game to give them the opportunity to benefit from every aspect of the production process.’

Or I could suggest you check out Ryan Dinse’s ASX-listed play at Exponential Stock Investor. One that could put an end to EVs’ range issues. This is what Ryan writes about that stock recommendation:

They’ve created a truly revolutionary and dynamic way to charge any electric vehicle on the road. I call it the “forever battery” breakthrough.’

Today I won’t suggest you check out any of these three investment advisory services.

Why?

Because today I think you should check out all three.

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Now before you sign off, here’s the latest from The Australian Tribune:

‘New South Wales’ Top Secret Marijuana Farm’

The legalisation of medicinal marijuana in Australia was an important — if belated — step towards giving citizens access to every medicine that could help with their illnesses.

While Australia still trails much of the Western world in moving to legalise marijuana’s recreational use, the New South Wales government is...’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd