No Hope In Sight For The EV Industry

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In his podcast addressing the markets today, Louis Navellier offered the following commentary. 

EU’s Energy Problems

I am on the Forbes cruise this week in the Baltic Sea and have learned some interesting things.  First, the war in Ukraine cannot be ignored in Europe due to the fact that it is too close and refugees are being held in many Baltic Sea countries

The guard posts on the Russian border for Estonia and other neighboring countries are largely abandoned since Russia needed soldiers to fight in Ukraine.

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Estonia is proud that it is building a large LNG terminal to help Finland and other European countries diversify away from Russian natural gas.  Spain has also proposed a new natural gas pipeline to France that would help deliver natural gas within a year. 

Unfortunately, winter is coming, and Germany’s head of BNA, Klaus Muller, which is the agency in charge of rationing natural gas supplies, said “If we fail to reach our target (20% cut in natural gas usage) then there is a serious risk that we will not have enough gas.”  However, the looming problem is that since natural gas prices are expected to remain abnormally high, Germany is expected to lose its competitiveness and may be forced to move some operations to lower-cost countries.

Germany is now running a trade deficit for the first time in over 30 years, and the low water levels on the Rhine river are becoming bottlenecks for the transportation of coal and other commodities.  BASF, which has factories on the Rhine river, is now relying on more rail transportation. 

Essentially, due to low water levels on the Rhine river, the tonnage on barges has to be reduced. 

I should also add that France energy supplier EDP has reduced its electricity output at nuclear power stations along the Rhone and Garonne rivers to the lowest in over 30 years due to low water levels.  France has traditionally been an electricity exporter but is now relying on electricity imports from neighboring countries. 

Due to the high cost of electricity as well as the supply shortages, thermostats have been raised across Europe, and some countries, like Spain, ordered air conditioning to be limited to 27 degrees Celsius or 80.6 degrees Fahrenheit.  My youngest daughter was staying in Madrid at the time with her friend from college and she confirmed that it was pretty uncomfortable.

I should add that I have been chatting with one of the approximately 180,000 British Conservative Party members that will be voting for the new Prime Minister, which will be announced on September 5thLiz Truss is the leading candidate so far and has middle-class roots that many British citizens like, especially because many citizens are struggling with sky-high electricity bills. 

Under outgoing Prime Minister Boris Johnson, British taxes rose to a record level, and many British citizens are struggling with sky-high inflation, so the most emphatic candidate that can connect to the people is expected to become the next Prime Minister on September 5th.

So as far as Europe is concerned, the fall and rain cannot come soon enough.  With the help of natural gas rationing, hopefully Europe will have enough natural gas until alternative LNG supplies and natural gas pipelines can be added, so they finally break away from Russian natural gas

Interestingly, some central European countries that are reluctant to stop using Russian natural gas, like Hungary, are landing new business.  For example, the biggest battery supplier in the world, CATL, just announced a massive $7.5 billion, 100 Gwh EV battery plant in Debrecen, Hungary that will be producing battery cells and modules for European automakers, like BMW, Mercedes, Stellantis and VW Group.

Dog Days of Summer

Here in the U.S., we are also in the “dog days of summer” and the stock market is expected to meander listlessly on light trading volume for the remainder of August.  Since CNBC was touting “meme” stocks last week and there was a lot of short covering in low-quality companies, I am expecting that the stock market will begin to consolidate after an incredible run since June 16th

The big news this week is expected to be the Federal Open Market Committee (FOMC) minutes that will be carefully scrutinized for hints that the Fed is nearing the end of its interest rate tightening cycle.  The famous words from Fed Chairman Jerome Powell after the last FOMC meeting was that the Fed would remain “data dependent” moving forward. 

Although the big green energy bill that Congress approved is expected to put some upward pressure on interest rates and fossil fuels (due to higher energy taxes). By and large, this government spending is expected to evolve slowly, since it is rewarding domestic green energy, like battery production, that is not fully up to scale, so the federal spending is expected to be constrained somewhat.

No Hope For EV

Speaking of constrained, there is really no hope in sight for the EV industry due to the high prices of lithium, nickel and cobalt for lithium-ion batteries that continue to rise in price to raw material costs.  At the Forbes conference on the cruise ship, we have all been discussing how challenging the supply bottlenecks are for raw battery materials and how the EV industry has stalled due to a shortage of lithium-ion batteries. 

This is a good time to remind investors that the only reason that Tesla Inc (NASDAQ:TSLA) can make more EVs is that its Shanghai plant is making EVs with CATL’s iron phosphate batteries, which are less efficient, heavier, but also safter, since iron phosphate batteries do not catch on fire.  The faster companies follow Tesla to CATL’s iron phosphate batteries, like Ford, Rivian and VW Group, the faster the EV revolution can proceed. 

Currently, I am worried about General Motors Company (NYSE:GM)’s EV strategy, since GM is stuck with LG Chem’s more expensive lithium-ion batteries and do not yet have an iron phosphate battery solution.  So right now, my winners in the EV race are Panasonic and Toyota (solid state batteries in hybrids in 2025), plus CATL, Ford and VW Group (for utilizing both iron phosphate and lithium-ion batteries).

Coffee Beans

Between April and July, 170 startups and tech-oriented companies incorporated in the United States laid off employees compared to just 20 in the first quarter. Netflix let go 450 or around four percent of its employees during the second quarter of 2022, while PayPal terminated contracts for 83 of its workers. Source: Statista. See the full story here.