Great article, but my only nitpick is about the "analog buttons." Getting rid of analog buttons makes the driving experience more dangerous because you have to take your eyes off the road to make any adjustments. It's a lot easier to have knobs that adjust your AC then having to focus 100% on a touchscreen in order to be able to hit the AC buttons on the touchscreen since there is no tactile feedback.
Heck, I think it was VW that is bringing back knobs due to this. Personally, I think getting rid of analog knobs is a step backwards in tech because it actually makes it more dangerous to drive. Not to mention, it's frustrating trying to hit little buttons on a screen.
Oh, and I hope you're enjoying retirement! Unfortunately, I never worked at GS, so I can only afford a Chevy Bolt EUV.
Thanks for the thoughtful case-by-case analysis. Your "geography matters" assessment would seem to be bolstered by Japanese experience and projections. They are diversifying among a portfolio of ICE, hybrid vehicles, EVs, and others. Amidst the crushing fiscal burdens from ageing (people, lifeline infrastructure, etc), depopulation, and doubling the national defence budget, there isn't enough public finance to build out the grid to handle a rapid shift to EVs (and other all-electrification).
I always enjoy reading you Arjun. I know that, in the present iteration, you are not going to answer the myriad questions that you pose. However I would value those answers.
Thanks for this piece Arjun. The Peak EV debate triggers some really interesting 2nd order discussions. The 🐿️ has been on the case. I am a big bull on the US refiners for example. Nobody has yet explained to me what happens when gasoline stops subsidising the rest of the output of a refinery? Where does the synthetic rubber come from just as much heavier EVs are racing through car tires?!
Louis-Vincent Gave of Gavekal, in an interview with Macrovoice this week, provided some backgrounds why Chinese is ahead of EV than anyone else and why EV is unlikely be widely adopted in the West. Here are some transcripts of the part on EV.
Louis:: ...I think if you go back five years ago, the Chinese leadership decided, you know what, we got to put the kibosh on this real estate bubble that's forming. And so, they told the banks no more loans to real estate, period. Instead, if you want to lend money, why don't you lend money to electric vehicles? Why don't you lend money to solar panel manufacturers? Why don't you lend money to basically whatever, to your point, ESG, green technology, whatever you want to call it. And at the same time, they push that message down to the provincial governments and municipal governments. So much so that basically, every Tom, Dick and Harry in China decides okay, I've got to be doing EVs. This is the thing now. And so you see a surge in loans to EVs and lo and behold, fast forward a few years, and China is basically now completely dominating the entire EV supply chain from the production of batteries to the extraction of nickel in Indonesia. You know, 90% of the nickel mines are now owned by Chinese and Indonesia. And so they own basically the entire supply chain. And they're now able to undercut, price wise, any Western producer, or any Japanese or Korean producer. And you and I have talked about this before, from out of nowhere, all of a sudden, China's now the biggest car exporter in the world. You know, three years ago, four years ago, the idea that China would be a car export, would have been seen laughable, and now nobody's laughing. In fact, you might have seen that 10 years ago, Elon Musk was asked about Chinese EVs and laughed on an ABC interview. And now fast forward today, and he's asking for tariffs to be implemented against Chinese cars. So, I highlight this because, this now creates a real quandary for Western policymakers. Western policymakers have spent the past 10 years telling everyone, stop buying internal combustion engine cars, buy electric cars, electric cars are the future, electric cars are good, electric cars are healthy. Electric cars are the salvation. Now, if you're a Western policymaker, and you say this, in essence, what you're saying is buy a Chinese car, because that's what, it will increasingly come down to. So now, if you're France, if you're Germany, if you Britain, if you're the US, do you want to live in a future where the entire auto industry is controlled by China? I think, for most policymakers, that's a nightmare. That can't happen. So defecto, I think you have no choice, but to pull back on the whole idea of oh, we need to make every car electric. Because if you say we need to make every car electric, you're in essence, saying, we need to make every car Chinese, which again, is just not possible. Now, add on to this, to this sort of very political reality, the simple truth that if you're buying an electric car, and you've got a problem with it, you get in an accident, the repair costs are massive, that if you live in a cold country, they don't work very well, that if you want to sell it, the second hand market is really pretty poor. And the write-offs on it are terrible, because nobody wants to buy a three or four year electric car, because they know that then the battery starts deteriorating pretty fast and changing the battery cost as much as the car, you add all of these things up. And I think that the demand for electric cars is basically going to undercut for years to come where the projections were. At the same time, as you've got all this capacity coming. So what does this mean? This means price wars, this means margins getting destroyed. And this is already starting, partly because all the Chinese producers are massively cashed up, cashed up not because they've been generating terrific cash flows, they're cashed up because they've been able to tap massive amounts of bank credit. And by the way, the same is true for solar panels for a lot of things. And so the whole, you know, let's push ESG, let’s push environmental solutions, to the extent that now China's captured these industries, puts a whole question mark on policymakers as to whether they want to pursue down this track, or actually back off. And you've already seen the UK back off. And I think most of the European Union is trying to think okay, hold on, this makes absolutely no economic sense whatsoever, we need to be less crazy about this.
In the same interview, Louis-Vincent Gave mentioned that over capacity of automobile in China has allowed to China to export a lot of sub $10k ICE cars to many developing countries.
Louis: .... And these are all people that are starting to buy refrigerators, motorbikes, automobiles,
microwaves, you name it, all things that require commodities to be built, all things that are increasingly built in China, or in Japan, or in Korea, to countries that benefit from very, very low exchange rates today and thus, are able to remain competitive with China's big excess capacity of industrial goods production. But, the simple story is that China now exports cars to Indonesia, to Chile to Colombia, and these cars are sub $10,000 cars. And I know you travel a lot, Erik, I'm sure you've noticed when you go to Chile, or you go to Indonesia, or India, the number of Chinese cars that are now on the road. And the reason they're there is, because they're cheap, and people couldn't have bought them before. But these cars still need some copper in them and they still need gasoline to run on.
I never bought the ICE as standalone camera analogy. For the vast majority of people smartphones were all gain and no loss. EVs are a much more mixed experience with real tradeoffs.
Great article, but my only nitpick is about the "analog buttons." Getting rid of analog buttons makes the driving experience more dangerous because you have to take your eyes off the road to make any adjustments. It's a lot easier to have knobs that adjust your AC then having to focus 100% on a touchscreen in order to be able to hit the AC buttons on the touchscreen since there is no tactile feedback.
Heck, I think it was VW that is bringing back knobs due to this. Personally, I think getting rid of analog knobs is a step backwards in tech because it actually makes it more dangerous to drive. Not to mention, it's frustrating trying to hit little buttons on a screen.
Oh, and I hope you're enjoying retirement! Unfortunately, I never worked at GS, so I can only afford a Chevy Bolt EUV.
Thanks for the thoughtful case-by-case analysis. Your "geography matters" assessment would seem to be bolstered by Japanese experience and projections. They are diversifying among a portfolio of ICE, hybrid vehicles, EVs, and others. Amidst the crushing fiscal burdens from ageing (people, lifeline infrastructure, etc), depopulation, and doubling the national defence budget, there isn't enough public finance to build out the grid to handle a rapid shift to EVs (and other all-electrification).
I always enjoy reading you Arjun. I know that, in the present iteration, you are not going to answer the myriad questions that you pose. However I would value those answers.
Thanks for this piece Arjun. The Peak EV debate triggers some really interesting 2nd order discussions. The 🐿️ has been on the case. I am a big bull on the US refiners for example. Nobody has yet explained to me what happens when gasoline stops subsidising the rest of the output of a refinery? Where does the synthetic rubber come from just as much heavier EVs are racing through car tires?!
Hi Arjun:
Louis-Vincent Gave of Gavekal, in an interview with Macrovoice this week, provided some backgrounds why Chinese is ahead of EV than anyone else and why EV is unlikely be widely adopted in the West. Here are some transcripts of the part on EV.
Louis:: ...I think if you go back five years ago, the Chinese leadership decided, you know what, we got to put the kibosh on this real estate bubble that's forming. And so, they told the banks no more loans to real estate, period. Instead, if you want to lend money, why don't you lend money to electric vehicles? Why don't you lend money to solar panel manufacturers? Why don't you lend money to basically whatever, to your point, ESG, green technology, whatever you want to call it. And at the same time, they push that message down to the provincial governments and municipal governments. So much so that basically, every Tom, Dick and Harry in China decides okay, I've got to be doing EVs. This is the thing now. And so you see a surge in loans to EVs and lo and behold, fast forward a few years, and China is basically now completely dominating the entire EV supply chain from the production of batteries to the extraction of nickel in Indonesia. You know, 90% of the nickel mines are now owned by Chinese and Indonesia. And so they own basically the entire supply chain. And they're now able to undercut, price wise, any Western producer, or any Japanese or Korean producer. And you and I have talked about this before, from out of nowhere, all of a sudden, China's now the biggest car exporter in the world. You know, three years ago, four years ago, the idea that China would be a car export, would have been seen laughable, and now nobody's laughing. In fact, you might have seen that 10 years ago, Elon Musk was asked about Chinese EVs and laughed on an ABC interview. And now fast forward today, and he's asking for tariffs to be implemented against Chinese cars. So, I highlight this because, this now creates a real quandary for Western policymakers. Western policymakers have spent the past 10 years telling everyone, stop buying internal combustion engine cars, buy electric cars, electric cars are the future, electric cars are good, electric cars are healthy. Electric cars are the salvation. Now, if you're a Western policymaker, and you say this, in essence, what you're saying is buy a Chinese car, because that's what, it will increasingly come down to. So now, if you're France, if you're Germany, if you Britain, if you're the US, do you want to live in a future where the entire auto industry is controlled by China? I think, for most policymakers, that's a nightmare. That can't happen. So defecto, I think you have no choice, but to pull back on the whole idea of oh, we need to make every car electric. Because if you say we need to make every car electric, you're in essence, saying, we need to make every car Chinese, which again, is just not possible. Now, add on to this, to this sort of very political reality, the simple truth that if you're buying an electric car, and you've got a problem with it, you get in an accident, the repair costs are massive, that if you live in a cold country, they don't work very well, that if you want to sell it, the second hand market is really pretty poor. And the write-offs on it are terrible, because nobody wants to buy a three or four year electric car, because they know that then the battery starts deteriorating pretty fast and changing the battery cost as much as the car, you add all of these things up. And I think that the demand for electric cars is basically going to undercut for years to come where the projections were. At the same time, as you've got all this capacity coming. So what does this mean? This means price wars, this means margins getting destroyed. And this is already starting, partly because all the Chinese producers are massively cashed up, cashed up not because they've been generating terrific cash flows, they're cashed up because they've been able to tap massive amounts of bank credit. And by the way, the same is true for solar panels for a lot of things. And so the whole, you know, let's push ESG, let’s push environmental solutions, to the extent that now China's captured these industries, puts a whole question mark on policymakers as to whether they want to pursue down this track, or actually back off. And you've already seen the UK back off. And I think most of the European Union is trying to think okay, hold on, this makes absolutely no economic sense whatsoever, we need to be less crazy about this.
In the same interview, Louis-Vincent Gave mentioned that over capacity of automobile in China has allowed to China to export a lot of sub $10k ICE cars to many developing countries.
Louis: .... And these are all people that are starting to buy refrigerators, motorbikes, automobiles,
microwaves, you name it, all things that require commodities to be built, all things that are increasingly built in China, or in Japan, or in Korea, to countries that benefit from very, very low exchange rates today and thus, are able to remain competitive with China's big excess capacity of industrial goods production. But, the simple story is that China now exports cars to Indonesia, to Chile to Colombia, and these cars are sub $10,000 cars. And I know you travel a lot, Erik, I'm sure you've noticed when you go to Chile, or you go to Indonesia, or India, the number of Chinese cars that are now on the road. And the reason they're there is, because they're cheap, and people couldn't have bought them before. But these cars still need some copper in them and they still need gasoline to run on.
The Norway EV data is incomplete without looking at % of total fleet that are EVs (25%). https://cleantechnica.com/2022/08/25/norways-vehicle-fleet-transitions-to-electric-how-long-will-it-take/
I never bought the ICE as standalone camera analogy. For the vast majority of people smartphones were all gain and no loss. EVs are a much more mixed experience with real tradeoffs.
Most important fact about Norway relative to EV adoption…its grid is 98 % hydro. Few countries in the world have this luxury.
Can you explain your last point? “… the US offers larger tax credits for larger EVs”