☀️☕️ Electric Vehicles… not so green? [MFM 18/05/23]

Many associate EVs with ‘greenness’ and sustainability. This and sleek design drove the popularity of EVs in recent years. According to International Energy Agency, demand for EVs is expected to rise 35% this year even after breaking records in 2022. This is understandable as ‘greenness’ has always been the main brand image of EVs. However, if we delve a little deeper, we may discover that EVs may not be as green as we think.

..... ▷ People find EVs friendlier to the environment because they do not actively consume petrol as a traditional car would. As a rule of thumb, an average sedan would typically run 13.5 kilometres on a litre of petrol. The pumped petrol undergoes internal combustion where carbon emissions are released as end- and by-products. For EVs, electricity is used to charge the battery of the car where it is converted into mechanical energy directly. Hence, there are no carbon emissions from the use of EVs.

..... ▷ That being said, many overlook the emissions involved in producing these EVs. EVs currently rely on lithium-ion batteries to function. Mining raw materials like cobalt and lithium for EV battery production greatly involves carbon emissions. Additionally, it is also important to consider emissions involved in transporting these materials to and from factories and between countries.

..... ▷ On top of this, EVs relying on electricity for power is also a point worth considering. The electricity used to charge these batteries usually incur carbon emissions. Fossil fuels like coal and oil still dominate most countries’ electricity grids. This is partly due to the unpredictability of the weather in supplying energy via power plants. For example, in 2020, the wind across Upstate New York dropped so low seventy-four times that insignificant electricity was produced. The Supply Chain Crisis in China in 2021 was also partly caused by extreme weather conditions that impeded energy production via power plants. This debunks the whole ‘zero emissions vehicle’ image of EVs.

..... ▷ On the same theme of sustainability, recycling EV batteries is another issue. A lithium-ion battery is highly complex and is highly difficult to break down. For example, in the midst of recycling, these batteries may overheat and release carbon monoxide and hydrogen cyanide, which can be very harmful to human health. According to one study, recycled lithium costs five times the price of virgin lithium from brine mining, so recycled lithium-ion batteries may not be profitable enough.

..... ▷ Generally, it is not wrong to say that EVs are greener than fuel-powered cars. But ‘greenness’ is multifaceted and requires more information, like how the car is used, made and disposed of, to truly assess the ‘greenness’ of any particular EV.

..... ▷ In addition, as the world transitions from fossil fuels to renewable energy, the energy grid powering electric vehicles will become increasingly sustainable. For example, China, the world’s largest producer of greenhouse gases, has undergone a clean revolution in recent years, witnessing nearly a five-fold increase in wind and solar generation since 2015. Consequently, the share of coal generation has decreased by 17 percentage points, declining from 78% in 2000 to 61% in 2022.

US markets rose sharply on Wednesday on growing optimism over a potential deal on the $31.4 trillion Federal debt ceiling, with President Joe Biden saying he was “confident” that he and Congress could avoid an unprecedented and economically catastrophic default on US debt, possibly by adding some work requirements to social safety net programmes, a key Republican demand. A rebound in regional bank shares added to the bullish tone for the day, led by Western Alliance's 10% gain on reporting a recent $2bn surge in deposits.

Bank of England: The UK central bank's Governor has admitted for the first time what all central bankers fear most: The UK is facing a "wage-price spiral." With average private sector wages up 7% on the year before and consumer inflation still over 10%, he has a long long way to go to get inflation back to the bank’s 2% target and he said interest rates would be hiked as far “as necessary” to get it there.

..... ▷ The wage-price spiral is where higher prices have squeezed consumers into demanding and getting higher wages, which then feed into higher costs which are passed onto consumers in the form of even higher prices, kicking off the cycle once more. Dangerous space

..... ▷ Musk also said, "Marketing is what you do when your product is no good." Except that was in an interview with Inc. magazine in 2014. In 2023 he said Tesla would launch advertisements for the first time in the 20 years since it was founded (by two other people... Musk invested $6.5mn the following year to become the largest shareholder and has been CEO since 2008.)

..... ▷ Interestingly, CEO Brian Cornell picked out organized crime as an "increasingly urgent" issue and “a worsening trend that emerged last year,” estimating $500 million more in stolen goods than last year when "shrinkage" (which also includes spoiled items and other losses) came to about $763 million. This quarter it cut gross margins by one whole per cent. Organized retail crime has become a major issue in the retail industry, with Home Depot, Walmart, Best Buy, Walgreens and CVS also reporting that the problem is getting worse, with some blaming the growth of online marketplaces where stolen goods can be sold anonymously.

..... ▷ Growth was driven by the return of overseas tourists and the same post-pandemic household consumer durable goods demand that was seen elsewhere last year, since Japan was the last of the major developed economies to reopen. Manufacturing and exports remained sluggish, though, reflecting the current Western preference for services over goods, but possibly showing signs of a slowdown in the US and Europe.

A country's in a recession when there is a significant decline in economic activity, usually with a rise in unemployment. A common rule of thumb is when economic output goes down in two or more consecutive quarters. This is measured by its real (inflation-adjusted) GDP, which is a measure of the size of an economy and is the monetary value of goods and services produced there in a particular period.

Bear markets and recessions are not the same thing. (Bears are lazily defined these days as a drop of 20% from a recent peak.)

Recessions often trigger an increase in the unemployment rate, which is based on the number of workers who want a job but don't have one. This is painful and can be socially disruptive, but unfortunately is part of the normal business cycle where good times lead to a period of over-investment, over-hiring and over-consumption, followed by a hangover.

An important thing to note is that economic boom and bust cycles are normal, even if the ending of a period of growth is in the form of a nasty recession. Up-cycles always end, eventually, as do down-cycles, though when you are in one, it is very hard to see the light at the end of the tunnel. But they do end.

This is important to remember since recessions are often (not always) accompanied by bear markets, so for disciplined and careful investors, recessions and bear markets have often been great long-term buying opportunities.