Overview
Tesla has had to recall 1.1m of EVs in China, due to braking and acceleration defects that may increase crash and safety risks. This is essentially most of the EVs Tesla has in China, as it has sold c1.13m EVs from 2014 to Q1 23. This defect is related to Tesla’s regenerative braking system, which makes use of energy created when drivers take their foot off the accelerator by sending power to the car’s battery. According to the Chinese State Administration for Market Regulation, the defects don’t allow the driver to set the intensity of their regenerative braking alongside not alerting the driver when they’ve stepped on the accelerator for a long time, this increases the probability of pedal misapplication. The automaker will deploy an over-the-air software fix.
VinFast has announced it has successfully delivered 1,879 VF 8 models to Port of Benicia in California. This represents the company’s second successful delivery to America and although it is a positive step forward for VinFast, it illustrates the supply chain and internal operational challenges it has faced in the last 12-18 months. VinFast has priced the VF 8 Eco and Plus models at $46,000 and $51,800 respectively, inclusive of the battery. Impressively, the VF 8 warranty for the EVs and the battery is 10 years, which is much longer than its peers. The 10-year warranty also includes mobile services and 24/7 emergency roadside assistance. This could represent how VinFast plans to distinguish itself in the EV market, from its peers.
Arrival SA, a British EV start-up, has announced poor Q1 23 results, with the cash burn rate standing out. Arrival SA’s cash has plummeted from c.£206m (Q4 22) to £130m, which represents a 37% decrease. This has led the CEO to significantly reduce their operating costs going forward to extend their runway for 2023. On a more upbeat note, the company did build 3 vans, with 5 more in progress, at its factory in Bicester. This is the latest EV start-up, following Lucid and VinFast, which illustrates a strong balance sheet is needed to succeed in the EV market.
Mr Musk and a plethora of EV OEMs have all come out stating that no EV company is immune to macroeconomic headwinds. The recent tumultuous banking events have led to central banks implementing restrictive monetary policies. This has resulted in tighter lending conditions in Q1 23, with market consensus suggesting that this will continue for the rest of the year. There are even murmurs by the Fed that a mild recession in the USA later this year is possible. These macroeconomic headwinds have a greater knock-on effect on start-ups such as Arrival SA, Rivian and Lucid, as they are not profitable and need capital to invest in production capabilities.
Ford has announced its plans to scale back its investment and footprint in China going forward. This is not surprising, as Ford announced its EV strategy only a few weeks ago, which focussed more on the USA and Europe. Furthermore, China is a mature EV market full of local EV companies. China also illustrates that consumers are not loyal to brands but put a greater emphasis on pricing. Companies such as BYD and Tesla, SAIC, and Changan are dominant players in the Chinese market. These disruptive companies have shaken up the auto industry, as global OEMs have been/are losing out to domestic rivals that offer cheaper and/or better EVs. Ford will continue to have a presence in China but will focus on commercial EVs.
Stellantis has issued Britain a warning that it may have to pull its operations in Ellesmere Port. This is due to Brexit and confusion over trade rules with the EU, that impact margins. Currently, Stellantis employs more than 5,000 people across 2 plants in the UK, where it manufactures Vauxhall, Fiat, and Opel vehicles. The company has submitted an enquiry to the British government about vehicle battery production. At present, it appears that Stellantis would be at a competitive disadvantage going forward because of tariffs due to be imposed on (EV) batteries transported between the UK and Europe. If this is the case, then costs would rise, and this would make manufacturing EVs in the UK uncompetitive and operations will have to cease. If this were to happen, it would be a great blow to the (already frail) UK manufacturing industry.
Unlike Ford, VW is planning on ramping up investment in China. VW has had initial talks with Huawei, to potentially use its software in its cars in China. VWs own software, Cariad, has been beset by problems since its creation in 2020. VW sells more cars overall than any other OEM in China, however, in the EV market, it trails in 9th place behind rivals such as Tesla and BYD, with a market share of 2%. Partnering with Huawei could help VW upgrade its software so it can add features such as sophisticated entertainment and driving assistance that Chinese consumers expect from new(er) vehicles. This would potentially help VW solidify its overall OEM market share in China and hopefully gain market share in the EV market.
Deals
Jolt Energy, an Irish company that creates EV charging stations, has raised €150m with investment solely coming from InfraRed Capital Partners, via a capital grant. This capital will be used to expand its network in North America and Europe. Jolt Energy claims its ultra-fast EV charging stations can be easily built in urban areas and thus, it plans to build thousands across Europe and North America. These charging stations will have a capacity of up to 320kW and can be connected to existing low-voltage grids. The company is targeting commercial establishments such as supermarkets, restaurants, and petrol stations, to boost the availability of EV charging in central locations.
BP Products North America, which is an indirect subsidiary of BP, has successfully finalized its acquisition of TravelCenters of America (TA). The $1.3 billion deal signifies a critical progression in the expansion of BP’s strategic convenience and mobility business within the US. The strategically located network of TA highway sites provides a strong complement to BP’s existing, predominantly off-highway, convenience and mobility business in the US. There is also the potential to integrate BP Pulse, the EV charging business, as well as biofuels and renewable natural gas enterprises, and eventually, hydrogen.
VinFast has announced it’s going public in the US via a SPAC, through a merger with the blank-check firm NextGen Acquisition. The apparent SPAC valuation stands at c$27bn (including debt), this would make it the 3rd largest SPAC transaction ever. Some analysts view this, as an act of desperation, as the valuation is ludicrously high, which raises the possibility that the SPAC deal may not go through. Even in a bull market, the valuation and multiples are high and if you factor in historic SPAC performance, this transaction would be a challenge. Vingroup and Pham Nhat Vuong (Vietnam’s richest man) have invested c.$8bn into VinFast however the company has found it difficult to crack America. VinFast has all the building blocks, however, a high churn rate, which has impacted operations, and an incoherent strategy have slowed VinFast. These factors have contributed VinFast accruing losses of $5.4bn since its inception. The capital from the SPAC deal will, presumably, go to extending the runway of the company. Although VinFast has a factory planned to open in North Carolina in 2025, under current stipulations, until then VinFast EVs cannot benefit from the IRA. This deal is pencilled to close in H2 23 however, we believe, there will be more twists and turns until then.
Spotlight: Californian Carbon Credits
Overview
In 2006, the California Legislature approved Assembly Bill 32 (AB 32), which established the State’s 2020 GHG emission reduction target, requiring the California Air Resources Board (CARB) to adopt a Scoping Plan for achieving the target, and authorized CARB to include a Cap-and-Trade Program as a carbon pricing mechanism within a broad portfolio of policies to help achieve the target.
- The Cap-and-Trade Program was launched in 2013 and is the 4th largest in the world, behind only China, the EU, and South Korea.
Interestingly California has also linked its system with Quebec’s (Canadian) Cap-and-Trade Program, which allows businesses in one jurisdiction to use emission allowances (or offsets) issued by the other for compliance.
Purpose
The Cap-and-Trade Program’s purpose is to create a market-based compliance approach to drive investments into climate strategies. This Program is the first multi-sector and only economy-wide carbon market in the USA and is central to California meeting its ambitious climate goals:
- To reduce emissions to 1990 levels by 2020 (which it met in 2016),
- 40% below 1990 levels by 2030,
- 80% below 1990 levels by 2050, and
- 100% carbon-free electricity by 2045 and economy-wide carbon neutrality by the same period.
In essence, Cap-and-Trade Programs use the law of supply and by shrinking the supply of allowances to then increase their value. This results in firms having to make an internal economic decision as to the best approach to reduce emissions, in a sustainable manner. Thus, accelerating the adoption of zero-emission policies.
High-Level Impact of CARB
In April 2023, Governor Gavin Newsom announced that over 1.5m ZEVs have been sold in the state of California. This 1.5m target has been achieved 2 years early and CARB has played a significant role in this, alongside $2bn in ZEV incentives (as part of a broader $9 billion ZEV budget).
- So far this year, 21% of all new cars sold in California this year have been ZEVs, and 40% of ZEVs sold in the USA are sold in California.
- 21% in Q1 23 = 124,053 ZEV sales in California.
- 1,523,966 total ZEV sales in California to date.