Overview
CATL (the world’s largest battery maker) announced it can cut costs for Chinese automakers, potentially kickstarting a price war. This power move illustrates CATL’s market strength and consequently potentially widens China’s cost advantage in EVs. This cost advantage offered by CATL stems from making smart investments in lithium mining and refining over the years. However, this offer comes with one important caveat, the Chinese automakers would have to pledge most of their battery supply contracts to CATL.
Stellantis beat profit forecasts to deliver strong FY22 results and subsequently, announced a $1.6bn share buyback. Although their total vehicle delivery output dropped slightly (-2% vs FY21), this was offset by being able to sell cars at a higher price. The company’s BEV sales segment grew by 41%, which translated to 288k BEVs delivered. Stellantis also declared its goal to expand its current portfolio of 23 BEVs to 47 by the end of 2024. Interestingly, the CEO mentioned that a key theme for the automotive industry will be to reduce total production costs faster than the erosion of pricing power.
The ECIU has published a report stating that UK motorists could miss out on £9bn worth of savings, by 2043, unless the government puts in place more ambitious targets to boost EV uptake. Currently, the 2024 mandate for UK manufacturers is to increase the proportion of new zero-emission vehicles (ZEVs) to 22%, however, data suggests that this figure needs to hit 34% in 2024 and 60% in 2027. If new ZEV sales continue along the current government trajectory, then there will be more than 2.1m fewer EV vehicles available to the public. This will significantly impact the second-hand market size. This would then force low-income drivers to pay more to continue running petrol cars.
Nissan will spend $250m on its Tennessee plant to expand its powertrain production and to unlock IRA tax breaks. Nissan has set a target of manufacturing 4 EV models by 2026, in its Mississippi plant. The Tennessee plant will supply the components for those EVs by 2026. This follows Tesla’s announcement, last week, that it will carry out its cell production in the USA, to take advantage of the IRA tax incentives.
Stellantis has announced it will invest $155m in 3 plants located in Indiana. These plants will produce new electric drive modules that will help power future EVs assembled in North America. Production is pencilled in to begin in Q3 2024. This investment aligns with Company’s long-term strategy to reach 50% US BEV sales by 2030.
SMMT has published January 2023 UK car production figures which showed that all-electric car production jumped up by 49.9% to 28,329 units (YoY). Overall, British car production was relatively stable. YoY UK output was -0.3% (equivalent to just 215 fewer cars) to 68,575 units. Encouragingly, SMMT has predicted 2023 UK car output to rise by 9% based on the strong growth outlook in EV production. All eyes will now be on the UK Budget (15th of March), to see how it can help further stimulate EV production, as the USA has done with the Inflation Reduction Act.
Stellantis has announced a 14.2% equity stake ($155m investment) in McEwen Copper, making it the second largest shareholder. This strategic copper investment will help Stellantis to become carbon net zero by 2038. Copper is a strategic raw material for the future of electric mobility, and market consensus predicts that global demand for this metal will triple in the coming years. Stellantis has positioned itself strongly and will be able to supply some of the projected copper demand starting in 2027.
Deals Landscape
Bain&Co released its annual M&A survey which stated that Chinese companies intend to be active in cross-border M&A, especially in the EV sector, in 2023. This echoes the sentiments by the bulge bracket banks who predicted a similar trend for 2023. This is not surprising as the country has only recently lifted COVID restrictions. Companies had been prevented from pursuing appropriate acquisition targets due to lockdowns and cross-border travel restrictions. A key driver for the cross-border M&A activity is that organic growth will be difficult for Chinese companies this year. Thus, there is a focus on inorganic growth, as firms seek acquisition targets to expand their market presence and sales networks.
Planet42, a South African car rental startup, has raised $100m in debt and equity funding. One of the key investors is Naspers, who was an early backer of Tencent. The funds will be used to grow within South Africa and expand in Mexico. Planet42 has already deployed a fleet of c15,000 vehicles and aims to add 10,000 more cars to its fleet with this funding. This appears to be a golden period for African start-ups, as last year a record $5.3bn was raised.
TI Clean Mobility, an Indian electric three-wheeler manufacturer, has signed agreements with Tube Investments and the State Bank of India, to raise c$235.7m. This capital will be deployed to expand its operations in India and to grow inorganically via acquisitions.
Spotlight: USA Policy Tailwinds
In recent weeks a considerable amount of OEMs have been announcing plans to enter or expand their (plant) operations, in the USA, to take advantage of the tax incentives. These incentives derive from the Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law (BIL). These Acts aim to close the gap between the USA and China in relation to the EV market. BIL focuses on the EV infrastructure, whereas IRA is more EV consumer-centric. Currently, the USA’s market share for EVs is only around one-third the size of the Chinese EV market.
The IRA aims to act as a catalyst for domestic manufacturing capacity and encourage procurement of critical supplies domestically or from free-trade partners. Whereas BIL will provide substantial public investment in transportation networks and public work projects. This Act aims to remedy the ageing infrastructure that plagues pockets of America.
The BIL and IRA funding significantly favours driving-related programs, with 66% of all transportation-related funding going to either electrifying vehicles or modernizing roadways. This pragmatic approach is being applauded by industry experts.
The Biden Administration has in a short period started strongly with EV credits and charging networks. The BIL and IRA are significant bills for EVs, here are some of the key overlapping points:
- Reducing the transportation sector end-use emissions by stimulating EV production & use:
- Around c$119.1bn has been earmarked to electrify different types of vehicles through manufacturing credits, infrastructure grants, research into new fuels, and rebates to consumers.
- For example, the IRA provides $2bn in grants to incentivize domestic manufacturing. Whereas the BIL has earmarked $7.5bn to build out charging infrastructure.
- This will cement the USA’s global competitiveness in not only EV design but also production, which will help attract foreign direct investment (FDI).
- The IRA will accelerate the adoption of EVs as there is a tax credit of $7,500 for new and $4,000 for used EVs. These credits will be transferred to the dealer at the point of sale, allowing customers to immediately save money off the purchase price instead of waiting for a tax refund.
- Whereas the IRA is more consumer-centric/light-duty vehicle focussed, the BIL will help establish the charging network infrastructure. The available $7.5bn funding (along with private sector involvement) will help the USA reach its target of 500,000 chargers. This will help level up rural areas, where there is a disproportionate lack of adequate access to charging stations, thus making EVs a more attractive proposition.
- Alongside tackling light-duty vehicles, heavy-duty vehicles (such as buses) are also targeted. The IRA will provide $3bn for ports to purchase zero-emissions equipment and to develop climate action plans. Alongside providing $1bn of grants and rebates for clean, zero-emission heavy-duty vehicles. 40% of this is set aside for communities with above-average levels of air pollution.
- BIL will allocate $5 billion to replace fossil fuel-powered school buses with zero-emission or clean models.
- The BIL has an overarching theme of prioritising massive transportation infrastructure projects, for example, $308.4bn has been pencilled for roadway and bridge projects. The IRA prioritises other elements in the transportation value chain. For example:
- $30.6bn Advanced Manufacturing Production Credit,
- $6.3bn Advanced Energy Project Credit: to improve the supply chain for batteries and charging equipment,
- $3bn Advanced Technology Vehicle Manufacturing loans,
- $2bn Domestic Manufacturing Conversion Grants,
- A series of four tax credits which is valued at $12.5bn, will help reduce EV prices for households and companies.
Together, the IRA and BIL touch upon every element of the transportation value chain.