New Quota Rule In China to Lift EV Producers & Battery MakersNov19

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New Quota Rule In China to Lift EV Producers & Battery Makers

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New Quota Rule In China to Lift EV Producers & Battery Makers →

Summary: Automakers and governments around the world are betting big on electric cars — a seismic shift that could result in 530 million units on the road by 2040. With global EV sales just above 4 million units right now, and China’s 2019 cap-and-trade rule about to go into effect, that leaves plenty of room for growth.

In 1900, ten years following the appearance of the first electric car manufactured in the U.S., almost one third of America’s cars were electric. But soon enough, cheap oil and Henry Ford’s Model T, which cost about a third of the price of a comparable electric vehicle (EV), established the dominance of internal-combustion engines. From that point, interest in EVs waned until the 1990s when California began pushing automakers to offer low-emission vehicles to fight smog.

An important milestone occurred when Tesla launched its first electric car in 2008 and proved there was a market for premium electric vehicles. Now, a decade after Tesla’s debut, automakers and governments around the globe are betting big on electric cars — a seismic shift that could result in 530 million EVs in use by 2040.

According to Wood Mackenzie, the tipping point for new technologies typically occurs at 20% of market share, a sweet spot that reflects new consumer preferences and supply chains reaching a point of maturity. Local markets like California and Sweden are already half way there with 10% markets. In Norway, pure electric cars accounted for over 20% of new registrations last year. The three giant markets – China, the United States and Europe – still have some catching up to do. In the latter two markets, the share of EVs in new car sales is around 1.66% and 2.3%, respectively. Chinese EV sales will top 1 million for the first time this year, but that’s just 3% of the country’s automotive fleet, leaving plenty of room for growth.

But, a major catalyst is about to emerge out of China that will push the needle further. For nearly a decade, Beijing has poured money into the EV industry, looking to establish China as the dominant producer of electric vehicles. Starting in January 2019, a new cap-and-trade rulewill require all major manufacturers operating in China — from global giants like Toyota and General Motors to domestic players BYD and BAIC Motor — to meet steadily increasing production targets for new-energy vehicles (“NEVs). The category includes plug-in hybrids, pure-battery electrics, and fuel-cell autos) or buy credits from rivals.

Carmakers that don’t meet the quota themselves can purchase credits from rivals that exceed it. Failure to comply will result in government fines or, in a worst-case scenario, having their assembly lines shut down.

Per a complex government equation, the least eco-friendly NEV will receive a credit score of two, while the greenest will get a maximum credit of six. In order to meet the 2019 credit target of 10% (the target rises to 12% in 2020), a carmaker churning out 100,000 gasoline-based vehicles would need 10,000 credits. Those could be earned by producing 2,000 cars with an NEV score each of five. If the automaker produces more than 2,000, it could sell the extra credits; fewer than 2,000, and it would need to buy credits. According to Bloomberg New Energy Finance (“BNEF”), the 12% target for 2020 would amount to 4-5% of total car sales, based on the current average NEV score of 3 per vehicle.

Automakers are paying attention. Volkswagen AG — one of the biggest spenders in the global auto industry — announced it will invest nearly $150 billion over the next five years, with about one-third earmarked for the development of electric cars, self-driving vehicles and digital services. Earlier this year, Volkswagen unveiled plans to build 16 electric-vehicle factories world-wide and to acquire battery capacity to build millions of electric vehicles. General Motors plans 20 all-electric models by 2023, and Volvo will begin phasing out cars that run just on fossil fuels in 2019.

Beijing’s new cap-and-trade system will greatly benefit companies that have had a head start in NEV production in the Chinese market, such as BYD Co (BYDDF), Geely Automobile Holdings (GELYF), Nio Inc (NIO) and Tesla (TSLA), the world’s best-selling EV brand.

Another major milestone is approaching as batteries get better and cheaper. By 2025, the cost of an electric car is projected to reach parity with an internal combustion engine (ICE) vehicle. That would be a game changer not just for car manufacturers but also for Contemporary Amperex Technology (CATL), China’s largest lithium battery maker which recently signed a contract with BMW, replacing Samsung as its battery supplier. It’s a pretty big deal, considering the battery makes up as much as 40% of the cost of an electric car.

We’ve also summarized the following articles related to this topic in the Transportationsection of today’s report.

EVs

• China Is About to Shake Up the World of Electric Cars
• In California, electric vehicles now make up 10% of all new cars sold
• Volkswagen to Pour Billions Into Electric Cars
• A slew of electric truck plans may deliver the goods for China’s EV ambitions
• School Districts Rolling Out Electric Buses as Economics Improve
• Silicon eyed as way to boost electric car battery potential

EV Producers (BYDDF vs GELYF vs TSLA vs VWAGY) vs Autos (CARZ) vs S&P 500 (SPY)

Markets

Debt

The IMF just became the latest to warn about the $1.3 trillion ‘leveraged loan’ market

The buildup of risky debt in corporate credit markets has caught the attention of the Bank of England and the Federal Reserve. It’s also been highlighted by global fund managers in the latest industry survey by Bank of America Merrill Lynch.

Now the International Monetary Fund (IMF) has added to the clamor, warning that an unwinding of the market in so-called “leveraged loans” — credit from non-bank lenders to risky or highly-indebted companies — could have untold consequences for the global economy.

“With interest rates extremely low for years and with ample money flowing though the financial system, yield-hungry investors are tolerating ever-higher levels of risk and betting on financial instruments that, in less speculative times, they might sensibly shun,” the IMF said.

“It is not only the sheer volume of debt that is causing concern. Underwriting standards and credit quality have deteriorated.” As evidence, they cited research from credit-ratings agency Moody’s showing the buildup of “covenant-lite” loan terms. Lighter covenants mean less protections for creditors in the event of a company not being able to make its repayments.

The IMF also warned that lenders could be issuing loans on dubious information from borrowers, noting that “weaker covenants have reportedly allowed borrowers to inflate projections of earnings. They have also allowed them to borrow more after the closing of the deal.” BI

Construction & Real Estate

Housing

Why house prices in global cities are falling

Property used to be thought of as an inflation hedge. But in recent years it has become a substitute for low-yielding Treasury bonds—a safe asset in which the globally mobile can store their wealth. After years of rapid price rises, houses in the most favoured markets are overvalued. Rising bond yields, tighter mortgage credit and shifting politics are now combining to push prices down.

Global cities look awfully dear. The rental yield on investment homes worldwide fell below 5% for the first time ever in 2016, according to msci ipd, a financial-information firm. House prices relative to incomes are well above their long-run average in Amsterdam, Auckland, London, Paris, Sydney and Toronto.

And prices are falling in some of the dearer cities, in response to a variety of forces. The yield on Treasury bonds, the world’s benchmark safe asset, is rising. A tightening of credit standards on mortgages in Australia and Canada has squeezed housing in cities there. Uncertainty about Brexit has made London a place of political risk rather than a refuge from it.

Meanwhile, capital is moving less freely. Governments are charier of Russian money. China is shaking down its super-rich for taxes and is zealous in its policing of capital outflows. Economist

Services

Cannabis

Pot banking takes off in U.S. as women forge path around ban

A federal prohibition on marijuana has locked U.S. banks out of an industry surging toward $75 billion in sales. Who’s catching that money? A small number of local credit unions, and the women who run their operations.

Sundie Seefried’s credit union near Denver has only six branches, but last month it raked in $160 million from cannabis-related ventures desperate for a place to stow cash. As chief executive officer of Partner Colorado Credit Union, she assembled a 13-person team that screens those companies, accepting about 200. Depositors don’t collect interest — they pay fees for due diligence.

Big banks can’t touch money from pot without risking severe punishment by the federal government, potentially including the loss of their national charters. Many credit unions, on the other hand, are regulated by states. As more of those jurisdictions move to legalize weed, a number of lenders are building units to soak up billions of dollars generated by growers, dispensaries and related companies.

The divergence of credit unions and banks over cannabis has only grown starker in recent months. Ahead of midterm elections, Wells Fargo & Co. cut off services to a pro-medical marijuana politician because of contributions she received from lobbyists. The bank said it absolutely can’t touch cash linked to weed. Credit unions, meanwhile, watched voters create three more potential markets last week by backing measures to legalize cannabis for recreational use in Michigan and medicinal use in Missouri and Utah. AB

Cannabis

Tech is coming for the weed industry

Claims of “machine learning” and “automation” are increasingly common in the marijuana business, especially when it comes to growing and processing the plant. Massachusetts-based Bloom Automation exhibited a robot at MJBizCon that automates the cannabis trimming process. The robot, still in beta, uses computer vision and a machine learning algorithm to tell the valuable flower and the leaves apart and trim them.

Other companies in the cannabis cultivation space include Capna Systems, which has developed an enormous machine to automate the extraction part of marijuana cultivation. Toronto-based Braingrid sells a greenhouse sensor that picks up and analyzes climate data and gives suggestions to improve the harvest.

When it comes to consumer products, marijuana entrepreneurs are focusing on health. InDose is launching a pilot program of its disposable vape pen. Resolve Digital Health is attempting to deploy even smarter tech, selling a “smart inhaler” that tracks the medicinal effects of cannabis. Put in a smart pod, inhale. Before and after, users are asked to rate their pain, and this information is constantly fed into the Resolve app.

It’s still early for marijuana tech. With the drug still illegal at the federal level and stigmatized even where it is legal, many investors will be staying away. The rest are just starting out. Verge

Tobacco

Tobacco stocks are getting slammed as the FDA lays out sweeping new restrictions on flavored cigarettes

Tobacco stocks have had a tough time over the past week. The latest issue revolves around the US Food and Drug Administration’s (FDA) new restrictions on flavored cigarettes, which are intended to prevent a new generation of nicotine addicts.

After a week of speculation, the FDA on Thursday laid out its plan: It will ban the sales of flavored e-cigarettes in convenience stores, but will not include vape shops or other specialty retail stores. Meanwhile, regulators will temporarily exempt tobacco, mint, and menthol flavors from the restrictions, but said they are looking into restrictions on menthol cigarettes and flavored cigars.

Last Friday, the Washington Post reported that FDA commissioner Scott Gottlieb will announce the ban on the sales of most flavored e-cigarette as early as this week. And the Wall Street Journal reported that Gottlieb plans to pursue another ban on menthol cigarettes, which Morgan Stanley says represents 35% of the total US cigarette market.

While a menthol ban hasn’t yet been implemented, traders are selling tobacco stocks amid concerns of a wider industry crackdown. British American Tobacco got hit the hardest, as it’s the most exposed to menthol cigarettes, which account for around 40% of its US volumes, according to Cowen Equity Research. BI

Technology

3DP

The New Era of Additive Manufacturing

The U.S. Air Force is utilizing 3D printing to produce replacement parts for old planes much faster and in smaller batches, eliminating the need for a minimum order and the need for warehousing parts. Sportswear company Reebok introduced Liquid Factory — a new technique where liquid material is used to draw shoe components in three-dimensional layers, eliminating the use of traditional molds. San Francisco based Mission Motors has produced a high-performance electric motorcycle comprised of 3D manufactured components.

Along with all of the opportunities for increased efficiency, there are many new system integration challenges with additive manufacturing. For example, AM production lines can adapt quickly but only at the speed that design specifications and change orders can be transmitted and received. At the same time that data performance is critical, the data transfer needs to be secure, to prevent tampering and to protect intellectual property.

To make additive manufacturing part of the factory of the future, there needs to be a strong data foundation where shop floor and back office systems can communicate easily. The cost advantages, customization capabilities, and green aspects of additive manufacturing will continue to fuel its adoption and rapid growth. As companies take additive manufacturing to the next level to become an essential part of their shop floor, the ability to integrate this specialized manufacturing process with the existing information system will become critical to realize the full benefits. MNet

Satellites

Space Tango unveils plans for scalable manufacturing in space

Lexington, Kentucky-based Space Tango has unveiled ST-42, an autonomous robotic orbital platform designed for scalable manufacturing in space. Launching in the mid-2020s, ST-42 aims to harness the unique environment of microgravity to produce high-value products across industries; from patient therapeutics to advanced technology products. ST-42 is an extension of the International Space Station’s (ISS) capabilities, and NASA’s creation of a robust commercial marketplace in low Earth orbit (LEO).

Coupling autonomous manufacturing capabilities with reduced cost and adaptability for various launch vehicle providers, ST-42 intends to be at the forefront of developing new biomedical and technology sectors in the commercial space economy.

While early modules will focus on technology applications and materials production, ST-42’s initial design will incorporate features that address current good manufacturing practice (CGMP). These regulations are enforced by the FDA and are a critical component in the production of patient therapeutics that Space Tango intends to establish as a capability on orbit within the platform. AM&D

Satellites

SpaceX Now Has OK To Deploy 12,000 Satellites For Broadband Communications

Elon Musk’s SpaceX won permission to deploy more than 7,000 satellites, far more than all operating spacecraft currently aloft, from U.S. regulators who also moved to reduce a growing risk from space debris as skies grow more crowded.

Space Exploration Technologies has two test satellites aloft, and it earlier won permission for a separate set of 4,425 satellites — which like the 7,518 satellites authorized Thursday are designed to provide broadband communications. It has said it plans to begin launches next year.

Space companies riding innovations that include smaller and cheaper satellites — with some just 4 inches long and weighing only 3 pounds — are planning fleets that will fly fast and low, offering communications now commonly handled by larger, more expensive satellites.

Right now there are fewer than 2,000 operating satellites, and the planned additional space traffic demands vigilance, Federal Communications Commission Chairman Ajit Pai said before the agency voted Thursday on a variety of space-related matters including SpaceX’s application, debris rules, and other space matters. IBD

Transportation

EVs

China Is About to Shake Up the World of Electric Cars

China is set to unleash a seismic shakeup of the automotive industry when it introduces stringent rules to promote new-energy vehicles. From 2019, major manufacturers will be punished unless they meet quotas for zero- and low-emission cars or they buy credits from other companies that exceed the quotas. The so-called cap-and-trade system is designed to spur the market for electric cars at the expense of gas guzzlers, all part of China’s quest to clean its air and reduce dependence on imported oil. Another major driver: Helping develop a homegrown electric-vehicle industry.

Under the new rules, automakers that produce more than 30,000 vehicles will have to obtain a new-energy vehicle (NEV) credit of at least 10 percent in 2019, rising to 12 percent in 2020.

Because vehicles are awarded credit scores depending on their green credentials, such as how far they go without needing a charge. The least eco-friendly NEV will receive a credit score of two, while the greenest will get a maximum credit of six. So, to meet the 2019 credit target of 10 percent, a carmaker producing 100,000 gasoline-based vehicles would need 10,000 credits.

Companies that have a head start on producing NEVs have the highest credit scores. Those include BYD Co., BAIC BluePark New Energy Technology Co. and Geely Automobile Holdings Ltd., according to the Ministry of Industry and Information Technology. B

EVs

In California, electric vehicles now make up 10% of all new cars sold

August was a good month for electric cars in the US. Sales of plug-in electric vehicles have reached 190,000 units as of August, nearly eclipsing total EV sales in 2017. That caps almost three years of consecutive monthly sales gains (year over year), reports CleanTechnica.

California is the epicenter of this growth. The car-loving state has always led the US in electric vehicle sales, but this August, electric cars captured 10% of the state’s new-car market for the first time, according to the latest data from the Alliance of Automobile Manufacturers. The EV market share for the US as a whole is just 1.66%.

Tesla had a lot to do with it. The California carmaker sold more EVs than any other automaker on the market, accounting for 47% of all EV sales in the US, according to InsideEVs. Toyota, Chevrolet, Honda and, Nissan were far behind in cumulative sales. Tesla’s Model 3, in particular, has exceeded all expectations. It was the best-selling electric car in the US during the third quarter of 2018, and the fifth-best selling sedan overall. With the Model S and Model X, Tesla holds three of the top four spots among best selling electric cars. QZ

EVs

Volkswagen to Pour Billions Into Electric Cars

Volkswagen AG will invest nearly $150 billion over the next five years, with about one-third earmarked for the development of electric cars, self-driving vehicles and digital services, as the German auto maker responds to growing competition from Silicon Valley.

The new budget from Volkswagen—traditionally one of the biggest spenders in the global auto industry—underscores the challenge posed by the technology sector, as electric vehicles are set to go mainstream and self-driving cars are on the verge of hitting the streets.

The cost of developing new technologies is pushing conventional auto makers to cooperate with competitors. Volkswagen Chief Executive Herbert Diess said talks with Ford Motor Co. regarding an alliance on producing light trucks could be concluded by the end of 2018.

The two companies are also discussing cooperating on self-driving vehicles, according to people familiar with the situation.

Earlier this year, Volkswagen unveiled plans to build 16 electric-vehicle factories world-wide, largely by converting existing plants, and to acquire battery capacity to build millions of electric vehicles. Under its new five-year plan, Volkswagen will convert the first three factories in Germany, replacing conventional vehicle manufacturing in Emden, Hanover, and Zwickau. WSJ

EVs

A slew of electric truck plans may deliver the goods for China’s EV ambitions

Having just broken ground for a new factory in the southern Chinese province of Hunan, the head of electric car startup Singulato Motors has grand plans: build up to 50,000 electric vans per year and ride the crest of a wave for e-truck demand in China.

For a growing number of automakers operating in the world’s biggest vehicle market, it’s time to invest in electric vans and trucks. They’re convinced by increasingly stringent restrictions aimed at reining in pollution, generous subsidies as well as robust demand for light-duty trucks as e-commerce flourishes.

Singulato, which is due to launch its first electric car by the middle of next year, hopes to open the e-truck plant by 2020 and quickly ramp up annual output to 50,000. Shen envisions two main models that would appeal to e-commerce and logistics firms: a small intra-city delivery van the size of the Ford Transit or the Toyota HiAce, and a delivery truck under 2 tonnes.

Growing momentum for e-trucks could prove to be a tipping point for the electric vehicle, first in China and eventually worldwide – encouraging the mass adoption that Tesla Inc and other EV makers are aiming to give rise to with passenger cars. R