WEBVTT - Catch Me If You Can: EU Trails US On Clean-Tech Policy 0:00:00.320 --> 0:00:03.120 This is Dana Perkins and you're listening to Switched on 0:00:03.360 --> 0:00:06.600 the Beanna of podcasts, and today we talk about the 0:00:06.680 --> 0:00:09.719 roles subsidies and tariffs are trying to play in creating 0:00:09.960 --> 0:00:14.200 world leading industries in clean technology. It's undeniable that the 0:00:14.320 --> 0:00:18.000 US's Inflation Reduction Act has had far reaching effects on 0:00:18.120 --> 0:00:21.119 global trade for clean tech manufacturing. This has left the 0:00:21.120 --> 0:00:24.640 European Union considering the policies they need to keep up. 0:00:25.000 --> 0:00:28.560 The EU has historically been a leader in the energy transition, 0:00:28.800 --> 0:00:31.800 with the world's first emissions trading system and the European 0:00:31.800 --> 0:00:35.440 Green Deal that dedicated one trillion euros to climate funding. 0:00:35.720 --> 0:00:40.040 More recently, they responded with the Net Zero Industry Act. However, 0:00:40.200 --> 0:00:43.320 the EU continues to trail on subsidies and has less 0:00:43.320 --> 0:00:46.640 aggressive trade barriers than the US. There is six times 0:00:46.680 --> 0:00:49.760 as much public funding offered to clean tech manufacturers in 0:00:49.800 --> 0:00:52.599 the US when compared to the EU. One of the 0:00:52.600 --> 0:00:57.000 industries benefiting the most is battery manufacturing, with sixty two 0:00:57.080 --> 0:01:02.120 percent of manufacturing subsidies in the US target battery making. Specifically, 0:01:02.400 --> 0:01:04.720 other parts of the world are considering how they should 0:01:04.720 --> 0:01:08.080 adjust their policies in response to which makes sense considering 0:01:08.080 --> 0:01:11.160 that roughly thirty nine billion dollars of value in twenty 0:01:11.240 --> 0:01:15.240 twenty three of EU and US clean tech imports could 0:01:15.240 --> 0:01:18.000 be subject to new tariffs which were proposed the first 0:01:18.040 --> 0:01:20.399 half of twenty twenty four. But even in the phase 0:01:20.440 --> 0:01:23.520 of tariffs, imports from some countries may continue to be 0:01:23.600 --> 0:01:26.840 cost competitive. So to share what this all means today, 0:01:27.040 --> 0:01:30.119 I welcome Matthew Hiles from bn EF's Trade and Supply 0:01:30.240 --> 0:01:33.400 Chains team, and Antoine Wagner Jones, who leads that team. 0:01:33.680 --> 0:01:36.039 They draw from some of their findings and a recent 0:01:36.120 --> 0:01:40.160 research report which was titled US Clean Tech Industrial Policy 0:01:40.240 --> 0:01:43.759 leaves EU behind for now. Bn EF subscribers can access 0:01:43.800 --> 0:01:46.520 the full report at BNF go on the Bloomberg terminal, 0:01:46.800 --> 0:01:49.720 or at BNF dot com. Let's speak with Antoine and 0:01:49.840 --> 0:01:52.920 Matthew about trade, where we are and where it could 0:01:52.920 --> 0:02:05.120 all be going andtoon. Welcome back to the show. 0:02:05.400 --> 0:02:06.840 Hi, Dana, great to be here. 0:02:06.800 --> 0:02:08.679 And matt nice to have you here as well. 0:02:08.840 --> 0:02:10.120 Hidana, thank you for having us. 0:02:10.440 --> 0:02:12.400 So we've got a theme for today's show. We're going 0:02:12.440 --> 0:02:15.880 to be talking about on shoring and what we're seeing 0:02:15.880 --> 0:02:19.520 in particular in the United States. Although this also involves 0:02:19.600 --> 0:02:24.519 Mexico and in Europe, and really this story that's starting 0:02:24.520 --> 0:02:26.720 to unfold over the last couple of years or some 0:02:26.800 --> 0:02:30.200 real stimulus for some of the industries that we're looking 0:02:30.240 --> 0:02:34.040 at here at BNEF, whether they're renewables or other low 0:02:34.080 --> 0:02:37.720 carbon technology like hydrogen, but really where that technology is 0:02:37.760 --> 0:02:42.080 being built and what companies and countries are allowed to 0:02:42.160 --> 0:02:46.000 play in that development. So let's start off with just 0:02:46.200 --> 0:02:49.440 a quick summary of what the US Inflation Reduction Act 0:02:49.600 --> 0:02:51.280 is and then we can get to what the EU's 0:02:51.360 --> 0:02:52.480 response to that is. 0:02:52.840 --> 0:02:55.640 So pretty much, the US Inflation Reduction Act launched in 0:02:55.800 --> 0:02:57.600 twenty twenty two, and really you can think of it 0:02:57.639 --> 0:02:59.440 as a big job spill, and what it's trying to 0:02:59.480 --> 0:03:03.040 do is reindustrialized bits of America using new kind of 0:03:03.160 --> 0:03:07.680 high technology manufacturing areas such as clean tech or electric 0:03:07.800 --> 0:03:09.760 vehicles and things like that. And there's a bunch of 0:03:09.760 --> 0:03:12.919 subsidies that come with it in different forms. And what's 0:03:13.000 --> 0:03:15.120 really interesting about it is it has a load of 0:03:15.120 --> 0:03:17.160 money behind it, but it also has what we call 0:03:17.240 --> 0:03:20.680 local content requirements, which are ways of trying to access 0:03:20.720 --> 0:03:23.480 this money and trying to limit who can access this 0:03:23.560 --> 0:03:26.080 money so that it's mostly US firms that get it. 0:03:26.560 --> 0:03:29.760 So to what extent, given that the US election is 0:03:29.919 --> 0:03:32.959 very very near to what extent is the Inflation Reduction 0:03:33.000 --> 0:03:35.520 Act in these tax codes, have they been written or 0:03:35.560 --> 0:03:37.400 are we still working our way through them. 0:03:37.800 --> 0:03:41.760 So most of the actual detailed legal documents around these 0:03:41.800 --> 0:03:45.520 tax codes are finalized or very least very close to 0:03:45.560 --> 0:03:49.320 being finalized, especially Section forty five X, that really important 0:03:49.400 --> 0:03:52.280 tax credit on the production of all these different clean 0:03:52.360 --> 0:03:55.400 tech components, and so it'll be really hard for anything 0:03:55.440 --> 0:03:58.640 to dramatically change in terms of the measure being repealed. 0:03:58.720 --> 0:04:01.480 What could happen in an OVEN election, depending on if 0:04:01.520 --> 0:04:05.080 the Republicans win and depending on how political favor it's 0:04:05.160 --> 0:04:08.520 after the election, the Republican Party could make the access 0:04:08.560 --> 0:04:11.160 to these tax credits a bit more tricky, and they 0:04:11.160 --> 0:04:15.000 could limit other areas of US financing for these solar 0:04:15.040 --> 0:04:18.000 industries and clean tech industries. But we don't expect to 0:04:18.040 --> 0:04:20.719 see a big repeal of all of these different bits 0:04:20.760 --> 0:04:22.360 of legislation that have been put in for now. 0:04:22.640 --> 0:04:25.240 And certain aspects of the IRA, like the supplied side 0:04:25.600 --> 0:04:28.440 incentives for electric vehicles are a lot more prominent and 0:04:28.480 --> 0:04:31.039 I have been subject to a lot more criticism than 0:04:31.120 --> 0:04:34.239 some of the manufacturing subsidies, which have behind the scenes 0:04:34.320 --> 0:04:37.000 been leading to all kinds of investments happening in so 0:04:37.120 --> 0:04:40.080 called red states where the majority of clean tech factories 0:04:40.120 --> 0:04:42.800 are actually being cited. So we see things like the 0:04:42.839 --> 0:04:44.840 forty five x tax credit. This all gets a bit 0:04:44.920 --> 0:04:47.240 arcane when you're comparing different types of tax credits, but 0:04:47.320 --> 0:04:52.599 this particular supply chain incentive subsidy look less vulnerable to 0:04:52.640 --> 0:04:57.920 any post election targeting of IRA incentives than other incentives, 0:04:57.960 --> 0:05:00.880 such as ones for purchasing electric vehicles, which have really 0:05:00.920 --> 0:05:03.200 been front and center of a lot of the Republican 0:05:03.240 --> 0:05:04.600 criticism of the bill. 0:05:04.920 --> 0:05:07.280 Well, now that we've been through the election question at 0:05:07.279 --> 0:05:09.400 the beginning of the show, we can get on to 0:05:09.480 --> 0:05:11.400 the rest of the policy stuff, because that one's always 0:05:11.440 --> 0:05:13.680 on the tip of everyone's tongue. So let's pivot now 0:05:13.839 --> 0:05:17.120 to the EU. So what's happening in Europe? And you know, 0:05:17.320 --> 0:05:20.120 before the Inflation Reduction Act even came out, the EU 0:05:20.200 --> 0:05:24.800 dedicated a trillion euros in this green deal during the 0:05:24.800 --> 0:05:27.520 decade between twenty twenty and twenty thirty. How is that 0:05:27.560 --> 0:05:30.320 getting on? And then really, since the Inflation Reduction Act 0:05:30.360 --> 0:05:33.520 came out after that commitment, what sort of policies are 0:05:33.560 --> 0:05:35.679 we seeing in response from the EU. 0:05:36.320 --> 0:05:38.440 So the thing about the IRA was that it was 0:05:38.440 --> 0:05:41.640 trying to reindustrialize a lot of American manufacturing, and the 0:05:41.680 --> 0:05:44.400 EU's response, the Green Industrial Deal, came a little bit 0:05:44.440 --> 0:05:47.400 before it, and really its target was to kickstart the 0:05:47.440 --> 0:05:50.000 economies after the pandemic, and there was a bunch of 0:05:50.160 --> 0:05:52.919 pandemic related debt that was raised which was used to 0:05:52.920 --> 0:05:54.920 finance a lot of these different measures. The kind of 0:05:55.160 --> 0:05:57.960 exact response to the US's IRA was what the EU 0:05:58.000 --> 0:06:00.599 is calling the Net Zero Industry Act, and within the 0:06:00.600 --> 0:06:03.640 Next Zero Industry Act, that EUS targeting a specific amount 0:06:03.760 --> 0:06:06.880 of annual demand of EU clean tech to be made 0:06:07.120 --> 0:06:09.640 in the EU by twenty thirty. But what it's not 0:06:09.760 --> 0:06:13.039 doing is it's not giving different subsidy types or different 0:06:13.040 --> 0:06:16.440 subsidy pools of funding for clean tech manufacturing like the 0:06:16.560 --> 0:06:17.840 US's IRA is doing. 0:06:18.160 --> 0:06:20.400 What is that target that the Net Zero Industry Act 0:06:20.440 --> 0:06:20.960 is going for. 0:06:21.240 --> 0:06:23.440 So it's going to go for forty percent of clean 0:06:23.480 --> 0:06:25.960 tech across the board by twenty thirty, but this change 0:06:25.960 --> 0:06:28.839 is based on what's being manufactured, so it's much higher 0:06:28.839 --> 0:06:30.960 for areas like batteries, which we're expecting to be about 0:06:31.040 --> 0:06:32.599 ninety percent by twenty thirty. 0:06:32.880 --> 0:06:35.279 And that's the really fascinating thing about the IRAS that 0:06:35.320 --> 0:06:38.320 has led to all kinds of copycat policies across the world, 0:06:38.360 --> 0:06:42.200 where politicians have suddenly come under this seeming pressure that 0:06:42.200 --> 0:06:43.880 they've got to come up with some kind of a 0:06:43.920 --> 0:06:46.520 convincing answer to what the US is doing. And we've 0:06:46.520 --> 0:06:48.440 really seen that in the EU because all of these 0:06:48.480 --> 0:06:50.720 companies after the passage of the IRA was saying we're 0:06:50.720 --> 0:06:52.440 going to relocate to the US, and many of them 0:06:52.480 --> 0:06:55.400 actually did end up leaving Europe and some of them 0:06:55.560 --> 0:06:58.480 built out some expanded their manufacturing capacity in the US. 0:06:58.600 --> 0:07:00.840 So the European Commission was under massive pressure to come 0:07:00.880 --> 0:07:02.800 up with some kind of an answer, and that's something 0:07:02.839 --> 0:07:05.000 that we've seen not just in the EU, but in many, 0:07:05.040 --> 0:07:07.320 many different parts of the world. So actually, this research 0:07:07.480 --> 0:07:09.400 note that we're going to be drawing from when talking 0:07:09.400 --> 0:07:11.160 about a lot of the numbers going forwards in this 0:07:11.200 --> 0:07:13.520 conversation is actually part of a wider project where we're 0:07:13.560 --> 0:07:15.880 just kind of trying to quantify what's being offered to 0:07:16.560 --> 0:07:19.800 clean tech manufacturers across all of these different regions of 0:07:19.840 --> 0:07:22.080 the world that are all sort of starting to think 0:07:22.120 --> 0:07:24.960 about supply chains differently in the wake of this really 0:07:25.040 --> 0:07:26.920 seminal US piece of legislation. 0:07:27.240 --> 0:07:30.080 Well, and this is all for funding new projects or 0:07:30.120 --> 0:07:33.679 stimulating certain parts of the economy. The inflation Reduction Acts 0:07:33.720 --> 0:07:36.480 and these tax codes have really freed up a lot 0:07:36.520 --> 0:07:39.360 of money from the government, one might say, in order 0:07:39.400 --> 0:07:42.280 to facilitate this, has the EU and have their targets 0:07:42.320 --> 0:07:45.040 really also unlocked new funding opportunities. 0:07:45.560 --> 0:07:48.400 So the EU has a lot less funding than we're 0:07:48.400 --> 0:07:50.840 seeing in the US. We're seeing about six times less 0:07:50.880 --> 0:07:54.040 total public funding go to clean tech manufacturing, and I 0:07:54.080 --> 0:07:55.680 think one of the key things to take away from 0:07:55.720 --> 0:07:58.720 this is that the US's subsidies and their incentives offer 0:07:58.760 --> 0:08:01.600 a lot of visibility for clear tech manufacturers into the future. 0:08:01.760 --> 0:08:04.120 In the EU this is not the case. So the 0:08:04.160 --> 0:08:06.480 only part of the EU's funding which we see have 0:08:06.520 --> 0:08:09.760 a lasting impact was twenty thirty are auction revenues from 0:08:09.800 --> 0:08:13.120 the EU's ETS scheme. The other aspect of this is 0:08:13.560 --> 0:08:16.320 member state funding, and that's funding coming from members eight 0:08:16.360 --> 0:08:19.280 countries of the EU, that's France, Germany and Italy. Is 0:08:19.280 --> 0:08:21.400 what we're looking at within the research note that we're 0:08:21.440 --> 0:08:23.640 referring to, and those are really the ones we focus 0:08:23.680 --> 0:08:26.320 on because they're the big industrial heavy hitters of Europe. 0:08:26.400 --> 0:08:28.560 So I'm going to play devil's advocate here for a second. 0:08:28.560 --> 0:08:30.840 And I love that you brought up the EU Emissions 0:08:30.880 --> 0:08:33.840 Trading System because that was established in two thousand and five. 0:08:34.160 --> 0:08:37.440 In terms of trying to reach climate goals and emissions targets, 0:08:37.520 --> 0:08:39.760 that actually is a long time ago, even though the 0:08:39.840 --> 0:08:42.320 number does start with the two thousand. Do you think 0:08:42.360 --> 0:08:44.960 that part of the reason that there's lower funding in 0:08:45.000 --> 0:08:46.640 Europe has something to do with the fact that they 0:08:46.640 --> 0:08:49.199 had a head start and maybe they've been consistently working 0:08:49.240 --> 0:08:52.840 on decarbonizing or is it really just that they're not 0:08:53.280 --> 0:08:56.520 actively pursuing these goals in such an aggressive way as 0:08:56.520 --> 0:08:57.120 the US is. 0:08:57.640 --> 0:09:00.200 So it's really interesting. Is one of the things things 0:09:00.200 --> 0:09:03.160 that came out after the IRA was this new depiction 0:09:03.280 --> 0:09:05.720 of what's going on in the EU versus the US 0:09:05.760 --> 0:09:08.400 and talking about how the US uses more of a carrot, 0:09:08.440 --> 0:09:11.000 deploying lots of funding but not really having any federal 0:09:11.040 --> 0:09:13.560 carbon pricing or any kind of a stick when it 0:09:13.600 --> 0:09:17.000 comes to mandating that companies pursue given course of action, 0:09:17.040 --> 0:09:20.200 whereas the EU was putting in place aggressive targets that 0:09:20.280 --> 0:09:22.719 countries were actually trying to strive towards in a more 0:09:22.760 --> 0:09:25.240 concrete sense, and putting in place things like a carbon price, 0:09:25.280 --> 0:09:27.679 which has been quite effective at decarbonizing the power sector 0:09:27.679 --> 0:09:30.440 in many different areas. Now that's very different, and the 0:09:30.440 --> 0:09:34.680 emphasis really has been on decarbonizing efficiently and not so 0:09:34.840 --> 0:09:37.640 much on on shoring supply chains, which is a very 0:09:37.640 --> 0:09:40.640 different proposition. When you're making lots of funding available and 0:09:40.720 --> 0:09:43.319 channeling it towards supply chains, well, that's a good way 0:09:43.360 --> 0:09:45.199 of getting lots of announcements of the type that we're 0:09:45.200 --> 0:09:46.839 seeing in the US with over one hundred and ten 0:09:46.840 --> 0:09:49.360 billion dollars of clean tech factories being announced. But when 0:09:49.360 --> 0:09:52.760 you're putting in place the conditions to decarbonize as quickly 0:09:52.800 --> 0:09:56.320 as possible, that's not necessarily something that's conducive to getting 0:09:56.360 --> 0:09:58.960 a homegrown solar value chain, because actually it's a lot 0:09:59.040 --> 0:10:01.360 cheaper to import from wherever that piece of equipment is 0:10:01.400 --> 0:10:05.080 produced at lowest cost. So different approaches, and the latter 0:10:05.320 --> 0:10:07.400 it's got its pros, it's got its cons. But the 0:10:07.440 --> 0:10:11.600 focus really in the EU hasn't been on nurturing sort 0:10:11.640 --> 0:10:14.880 of homegoing solar manufacturing, where we're starting to see a 0:10:14.880 --> 0:10:17.400 bit more of an emphasis now on reviewing that and 0:10:17.440 --> 0:10:19.440 seeing whether or not the EU wants to get more 0:10:19.520 --> 0:10:22.720 serious about trying to put in place that production capacity 0:10:22.840 --> 0:10:26.280 not just for generating clean atricity, but also the equipment 0:10:26.360 --> 0:10:27.240 that goes behind it. 0:10:27.400 --> 0:10:30.079 That's a great and really important distinction to call out, 0:10:30.120 --> 0:10:32.840 which then brings us to these tariffs. Let's talk about 0:10:32.960 --> 0:10:35.679 the EU and the US and what the impact has 0:10:35.760 --> 0:10:38.000 been of the tariffs that are in place. So what's 0:10:38.040 --> 0:10:40.240 happening in the US, and I guess how much success 0:10:40.280 --> 0:10:42.720 is it having and what's it targeting? Where where are 0:10:42.720 --> 0:10:46.640 we no longer seeing imports from these supply chains coming from. 0:10:47.000 --> 0:10:50.320 So the US first put tariffs on clean tech related 0:10:50.320 --> 0:10:52.240 stuff back in twenty twelve, and that's when we can 0:10:52.320 --> 0:10:54.560 really see this game of cat and mouse kickoff. So 0:10:54.600 --> 0:10:57.520 what it did is it put tariffs on Chinese solar equipment. 0:10:57.559 --> 0:11:00.480 Those are solar modules and solar cells. So after this 0:11:00.559 --> 0:11:02.720 long running game of cat and mouse on solar what 0:11:02.760 --> 0:11:05.960 we're seeing now is tariff's being imposed on other areas 0:11:05.960 --> 0:11:08.480 of clean tech to quite a significant degree. So we're 0:11:08.480 --> 0:11:11.360 seeing one hundred percent plus on evs, and it is 0:11:11.520 --> 0:11:14.360 likely to stop a kind of avalanche of cheap Chinese 0:11:14.440 --> 0:11:17.640 evs coming in which have benefited from just better competition 0:11:17.840 --> 0:11:20.440 out in China and its advanced market that it has there. 0:11:20.520 --> 0:11:22.960 We're also seeing batteries being affected by this, and this 0:11:23.080 --> 0:11:26.320 is likely going to impact battery energy storage projects from 0:11:26.360 --> 0:11:28.840 about twenty twenty six when these tariffs will be imposed, 0:11:28.920 --> 0:11:32.520 and it's still unsure whether China, that's low cost of 0:11:32.559 --> 0:11:35.680 their equipment produced, will negate these tariffs completely. 0:11:36.200 --> 0:11:39.440 And yeah, it's really interesting because right now we've seen 0:11:39.480 --> 0:11:42.480 this real political prominence of evs as the focus of 0:11:42.480 --> 0:11:44.360 a lot of tariffs that we're seeing discussed around the world, 0:11:44.400 --> 0:11:46.120 whether it's in we'll get to the EU, but in 0:11:46.160 --> 0:11:48.480 Canada and the US, et cetera. But right now, there 0:11:48.480 --> 0:11:51.839 really aren't that many Chinese evs being exported to the US. 0:11:51.960 --> 0:11:54.760 So the fear is exactly has Matt said to stave 0:11:54.800 --> 0:11:59.000 off future imports given the lack of affordable, low cost 0:11:59.000 --> 0:12:01.560 competitive models that are being put out by, for example, 0:12:02.000 --> 0:12:04.360 some the big three manufacturers in the US when it 0:12:04.360 --> 0:12:06.480 comes to auto making. So it's more of a forward 0:12:06.480 --> 0:12:08.840 looking thing, whereas with batteries, it's a bit different. The 0:12:08.920 --> 0:12:11.520 US does import a lot of Chinese batteries, but the 0:12:11.559 --> 0:12:14.120 tariffs being set are a bit lower than for evs. 0:12:14.280 --> 0:12:17.080 And actually, what we've seen is quite interesting is that 0:12:17.120 --> 0:12:18.679 even though these these are going to be imposed in 0:12:18.720 --> 0:12:20.760 twenty twenty six, even though they're going to make stationary 0:12:20.800 --> 0:12:25.640 storage projects more costly, the continued decline in battery prices worldwide, 0:12:25.679 --> 0:12:28.200 it looks like we'll offset that tariff and will actually 0:12:28.200 --> 0:12:32.560 continue to make Chinese batteries more cost competitive with US batteries. 0:12:32.559 --> 0:12:34.000 But at the end of the day, these batteries are 0:12:34.040 --> 0:12:36.480 sort of understanding what's happening on the tariffront, it's sort 0:12:36.480 --> 0:12:39.880 of a moving target. We've seen extremely high blanket tariffs 0:12:39.880 --> 0:12:42.760 announced by the Trump administration at various levels for the 0:12:42.800 --> 0:12:45.040 whole world of the world or just focusing on China, 0:12:45.200 --> 0:12:48.760 and that level of uncertainty makes it very hard to 0:12:48.800 --> 0:12:50.959 sort of assume what tariffs are going to be two 0:12:51.120 --> 0:12:54.160 three years from now. And overall, this situation where we're 0:12:54.200 --> 0:12:56.760 just generally seeing a rising tide of tariffs, with the 0:12:56.800 --> 0:12:59.720 Trump tariffs being kept under Biden, with these then expected 0:12:59.760 --> 0:13:02.040 to be built upon just basically means that there's a 0:13:02.080 --> 0:13:04.880 stronger business case for building in the US because that's 0:13:04.920 --> 0:13:06.880 perceived as the one way that you're going to be 0:13:06.920 --> 0:13:10.000 reliably able to tap into one of the world's fastest 0:13:10.000 --> 0:13:11.880 growing markets. When it comes to a lot of this 0:13:12.000 --> 0:13:13.440 clean technology. 0:13:13.040 --> 0:13:16.240 How have some of the clean technology manufacturers who are 0:13:16.280 --> 0:13:19.640 experiencing these very low prices, how have they been able 0:13:19.679 --> 0:13:22.120 to circumvent some of these tariffs and have they set 0:13:22.160 --> 0:13:25.280 up production in different countries and really worked around it. 0:13:25.320 --> 0:13:26.200 How's that unfolded. 0:13:26.440 --> 0:13:29.160 So one of the things we've seen is Chinese manufacturers 0:13:29.200 --> 0:13:32.440 moving to Southeast Asia. And what's really interesting about this 0:13:32.559 --> 0:13:35.679 is the US extended their tariffs to cover Chinese cells 0:13:35.720 --> 0:13:39.520 being produced in Southeast Asia and getting exported into the US. 0:13:39.800 --> 0:13:43.760 What's recently happened is the US is investigating more tariffs 0:13:43.800 --> 0:13:47.200 on Southeast Asian production of modules themselves. 0:13:46.679 --> 0:13:48.600 And I mean this is something that we might end 0:13:48.640 --> 0:13:50.800 up seeing in other sectors as well. So these US 0:13:50.840 --> 0:13:53.200 tariffs on SOLO have made SOLO a lot more expensive 0:13:53.200 --> 0:13:56.240 in the US. They haven't spurred much domestic manufacturing, although 0:13:56.240 --> 0:13:59.000 there are announcements now with the provision of subsidies under 0:13:59.040 --> 0:14:01.720 the IRA. But the question is if these tariffs are 0:14:01.720 --> 0:14:03.599 then applied to evs. For example, are we going to 0:14:03.640 --> 0:14:05.000 see the same thing, Are we going to see the 0:14:05.120 --> 0:14:08.920 likes of BYD or different Chinese manufacturers relocate their production 0:14:09.000 --> 0:14:11.520 and begin to export from other markets into the US 0:14:11.559 --> 0:14:14.120 as a way of circumventing those tariffs. It's a complicated 0:14:14.160 --> 0:14:16.280 picture because of some of those local content rules that 0:14:16.320 --> 0:14:19.320 we mentioned as well, which specifically restrict the availability of 0:14:19.360 --> 0:14:22.720 certain subsidies to companies or to certain models of EVS 0:14:22.800 --> 0:14:25.920 that are using parts produced by Chinese companies. So it's 0:14:25.960 --> 0:14:28.440 not that simple. But what we've seen in the US 0:14:28.480 --> 0:14:31.560 is an enormous amount of cost and complexity for very 0:14:31.640 --> 0:14:35.000 little apparent benefit when it comes to the key goals 0:14:35.000 --> 0:14:38.040 that you could conceive of when these tariffs were drawn up. 0:14:38.080 --> 0:14:39.600 And the risk is that we might end up seeing 0:14:39.600 --> 0:14:42.160 a similar trend with these new sectors, whether it's batteries, 0:14:42.160 --> 0:14:44.640 whether it's evs, of a lot of complexity, a lot 0:14:44.640 --> 0:14:47.480 of cost, a lot more lawyer fees for example, for 0:14:47.560 --> 0:14:50.120 some of these for some of these manufacturers who might 0:14:50.120 --> 0:14:53.440 spend a lot more time in DC talking to policymakers 0:14:53.480 --> 0:14:56.800 about their priorities at the cost of certain efficiencies that 0:14:56.840 --> 0:14:59.320 you might hope for when you're thinking about the energy 0:14:59.320 --> 0:15:01.680 transition and how to make it happen as quickly as possible. 0:15:01.800 --> 0:15:03.840 So what sort of tariffs are we seeing in the EU. 0:15:04.320 --> 0:15:06.960 So the EU's tariffs are a lot lower across clean tech, 0:15:07.040 --> 0:15:09.280 and that's really because the EU has had a more 0:15:09.320 --> 0:15:11.400 liberal approach to trade for a long time. The way 0:15:11.440 --> 0:15:13.600 the block has been set up kind of incentivizes this. 0:15:13.760 --> 0:15:15.960 But the big change that's happened recently is that EU 0:15:16.000 --> 0:15:19.760 has announced additional tariffs on imports of Chinese evs. So 0:15:19.840 --> 0:15:23.440 the maximum tariff on imports of Chinese EV's was decided 0:15:23.480 --> 0:15:26.280 earlier in October at forty five point three percent, and 0:15:26.360 --> 0:15:28.840 the impact this is likely to have will be vastly 0:15:28.840 --> 0:15:32.000 different between different firms. So what the EU did is 0:15:32.040 --> 0:15:35.720 it put this maximum tariff on Chinese production, put specified 0:15:35.760 --> 0:15:38.960 specific rates for specific companies. One of the really interesting 0:15:39.000 --> 0:15:42.000 things we see about this is someone like BYD their 0:15:42.080 --> 0:15:44.800 rates seventeen percent, and actually the margins that they have 0:15:44.880 --> 0:15:48.480 when importing when exporting cars into Europe will likely mean 0:15:48.560 --> 0:15:50.840 that this tariff will not have much of an effect 0:15:50.920 --> 0:15:52.360 on their sales into Europe. 0:15:52.680 --> 0:15:56.760 Can you explain why equipment coming from China, in the 0:15:56.840 --> 0:15:59.880 simplest sense, is so much less expensive. 0:16:00.160 --> 0:16:01.960 Enjoying up a lot of these tariffs and the rational 0:16:01.960 --> 0:16:04.840 behind them. There's been a lot of focus on the 0:16:04.880 --> 0:16:08.960 provision of subsidies to manufacturers in China, which have exist 0:16:09.160 --> 0:16:13.080 in a very clear form for demand of evs, for example, 0:16:13.120 --> 0:16:16.160 in the past, and there's been certain low cost loans, 0:16:16.400 --> 0:16:19.800 or certain tax deferrals, or various incentives that have been 0:16:19.840 --> 0:16:22.400 and continue to be given to Chinese manufacturers. But there's 0:16:22.600 --> 0:16:24.880 that's really been a big part of the conversation. But 0:16:24.920 --> 0:16:27.880 what it's done is stop sort of looking at the 0:16:27.880 --> 0:16:30.280 fact that the picture has evolved a lot since then, 0:16:30.440 --> 0:16:32.480 and now what we really see is that there are 0:16:32.520 --> 0:16:36.280 several factors that are contributing to the competitiveness of Chinese evs, 0:16:36.480 --> 0:16:39.440 and they are things like scale, for example. They are 0:16:39.480 --> 0:16:43.640 things like supply chains being extremely efficient and clustered in 0:16:43.960 --> 0:16:47.600 certain Chinese provinces. They are things like an intense level 0:16:47.640 --> 0:16:51.320 of competition. As China's EV sales have rocketed, but production 0:16:51.480 --> 0:16:55.200 has in some cases for batteries or solar exceeded demand, 0:16:55.320 --> 0:16:57.480 and then that really drives a need to find new 0:16:57.560 --> 0:17:02.200 markets for this equipment. So there's this extreme level of 0:17:02.280 --> 0:17:05.400 competition in China, which is really one of the primary 0:17:05.480 --> 0:17:09.560 drivers for companies like CATL like Bid engaging in price 0:17:09.640 --> 0:17:12.440 wars against each other to try and get market share 0:17:12.480 --> 0:17:14.840 and retain it. And a lot of these companies are 0:17:14.840 --> 0:17:16.359 sort of still spending a lot on R and D 0:17:16.600 --> 0:17:19.679 and behaving like scrappy startups where you'd expect them to 0:17:19.680 --> 0:17:22.640 be resting on their lawrels as incumbents, and that's something 0:17:22.680 --> 0:17:25.440 that's quite hard to just to and when you look 0:17:25.440 --> 0:17:27.520 at the fact that actually what they're providing, if it's 0:17:27.600 --> 0:17:30.560 electric vehicles, for example, are models that are in some 0:17:30.640 --> 0:17:33.480 cases quite premium models. When you look at the Neo 0:17:33.640 --> 0:17:36.560 for example, and what they're offering that compare favorably to 0:17:37.240 --> 0:17:39.480 some of the Western brands and are far more advanced 0:17:39.760 --> 0:17:42.440 when it comes to certain bells and whistles with digitalization. 0:17:42.680 --> 0:17:46.399 Then it becomes quite difficult to make up that lost ground. 0:17:46.520 --> 0:17:48.480 And I think one of the hard things is that 0:17:48.560 --> 0:17:50.800 it's about price, but it's not just about price. 0:17:51.200 --> 0:17:56.000 So these tariffs, if they are then spurring on domestic 0:17:56.040 --> 0:17:59.159 manufacturing in the US and do a lesser extent, but 0:17:59.200 --> 0:18:02.240 also the EU, let's say they become successful, are we 0:18:02.320 --> 0:18:05.960 going to see global cost competitiveness that's ultimately going to 0:18:06.000 --> 0:18:08.600 result in the tariffs being removed or will they have 0:18:08.680 --> 0:18:09.520 to exist forever. 0:18:09.800 --> 0:18:11.760 That's a really key question, and actually it's one of 0:18:11.840 --> 0:18:14.879 the ways that people think if a policy, an industrial policy, 0:18:14.920 --> 0:18:18.480 has been successful, is if the product can become export competitive. 0:18:18.720 --> 0:18:20.760 I think it's very fair to say that you use 0:18:21.040 --> 0:18:24.439 battery and ev making ecosystem has a long way to 0:18:24.480 --> 0:18:27.040 go before it can become cost competitive with many of 0:18:27.040 --> 0:18:29.840 the Chinese producers. But at the same time, a lot 0:18:29.880 --> 0:18:32.920 of the big EU companies, that especially the German companies, 0:18:33.000 --> 0:18:35.320 have got a vast number of factories out in China 0:18:35.440 --> 0:18:37.919 through JVS, which they can learn from people who are 0:18:37.920 --> 0:18:39.840 at the cutting ends of the industry. So, for example, 0:18:39.920 --> 0:18:42.800 Volkswagen has forty factories out in China and it's one 0:18:42.800 --> 0:18:45.119 of the reasons why it was quite heavily against the 0:18:45.160 --> 0:18:48.560 imposition of tariffs because its production was affected. But really 0:18:48.600 --> 0:18:50.960 those factories out in China can tap into, as we 0:18:51.000 --> 0:18:53.639 said before, one of the most advanced domestic markets and 0:18:53.720 --> 0:18:54.680 really learned that way. 0:18:54.920 --> 0:18:57.320 And I think that's a really key point is just 0:18:57.320 --> 0:18:59.280 the fact that it's very hard to see a scenario 0:18:59.320 --> 0:19:02.040 where you managed to scale Western manufacturing to the extent 0:19:02.080 --> 0:19:06.040 that it becomes suddenly competitive with Chinese manufacturing, the scale 0:19:06.119 --> 0:19:09.240 is just not there. And even if you're ring fencing 0:19:09.280 --> 0:19:12.360 the economy and providing this sort of infant industry protection 0:19:12.440 --> 0:19:14.240 whatever you want to call it, to provide a mix 0:19:14.280 --> 0:19:16.800 of subsidies in tarifs and local content rules to then 0:19:16.920 --> 0:19:20.880