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Speaker 1: This is Dana Perkins and you're listening to Switched on

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Speaker 1: the B and EF podcast. China is churning out clean

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Speaker 1: energy technology at a breakneck pace, driving down costs on

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Speaker 1: everything from solar panels to lithium ion batteries, with supply

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Speaker 1: far exceeding domestic demand. Extremely competitively priced equipment necessary for

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Speaker 1: the energy transition is available all over the world. At

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Speaker 1: the same time, many countries are looking at onshoring and

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Speaker 1: near shoring production of the very same things that China

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Speaker 1: is producing. Many China based clean tech manufacturers are experiencing

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Speaker 1: razor thin profit margins all the while, six hundred and

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Speaker 1: forty nine billion dollars of new factories are set to

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Speaker 1: come online between twenty twenty four and twenty twenty seven,

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Speaker 1: which would bring prices even lower. On today's show, I

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Speaker 1: speak with bnaf's head of Trade and Supply Chains and

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Speaker 1: Twan Wagner Jones. We talk about how China and other

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Speaker 1: parts of the world are addressing over supply through policy,

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Speaker 1: and whether the US's Inflation Reduction Act and the European

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Speaker 1: Union's net zero Industry are going to be enough to

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Speaker 1: stimulate more local manufacturing. BNF subscribers will be able to

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Speaker 1: find Antoine's research note titled China's clean Tech overcapacity threatens

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Speaker 1: on Shoring Dreams at BNF dot com or at BNF

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Speaker 1: on the Bloomberg terminal. Make sure to subscribe to switched

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Speaker 1: on if you want a reminder when we publish future episodes.

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Speaker 1: And if you like this show, if you give us

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Speaker 1: a review on Apple Podcasts or on Spotify, it's going

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Speaker 1: to make it easier for others to find us. Right now, though,

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Speaker 1: let's talk to Antoine about overcapacity in the clean tech

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Speaker 1: manufacturing sector. Anton thank you for joining today. We're going

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Speaker 1: to be talking about oversupply and some of the most

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Speaker 1: important parts of the energy transition AIDIA.

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Speaker 2: It's great to be back.

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Speaker 1: So there were this old three of things that were

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Speaker 1: considered Chinese exports that were quite dominant in the industries

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Speaker 1: that they were in, which were household appliances, furniture, and clothing.

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Speaker 1: But now there's this new three. So what are the

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Speaker 1: new three and how long have these been things that

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Speaker 1: essentially China's been dominating.

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Speaker 2: Yeah, in the early two thousands, China's just joined the

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Speaker 2: WTO and it's in this big boom of export lead growth,

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Speaker 2: which is really leading to the economy expanding at a

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Speaker 2: rapid rate, and it's producing these goods at low costs

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Speaker 2: and exporting some of them to the rest of the

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Speaker 2: world in the sectors that you just mentioned. Since there's

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Speaker 2: been a bit of a shift and right now the

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Speaker 2: Chinese economy is in a very different position, and we're

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Speaker 2: seeing basically an implosion of the housing sector, which is

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Speaker 2: a real drag on growth, and that's a situation that

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Speaker 2: sort of persisted. So the Chinese government's thinking about what

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Speaker 2: are some of the other levers that can be pulled on,

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Speaker 2: and going back to this idea of export lead growth

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Speaker 2: and identifying a few priority areas has been part of

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Speaker 2: the solution, and electric vehicles, solar modules, and lithium ion

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Speaker 2: batteries are the three sectors that have been picked out

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Speaker 2: as especially full of potential when it comes to being

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Speaker 2: sectors that are expanding rapidly and for their being growing

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Speaker 2: markets outside of China for those goods. And what's really

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Speaker 2: interesting is we've seen a shift recently where this has

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Speaker 2: been a priority that's been identified by the Chinese government

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Speaker 2: in terms of exporting these different goods, but we're also

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Speaker 2: starting to see the likes of Bloomberg News Goldman Sachs

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Speaker 2: the Financial Times start to draw comparisons looking at those

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Speaker 2: sectors and their contribution towards Chinese GDP at a time

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Speaker 2: where things are slowing down a bit, and comparing it

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Speaker 2: explicitly with the real estate sector and its contribution to GDP.

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Speaker 2: So really a repositioning of the energy transition, not just

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Speaker 2: talking about China's role in sectors that could be labeled

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Speaker 2: as strategic or key to the energy transition, but also

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Speaker 2: talking about the macroeconomic weight of those different sectors and

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Speaker 2: their contribution to the Chinese economy, which is a pretty

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Speaker 2: new shift and one that's quite exciting. Now.

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Speaker 1: We did a show not that long ago on battery

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Speaker 1: manufacturing in China and this set of new facilities that

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Speaker 1: are coming online called gigafactories, which are at a scale

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Speaker 1: never seen before anywhere in the world. Can you talk

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Speaker 1: a little bit specifically about the battery part of it

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Speaker 1: and kind of what's happening there.

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Speaker 2: Absolutely. So, what we do at BNF is we track

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Speaker 2: inment in lots of different sectors, and we started doing

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Speaker 2: the same for the supply chain side of the energy

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Speaker 2: transition story. As of last year. We recently re updated

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Speaker 2: our numbers in a report, the Energy Transition Investment Trends

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Speaker 2: Report that was published earlier this year, and we tracked

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Speaker 2: about one hundred and twenty five billion in supply chain

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Speaker 2: related investment over the last year, and a big part

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Speaker 2: of that was from battery cell factories coming online. So

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Speaker 2: huge part of what's being invested what we think will

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Speaker 2: we be invested across all clean energy factories are in

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Speaker 2: the battery value chain because of the fact that that

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Speaker 2: specific supply chain is so capital intensive. Now, when we

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Speaker 2: look at where stuff's coming online, that's where things get

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Speaker 2: really interesting. So when we look at clean energy supply

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Speaker 2: chain investments written large, there's a lot of excitement about

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Speaker 2: onshoring and localizing things outside of China, But when we

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Speaker 2: look at where new factories are actually coming online and

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Speaker 2: still doing so, things are still more than ninety percent

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Speaker 2: concentrated in one place, and that's China. So we're seeing

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Speaker 2: we're still seeing a lot of momentum bekind new factories

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Speaker 2: coming online in one part of the wor world, and

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Speaker 2: they're doing so at a massive scale. In the past,

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Speaker 2: a lot of the reasons for why Chinese manufacturers were

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Speaker 2: starting to try and find footholds in certain sectors was

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Speaker 2: due to low labor costs or significant public support. But

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Speaker 2: now we've reached a situation where those battery manufacturers are

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Speaker 2: at the technological frontier of what's being done in that space,

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Speaker 2: where we've reached levels of scale and sort of the

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Speaker 2: accompanying networks of providers in certain regions that just allow

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Speaker 2: them to outcompete basically any other sort of nascent battery

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Speaker 2: making industries outside of China. And that's a real big

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Speaker 2: part of why China is so competitive is really down

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Speaker 2: to scale at this stage and down to investments in

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Speaker 2: supply chains that stretch back quite a few years now.

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Speaker 1: So another one of the industries that China has been

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Speaker 1: very dominant in arguably for much longer than even the

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Speaker 1: battery space is the solar sector. Can you talk about

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Speaker 1: some of the history there and how they have also

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Speaker 1: used scale in order to really be the largest manufacturer

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Speaker 1: in the world for solar modules.

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Speaker 2: So now we're going to talk about overcapacity, and we're

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Speaker 2: going to talk about it in a way in which

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Speaker 2: is quite specific to the two sectors we're talking about

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Speaker 2: just now, batteries and solar. What's really interesting with solos

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Speaker 2: we've seen sort of cyclical over capacity be a feature

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Speaker 2: of the market stretching back for as long as China's

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Speaker 2: been involved in manufacturing at scale, so over the last

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Speaker 2: decade plus. But right now things are a little bit different.

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Speaker 2: So right now we've actually got a situation where in

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Speaker 2: twenty twenty two, by the end of the year, China

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Speaker 2: had more than enough manufacturing capacity, and whether it was

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Speaker 2: in the upper bit of the value chain in polosilicon

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Speaker 2: manufacturing or whether it's all the way down downstream to

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Speaker 2: module making, it had enough manufacturing capacity within its own

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Speaker 2: borders to supply the whole of the world's demand. But

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Speaker 2: what we saw over the last year is a pretty

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Speaker 2: unexpected boom in continued investments in new factories. They're built

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Speaker 2: so quickly in China that many of them came online

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Speaker 2: in twenty twenty three. And right now, when we look

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Speaker 2: at Chinese manufacturing capacity and we compare it to global demand,

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Speaker 2: so China's nameplate manufacturing capacity is more than twice what

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Speaker 2: would be required to meet global demand. And based on

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Speaker 2: what's been announced, and many Chinese manufacturers don't announce manufacturing

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Speaker 2: capacity investments that far ahead of time, but just based

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Speaker 2: on announcements that will continue to be the case even

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Speaker 2: as demand grows according to our optimistic scenario over the

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Speaker 2: next two years. So pretty shocking levels of over capacity.

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Speaker 2: That's the case for solar modules. It's also the case

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Speaker 2: for polysilicon, where there's over one point one terrawatts of

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Speaker 2: polysilicon manufacturing online in China today, and then if we're

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Speaker 2: looking at our demand numbers for the world, we're at

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Speaker 2: somewhere around six hundred and seventy giga what's required for

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Speaker 2: twenty twenty four, according again to optimistic scenario, So just

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Speaker 2: to give you an idea of the scale of overcapacity

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Speaker 2: is really pretty shocking. And it's also the case for

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Speaker 2: battery manufacturing where similarly, battery cell manufacturing capacity in China

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Speaker 2: is basically more than twice global demand. That will remain

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Speaker 2: the case going forwards based on announced facilities, and it

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Speaker 2: means that China's able to pull off pretty impressive feats

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Speaker 2: like building enough lift your mind battery cells love year

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Speaker 2: to supply all of the world's demand. So we're at

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Speaker 2: levels of continued over investment in battery manufacturing, in solar manufacturing,

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Speaker 2: we're seeing that continue and we actually track the numbers

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Speaker 2: and we identified about four hundred and sixty nine billion

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Speaker 2: dollars of overinvestment above what would be required to meet

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Speaker 2: demand under our net zero scenario over the next four

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Speaker 2: years in battery manufacturing and solar manufacturing.

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Speaker 1: Now you had said that Chinese manufacturing facilities come online

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Speaker 1: really fast. How fast is really fast? Months? Years?

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Speaker 2: It depends on whether you're retrofitting an existing facility. It

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Speaker 2: depends on whether you're building something a bit more involved

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Speaker 2: when it comes to technology, So polysilicon plants might take

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Speaker 2: a couple of years. They are a little bit more

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Speaker 2: complicated to set up and get running. A module factory

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Speaker 2: is a little bit less complicated, relatively speaking, and can

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Speaker 2: be put up in a few months if you're retrofitting,

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Speaker 2: if there's an existing production process which is more aligned

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Speaker 2: with the one that you're putting in place, then it

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Speaker 2: can be done relatively quickly, within sort of I've heard

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Speaker 2: three months, but six months being something that's routinely cited

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Speaker 2: as the amount of lead time required to put up

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Speaker 2: a new module factory.

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Speaker 1: So then is it reasonable to say that this is

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Speaker 1: very intentional and that this isn't a series of projects

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Speaker 1: that were already in the pipeline that then got completed,

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Speaker 1: but the market wasn't exactly ready for and the economics

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Speaker 1: didn't match what they projected their demand to be. But

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Speaker 1: these came online regardless of where current demand was, almost

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Speaker 1: reaching then for future demand that maybe they see coming,

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Speaker 1: it's sort of if you have the supply, then the

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Speaker 1: demand will exist because the economics will be so low.

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Speaker 1: So they're kind of creating the market where maybe even

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Speaker 1: closer to being paras aligned to thinking about bringing down

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Speaker 1: emissions and making the renewable energy transition even faster if

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Speaker 1: you think about it.

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Speaker 2: Yeah, absolutely, That's one of the big messages from a

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Speaker 2: recent piece of research that we've just published is looking

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Speaker 2: at this overcapacity story, and there's a number of different

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Speaker 2: outcomes and conclusions that you can draw from what's going on,

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Speaker 2: and one is that it's brought the cost of renewable

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Speaker 2: energy crashing down. It's brought the cost of electric vehicles,

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Speaker 2: of batteries, of solar modules, for example, and even within China,

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Speaker 2: and this is a bit different to the rest of

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Speaker 2: the world's wind industry, the cost of wind turbines falling

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Speaker 2: pretty rapidly, so we've seen, for example, the spot market

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Speaker 2: rate for a Chinese solar module is now around eleven

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Speaker 2: dollars cents per what a year ago it was double that,

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Speaker 2: So it's really rapidly falling, and that means the world

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Speaker 2: gets to profit, especially at a time when, for example,

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Speaker 2: in the West, like the energy transition has never been

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Speaker 2: submitted to the levels of political scrutiny that it's under,

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Speaker 2: whether that's in Europe, whether that's in North America. And

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Speaker 2: now we're at a time where the economic case for

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Speaker 2: the energy transition is stronger than ever, and a big

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Speaker 2: part of that is due to the fact that we've

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Speaker 2: got this massive surplus glut in good quality, low cost

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Speaker 2: technology coming from China right now. That is a positive

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Speaker 2: story and it's one that should lead to an acceleration

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Speaker 2: of the energy transition. We've even seen sort of reports

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Speaker 2: of people now in Europe putting up solar modules along fences,

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Speaker 2: for example, because you can do that now it's cheap enough.

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Speaker 1: So a lot of the forecasts and scenarios that we

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Speaker 1: actually run show quite a bit of adoption. And so

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Speaker 1: these charts that kind of go up into the right

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Speaker 1: when it comes to demand, some of them at a

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Speaker 1: steeper curve, and some of them taper off a little

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Speaker 1: bit more depending on what's actually happening in the economy.

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Speaker 1: And one of these areas where there has been some

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Speaker 1: forecast around some cooling demand in particular coming from the

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Speaker 1: companies themselves that are the producers, is electric vehicles. So

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Speaker 1: when we're talking about electric vehicles, the number of vehicles

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Speaker 1: that are actually coming online from China, are those actually

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Speaker 1: then being also exported or are those being focused on

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Speaker 1: their domestic market.

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Speaker 2: Yeah, great question. There's been the recent story of the

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Speaker 2: slowdown in growth in electric vehicle sales. It's one driven

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Speaker 2: by a number of different factors, such as interest rates

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Speaker 2: for example. There's a question now is whether or not

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Speaker 2: we're sort of at a historical turning point where we're

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Speaker 2: starting to see very explicitly a lot of Chinese EV

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Speaker 2: manufacturers BYD being the most commonly cited one, but there

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Speaker 2: are many others turn their gaze beyond China in a

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Speaker 2: much more serious sense than they were in the past

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Speaker 2: when it comes to looking at growing markets. Chinese market

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Speaker 2: is becoming increasingly oversaturated, it's incredibly competitive, so there's a

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Speaker 2: lot of looking abroad. So again, BYD, the world's largest

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Speaker 2: producer of EV's also produces a lot of its own batteries,

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Speaker 2: has now been commissioning large carrier ships that are specifically

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Speaker 2: designed to carry vehicles, and it's sort of leading the

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Speaker 2: charge along with another couple of EV manufacturers like Great

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Speaker 2: War Motive, for example, in trying to sell more to

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Speaker 2: emerging economies, set up manufacturing there, but also sell cars

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Speaker 2: from out of China into Europe, and that's something that

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Speaker 2: we've seen recently, a bit of an emerging trend where

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Speaker 2: we saw about nine percent of evs sold within the

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Speaker 2: EU last year come from Chinese headquartered manufacturers, and that's

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Speaker 2: a share that we expect to see growing and that's

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Speaker 2: in turn led to a bit of a pivot from

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Speaker 2: the European Commission, which is now a little bit concerned

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Speaker 2: about that penetration and is thinking about whether or not

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Speaker 2: to put in place new tariffs. So there's currently an

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Speaker 2: anti subsidy investigation that's been launched by the European Commission

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Speaker 2: looking explicitly at whether or not there'd be an argument

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Speaker 2: that could be made that Chinese manufacturers are benefiting from

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Speaker 2: unfair subsidies and that would provide the backing or the

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Speaker 2: cover to put in place new trade measures which is

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Speaker 2: something that the EUS shine away from in the past.

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Speaker 2: It's got pretty minimal tariffs on most clean technology, especially

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Speaker 2: when you compare it to other regions of the world

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Speaker 2: that are also aligned with the EU in terms of

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Speaker 2: trying to build out local supply chains at local manufacturing,

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Speaker 2: like the US, like India, both of which are much

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Speaker 2: more comfortable with using protectionist tools as part of their

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Speaker 2: industrial strategy. Arsenal.

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Speaker 1: So, we've seen battery prices fall and the levelized cost

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Speaker 1: of electricity for solar being below what would be considering

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Speaker 1: traditional high carbon energy sources like coal, for example, in

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Speaker 1: most locations in the world. But when it comes to

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Speaker 1: electric vehicles, the argument is often that electric vehicles are

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Speaker 1: not yet at price parity with internal combustion engine vehicles

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Speaker 1: and that we are moving in that direction, but we're

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Speaker 1: not there just yet. So the question is are these

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Speaker 1: Chinese vehicles that are coming online in places like Europe,

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Speaker 1: are they getting closer faster?

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Speaker 2: Yes, they are. There's been a bit of a focus

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Speaker 2: in the West on when it comes to ev manufacturing,

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Speaker 2: with presenting large SUVs for example, many of which are

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Speaker 2: quite pricey. So when you look at the average sort

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Speaker 2: of price points for electric vehicles sold in the US,

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Speaker 2: for example, you're around forty to fifty thousand dollars. Now,

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Speaker 2: the picture in China's very different, And just within China

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Speaker 2: you've got things like BYD's cgull hatchback, which is a

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Speaker 2: model that's regularly cited now just because of the fact

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Speaker 2: that it's being sold at pretty shockingly low prices of

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Speaker 2: under ten thousand dollars per car. Now, when BYD is

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Speaker 2: sort of setting those cars and exporting them abroad, we're

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Speaker 2: typically seeing prices around double that. But even if you're

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Speaker 2: stacking on top tariffs and shipping costs and all these

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Speaker 2: other things, you're still seeing cars that are sold at

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Speaker 2: extremely competitive rates. So the outcome of that will be

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Speaker 2: that the tipping points that we'd be seeing would be

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Speaker 2: reached more quickly because we're starting to see a wave

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Speaker 2: of again, good quality, cheaper cars come into these markets

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Speaker 2: where traditionally speaking exactly that economic tipping point was holding

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Speaker 2: back adoption and leaving it as the preserve of countries

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Speaker 2: that are able to dole out extremely generous upfront grants

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Speaker 2: for buyers, or countries that a richer and able to

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Speaker 2: afford those cars. We might see a bit of a

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Speaker 2: change there, and it's something that will be quite interesting. Again,

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Speaker 2: there will be differences based on region and based on

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Speaker 2: how comfortable different parts of the world are with employing

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Speaker 2: measures around market access. And for example, the US seems

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Speaker 2: like a bit of a less of a promising market

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Speaker 2: for Chinese auto manufacturers than Europe. So byd and these

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Speaker 2: other companies are much less bullish when it comes to

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Speaker 2: their ability to set into the US market as opposed

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Speaker 2: to other parts of the world.

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Speaker 1: So you had mentioned subsidies, and the thing that's really

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Speaker 1: coming to my mind given that we're recording here in Europe,

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Speaker 1: is this parallel maybe with the agriculture industry, where you

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Speaker 1: see governments intervening and actually asking farmers not to produce

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Speaker 1: in order to keep prices at a certain place so

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Speaker 1: that they're high enough in order to support the farmers

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Speaker 1: that are in this industry. It seems like the reverse

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Speaker 1: thing is happening in China, where they're actively promoting this

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Speaker 1: global oversupply and domestic oversupply in these industries. Can you

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Speaker 1: talk a little bit about the role of the Chinese

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Speaker 1: government in how solar batteries and electric vehicles are really

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Speaker 1: working From the manufacturing side.

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Speaker 2: Yeah, there's a bit of a framing of intention, and

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Speaker 2: when you look at reporting around this, you often see

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Speaker 2: things like the Chinese government's planned to dominate the solar industry.

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Speaker 2: These are sectors that have been identified as priority sectors

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Speaker 2: by the Chinese government, and there has been sort of

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Speaker 2: low cost credit, for example, that's being provided by states

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Speaker 2: financial institutions. There are subsidies offered at a local level

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Speaker 2: when it comes to power or land, just as happens

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Speaker 2: in much of the rest of the world that's trying

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Speaker 2: to pursue growth via industrial strategy. But really something that

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Speaker 2: goes unsaid is the extent to which this is the

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Speaker 2: result of market forces, and to quite a shocking extent. Actually,

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Speaker 2: when you look at the margins that we're seeing in

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Speaker 2: the solar industry, in the battery making space, in ev manufacturing,

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Speaker 2: even among wind turbine makers within China, margins have shrunk

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Speaker 2: considerably due to the fact that competition's gone from red

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Speaker 2: hot to white hot recently. It's an incredibly tough space

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Speaker 2: to operate in and actually a lot of the overcapacity

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Speaker 2: that we're seeing is not so much the result of

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Speaker 2: an intentional policy to try and flood the world markets

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Speaker 2: with this kind of technology, it's more the result of

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Speaker 2: companies playing a big game of chicken, and basically the

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Speaker 2: first to blink in terms of not constantly updating your

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Speaker 2: manufacturing facilities is instantly rendered irrelevant. And what I mean

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Speaker 2: by that is that we're seeing very fast technology cycles.

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Speaker 2: In solar for example, we're seeing a shift to ND

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Speaker 2: type modules called top con modules, away from PERK, which

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Speaker 2: was the previous dominant technology. That's happened in just a

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Speaker 2: couple of years, and that means that you're constantly having

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Speaker 2: to invest in new manufacturing capacity to stay relevant. And

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Speaker 2: we're also seeing that in the battery making space, where

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Speaker 2: we're seeing rapid shifts from nickel heavy chemistries to ones

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Speaker 2: that are more iron based. And again we're seeing the

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Speaker 2: picture change extremely dynamically from year to year, and that

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Speaker 2: results in the same sort of thing, massive investments in

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Speaker 2: just trying to stay relevant in the space. And actually

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Speaker 2: proof of this has a big dynamic that we're seeing

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Speaker 2: is the fact that these companies' share prices have really

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Speaker 2: not been doing great. They've been underperforming the Shanghai Stock

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Speaker 2: Market index. That's been a persistent trend that we've seen

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Speaker 2: over the last few months and is directly linked to

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Speaker 2: this idea of massive overcapacity, pressure on prices, pressure on margins,

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Speaker 2: and that is part of the reason why these manufacturers

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Speaker 2: are now looking abroad and looking to try and sell

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Speaker 2: their products outside of China because of the fact that

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Speaker 2: their home market is so oversaturated, and that oversaturation is

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Speaker 2: the result of relentless extreme competition.

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Speaker 1: So let's talk a bit about how the rest of

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Speaker 1: the world is reacting. There's a growing trend of Western

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Speaker 1: countries actually looking to nearshore and onshore production. We've actually

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Speaker 1: talked about this with you on this show. So how

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Speaker 1: has that progressed? And, you know, without giving away the punchline,

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Speaker 1: you've talked about this as we've gone through this show.

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Speaker 1: Chinese manufacturing has led to dramatically lower prices in a

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Speaker 1: lot of the areas that they actually go into. So

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Speaker 1: have these nearshore and onshore manufacturing facilities have they been

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Speaker 1: able to get anywhere close to being competitive?

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Speaker 2: So we can again talk back to those investment numbers

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Speaker 2: I mentioned earlier. So when we look at new factories

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Speaker 2: that are supposed to come online this year outside of China,

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Speaker 2: across solar manufacturing, battery manufacturing, wind manufacturing, hydrogen electrializer manufacturing.

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Speaker 2: We see a quadrupling of the levels that we saw

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Speaker 2: last year this year, and by the end of next

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Speaker 2: year we should be at eight times twenty twenty three levels.

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Speaker 2: So we're basically on the cusp when we look at

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Speaker 2: what's been announced of a pretty big wave of not

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Speaker 2: just breaking ground or starting to make investments, but factories

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Speaker 2: actually coming online for clean technologies across North America and

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Speaker 2: across Europe. That's a real big shift, and that's really

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Speaker 2: driven by a lot of those policies that you mentioned,

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Speaker 2: which are things like the Inflation Reduction Act in the US,

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Speaker 2: which is incredibly generous when it comes to subsidies for manufacturers,

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Speaker 2: many of which are in the form of production based

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Speaker 2: tax credits, but also in the form of the Federal

401
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Speaker 2: loan program, for example. And in Europe we're starting to

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Speaker 2: see the Net Zero Industry Act, which is still in

403
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Speaker 2: a proposal stage, but sets out these incredibly ambitious targets

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Speaker 2: for local manufacturing, and it's being increasingly backed up by

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Speaker 2: member states starting to give company specific support to certain

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Speaker 2: firms willing to manufacture in Europe, but also in the

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Speaker 2: form of countries trying to put in place their own

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Speaker 2: versions of the inflation reduction acts, such as France, for example,

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Speaker 2: which is very keen to start to provide tax credits

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Speaker 2: to manufacturers setting up shop there. So this is a

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Speaker 2: big shift that we're seeing. The question is is that competitive.

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Speaker 2: The answer is no, not from an economic perspective, but

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Speaker 2: on shoring, localizing supply chains was never really about making

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Speaker 2: the case that it was economically competitive. There was always

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Speaker 2: this idea, at least among those who are honestly presenting

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Speaker 2: these ideas, that there would be a premium to be

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Speaker 2: paid as a result of this, but that that would

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Speaker 2: be worth the co benefits in terms of resiliency, in

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Speaker 2: terms of local value creation, in terms of jobs. And

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Speaker 2: that's a calculus that has changed a little bit due

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Speaker 2: to the current overcapacity situation and the current low prices

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Speaker 2: that we're seeing do mean that that economic gap is

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Speaker 2: greater than ever before, and that manufacturing in Europe and

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Speaker 2: manufacturing in the US comes at a greater cost compared

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Speaker 2: to the current cheap technology that we could be relying

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Speaker 2: on then was the case in the past. So it

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Speaker 2: does reshuffle the cards a bit in terms of the

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Speaker 2: implied cost of trying to make good on all of

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Speaker 2: these onshoring plans, and we're starting to see that trickle

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Speaker 2: down through decisions made by companies such as meyer Burger,

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Speaker 2: for example, which is a Swiss company. It operates out

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Speaker 2: of Germany, but it's Europe's only real claim for solar

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Speaker 2: manufacturing to be happening at scale when it comes to

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Speaker 2: the downstream bits of the value chain, so cells and modules.

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Speaker 2: That company has recently said that it's basically winding down

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Speaker 2: its European operations and shifting to the US where there's

437
00:21:31,800 --> 00:21:34,919
Speaker 2: better access to subsidies. And the real driving force for

438
00:21:35,000 --> 00:21:37,600
Speaker 2: that is the current crash in module prices that we've

439
00:21:37,640 --> 00:21:40,920
Speaker 2: seen that is directly resulting from Chinese oversupply. And that's

440
00:21:40,920 --> 00:21:43,040
Speaker 2: at a time where the EU is saying we want

441
00:21:43,040 --> 00:21:46,320
Speaker 2: to have forty percent of our solar demand sourced from

442
00:21:46,359 --> 00:21:50,160
Speaker 2: locally made solar modules by twenty thirty. If it's unable

443
00:21:50,240 --> 00:21:54,359
Speaker 2: to keep existing manufacturers from decamping elsewhere, how is it

444
00:21:54,400 --> 00:21:56,520
Speaker 2: going to achieve those objectives is a big question that

445
00:21:56,600 --> 00:21:59,240
Speaker 2: is unanswered at present when it comes to the EU's

446
00:21:59,320 --> 00:22:02,960
Speaker 2: current policy making environment. There's similar pressures on manufacturers in

447
00:22:03,000 --> 00:22:05,480
Speaker 2: the US, where even if you have more generous subsidies

448
00:22:05,480 --> 00:22:07,640
Speaker 2: in the form of the IRA's tax credits. You're still

449
00:22:07,640 --> 00:22:10,480
Speaker 2: seeing manufacturers like Cubic PV, which had a big eight

450
00:22:10,520 --> 00:22:14,080
Speaker 2: to ten gigawatts per year plant for making PV wafers

451
00:22:14,440 --> 00:22:16,800
Speaker 2: in the US as basically announced it's canceling those plans

452
00:22:16,880 --> 00:22:21,200
Speaker 2: due to the overcapacity situation, rendering its planned operations unfeasible

453
00:22:21,200 --> 00:22:23,679
Speaker 2: from an economic standpoint. So this is a real pressure

454
00:22:23,720 --> 00:22:26,160
Speaker 2: and it's really weighing on these onsuring plans, and it's

455
00:22:26,200 --> 00:22:28,560
Speaker 2: meaning that policymakers are going to have to do one

456
00:22:28,560 --> 00:22:31,959
Speaker 2: of two things, either give up or double down and

457
00:22:31,960 --> 00:22:34,920
Speaker 2: get serious, but probably in a more focused and targeted

458
00:22:34,960 --> 00:22:36,800
Speaker 2: way than in the past, where there was a vague

459
00:22:36,800 --> 00:22:39,439
Speaker 2: thought that if you pursued localization it would sort of

460
00:22:39,480 --> 00:22:41,720
Speaker 2: work out, and in the EU it wouldn't involve hard

461
00:22:41,720 --> 00:22:45,400
Speaker 2: decisions around trade barriers or around thinking more about how

462
00:22:45,400 --> 00:22:48,159
Speaker 2: to restructure subsidies. It would just sort of happened if

463
00:22:48,160 --> 00:22:51,400
Speaker 2: it was identified as a priority. That doesn't seem realistic now,

464
00:22:51,480 --> 00:22:53,480
Speaker 2: and it seems like there's going to be real pressure

465
00:22:53,520 --> 00:22:56,240
Speaker 2: on policymakers to either do what the French government is

466
00:22:56,240 --> 00:22:58,840
Speaker 2: doing and go extremely hard in one direction and say no,

467
00:22:58,920 --> 00:23:00,399
Speaker 2: we're going to double down on this. We're going to

468
00:23:00,400 --> 00:23:03,560
Speaker 2: put in place market access barriers for Chinese companies willing

469
00:23:03,560 --> 00:23:06,399
Speaker 2: to sell evs into France or benefit from ev subsidies

470
00:23:06,440 --> 00:23:09,000
Speaker 2: in France, or for example, go the way of Germany,

471
00:23:09,040 --> 00:23:11,480
Speaker 2: where a member of the coalition government is really not

472
00:23:11,640 --> 00:23:14,359
Speaker 2: keen on any kind of measures that could be deemed

473
00:23:14,359 --> 00:23:17,399
Speaker 2: to be sort of market interference or distortive in nature,

474
00:23:17,480 --> 00:23:20,040
Speaker 2: and where we're seeing real pushback against the idea of

475
00:23:20,119 --> 00:23:24,560
Speaker 2: putting in place concrete measures for incentivizing local solar manufacturing.

476
00:23:24,640 --> 00:23:27,080
Speaker 2: So there's real hard discussions that are already happening in

477
00:23:27,080 --> 00:23:30,320
Speaker 2: these countries because of this overall global situation that we've

478
00:23:30,320 --> 00:23:32,479
Speaker 2: got as a backdrop, And that's going to mean that

479
00:23:32,480 --> 00:23:34,199
Speaker 2: the next year is going to be really key to

480
00:23:34,320 --> 00:23:37,160
Speaker 2: understanding the extent to which all of this vague talk

481
00:23:37,200 --> 00:23:39,720
Speaker 2: of onshuring and localization is actually going to bear out

482
00:23:39,720 --> 00:23:40,360
Speaker 2: in reality.

483
00:23:40,680 --> 00:23:42,560
Speaker 1: So even for the countries that have decided that they

484
00:23:42,560 --> 00:23:46,359
Speaker 1: are not going to promote intervention, you're clearly seeing the

485
00:23:46,440 --> 00:23:49,200
Speaker 1: Chinese government intervening in their market. And in the US,

486
00:23:49,240 --> 00:23:52,080
Speaker 1: the Inflation Reduction Act has often been referred to as

487
00:23:52,119 --> 00:23:54,960
Speaker 1: a game changer for many of the markets that they've

488
00:23:55,000 --> 00:23:57,560
Speaker 1: been helping to bolster like hydrogen. But when we think

489
00:23:57,560 --> 00:24:00,600
Speaker 1: about the Inflation Reduction Act, it's not completely in them.

490
00:24:00,640 --> 00:24:03,919
Speaker 1: You've definitely already established that, but it has changed it

491
00:24:04,040 --> 00:24:07,200
Speaker 1: and changed the market for the US specifically. What impact

492
00:24:07,200 --> 00:24:10,400
Speaker 1: has that had on other countries that perhaps aren't as

493
00:24:10,440 --> 00:24:14,600
Speaker 1: proactive about getting involved with pricing and manufacturing and where

494
00:24:14,680 --> 00:24:15,800
Speaker 1: and for how much?

495
00:24:15,960 --> 00:24:19,240
Speaker 2: So there's massive pressure by the IRA pushing other parts

496
00:24:19,280 --> 00:24:21,600
Speaker 2: of the world to pursue the same sort of onshowing agenda.

497
00:24:21,680 --> 00:24:24,160
Speaker 2: But that's why we've seen so much of the policy

498
00:24:24,160 --> 00:24:27,120
Speaker 2: making around this be quite fuzzy and inexact, and where

499
00:24:27,200 --> 00:24:29,720
Speaker 2: many of the conversations have been happening have avoided making

500
00:24:29,720 --> 00:24:32,439
Speaker 2: these hard choices about doubling down and what the actual

501
00:24:32,440 --> 00:24:35,080
Speaker 2: objectives are is exactly because of the fact that a

502
00:24:35,080 --> 00:24:38,000
Speaker 2: lot of these policies have been reactive by nature, have

503
00:24:38,119 --> 00:24:40,080
Speaker 2: been drawn up in a bit of a scramble to

504
00:24:40,080 --> 00:24:43,480
Speaker 2: provide something to compare what's being offered in the US against.

505
00:24:43,680 --> 00:24:46,439
Speaker 2: And the upshot is proposals that have come out of

506
00:24:46,480 --> 00:24:48,680
Speaker 2: the EU which are still at a very early stage

507
00:24:48,720 --> 00:24:51,200
Speaker 2: and still being brought into question. There's still a lot

508
00:24:51,200 --> 00:24:54,639
Speaker 2: of skepticism about the extent to which these extremely ambitious

509
00:24:54,640 --> 00:24:57,760
Speaker 2: onshowing targets that are being put forward by the European Commission,

510
00:24:57,800 --> 00:25:00,320
Speaker 2: whether or not there to be taken seriously. And that's

511
00:25:00,359 --> 00:25:02,560
Speaker 2: a direct result of the fact that the Iras really

512
00:25:02,560 --> 00:25:05,560
Speaker 2: put pressure in a very short timeframe on redrawing the

513
00:25:05,600 --> 00:25:08,080
Speaker 2: map when it comes to industrial strategies across the world.

514
00:25:08,400 --> 00:25:10,879
Speaker 1: So let's talk a little bit about the future because

515
00:25:11,000 --> 00:25:12,919
Speaker 1: one of the things that we're addressing now is that

516
00:25:12,920 --> 00:25:16,400
Speaker 1: there's a supply and demand imbalance currently. But when we

517
00:25:16,440 --> 00:25:19,840
Speaker 1: look into the future, if we are to reach net

518
00:25:19,920 --> 00:25:22,639
Speaker 1: zero targets that have been stated all over the world,

519
00:25:22,760 --> 00:25:26,400
Speaker 1: there has to be a really market increase in demand

520
00:25:26,440 --> 00:25:28,720
Speaker 1: and a lot of these industries, so does the demand

521
00:25:28,840 --> 00:25:31,720
Speaker 1: essentially catch up and is just an issue of timing?

522
00:25:31,760 --> 00:25:35,000
Speaker 1: And are we having a conversation regarding timing which will

523
00:25:35,480 --> 00:25:38,560
Speaker 1: more or less sort itself out over the next decade

524
00:25:38,640 --> 00:25:38,800
Speaker 1: or so.

525
00:25:39,160 --> 00:25:42,439
Speaker 2: Yeah, there's the Jevam's paradox, which is basically this idea

526
00:25:42,440 --> 00:25:45,080
Speaker 2: that if something gets cheaper or more efficient then it's useful,

527
00:25:45,119 --> 00:25:47,680
Speaker 2: increased demand will go up. That's probably something that we'll see.

528
00:25:47,720 --> 00:25:50,160
Speaker 2: That's something that we're already seeing for solo where deployment

529
00:25:50,200 --> 00:25:53,480
Speaker 2: is surging past forecasts and where low prices are meaning

530
00:25:53,560 --> 00:25:55,960
Speaker 2: a pretty rapid growth across the board. We'll see that

531
00:25:56,080 --> 00:25:59,360
Speaker 2: across all of these different sexes. There's overcapacity now it's

532
00:25:59,400 --> 00:26:03,520
Speaker 2: providing extra low prices is going to speed deployment and uptake,

533
00:26:03,560 --> 00:26:05,439
Speaker 2: and that's something that is quite clear. The cause of

534
00:26:05,480 --> 00:26:08,040
Speaker 2: relationship there is very simple. There's also another part of

535
00:26:08,040 --> 00:26:10,119
Speaker 2: the story as well, where because of the fact that

536
00:26:10,160 --> 00:26:13,000
Speaker 2: we're seeing extremely fast cycles when it comes to technology

537
00:26:13,160 --> 00:26:15,800
Speaker 2: and the needs to update factories that I mentioned earlier,

538
00:26:15,960 --> 00:26:17,920
Speaker 2: is that many of these factories that are built now

539
00:26:18,000 --> 00:26:20,199
Speaker 2: will be redundant in a few years if they're not

540
00:26:20,240 --> 00:26:22,520
Speaker 2: constantly invested in. That's part of the cause for a

541
00:26:22,560 --> 00:26:24,679
Speaker 2: lot of this overinvestment, and we're already seeing a lot

542
00:26:24,680 --> 00:26:27,520
Speaker 2: of planned over investment going forward. But it's also relevant

543
00:26:27,520 --> 00:26:30,160
Speaker 2: to the overall picture because of this incredibly dynamic space

544
00:26:30,160 --> 00:26:32,600
Speaker 2: that we're seeing, whether it's with solar technology and the

545
00:26:32,640 --> 00:26:35,160
Speaker 2: shifts between different types of technology that we're seeing there,

546
00:26:35,240 --> 00:26:38,520
Speaker 2: or whether it's rapid advances in new battery chemistries in

547
00:26:38,560 --> 00:26:41,120
Speaker 2: the littumon space. So those are also things to sort

548
00:26:41,160 --> 00:26:44,320
Speaker 2: of bear in mind. But overall. What's really interesting, and

549
00:26:44,359 --> 00:26:45,960
Speaker 2: again this is part of the work that we did

550
00:26:46,240 --> 00:26:49,000
Speaker 2: just looking at sort of energy transition investment trends earlier

551
00:26:49,040 --> 00:26:51,800
Speaker 2: this year, is that even as we tracked one point

552
00:26:51,840 --> 00:26:55,439
Speaker 2: three trillion in energy transition spending last year, that was

553
00:26:55,680 --> 00:26:57,879
Speaker 2: maybe three or four times less than what was actually

554
00:26:57,920 --> 00:27:01,119
Speaker 2: needed according to our net zero scenario, we're really seeing

555
00:27:01,119 --> 00:27:03,760
Speaker 2: a big shortfall. But that small share that we saw

556
00:27:03,800 --> 00:27:07,240
Speaker 2: in energy transition supply chains investment was the one or

557
00:27:07,320 --> 00:27:10,200
Speaker 2: one of the very few areas where investment was on track,

558
00:27:10,280 --> 00:27:12,280
Speaker 2: whereas a part of the puzzle that we have solved.

559
00:27:12,400 --> 00:27:15,040
Speaker 2: And yes there are issues in terms of concentration and

560
00:27:15,119 --> 00:27:17,880
Speaker 2: resiliency of those supply chains written large, and how aligned

561
00:27:17,920 --> 00:27:21,159
Speaker 2: it is with different political objectives that very enormously based

562
00:27:21,160 --> 00:27:23,280
Speaker 2: by region. But the fact is is one part of

563
00:27:23,320 --> 00:27:25,960
Speaker 2: the equation that has been solved for and where we're

564
00:27:26,000 --> 00:27:28,919
Speaker 2: not seeing a systematic shortfall investment, which is sadly the

565
00:27:29,000 --> 00:27:31,240
Speaker 2: case across much of the world's energy transition. And that

566
00:27:31,359 --> 00:27:33,840
Speaker 2: is something to find solis in when.

567
00:27:33,680 --> 00:27:36,680
Speaker 1: We look at a lot of these different government incentive

568
00:27:36,720 --> 00:27:40,480
Speaker 1: schemes and trade barriers. So the opposite of an incentive,

569
00:27:40,560 --> 00:27:43,960
Speaker 1: you've actually seen some of these be quite porous. So

570
00:27:44,119 --> 00:27:47,240
Speaker 1: for example, you see some Chinese companies actually setting up

571
00:27:47,280 --> 00:27:51,800
Speaker 1: manufacturing in Mexico to work around some of these barriers

572
00:27:51,840 --> 00:27:55,119
Speaker 1: and to also take advantage of this near shoring push.

573
00:27:55,280 --> 00:27:58,200
Speaker 1: Are we seeing that really common and is it happening

574
00:27:58,240 --> 00:28:00,600
Speaker 1: all over the world or is it just in Mexico.

575
00:28:00,960 --> 00:28:02,720
Speaker 2: I expect we're going to see much more in the

576
00:28:02,760 --> 00:28:05,560
Speaker 2: way of protectionism when it comes to clean tech over

577
00:28:05,600 --> 00:28:07,520
Speaker 2: the next few years. Is something we're going to be

578
00:28:07,600 --> 00:28:10,280
Speaker 2: actively tracking in much more of a serious way over

579
00:28:10,359 --> 00:28:12,560
Speaker 2: the next few months. What we've seen in the past

580
00:28:12,680 --> 00:28:16,200
Speaker 2: is we've seen tariffs on certain products coming directly from China,

581
00:28:16,280 --> 00:28:20,879
Speaker 2: leading to Chinese manufacturers basically upping sticks and setting up

582
00:28:20,920 --> 00:28:24,800
Speaker 2: factories in regions where they have equally low costs for

583
00:28:24,920 --> 00:28:27,160
Speaker 2: manufacturing and where they're able to sell into the US.

584
00:28:27,160 --> 00:28:29,760
Speaker 2: And the big example there is PV with Southeast Asia,

585
00:28:29,760 --> 00:28:32,959
Speaker 2: where you've seen an influx of the major Chinese manufacturers

586
00:28:32,960 --> 00:28:36,560
Speaker 2: into places like Malaysia and Vietnam specifically to get around

587
00:28:36,720 --> 00:28:39,239
Speaker 2: the US tariffs on Chinese imports. That's been a bit

588
00:28:39,240 --> 00:28:40,800
Speaker 2: of a game of cat and mouse. There's been a

589
00:28:40,840 --> 00:28:42,560
Speaker 2: bit of a ping pong match with different sort of

590
00:28:42,560 --> 00:28:46,680
Speaker 2: officials within the Commerce Department in the US, lobbying sometimes successfully.

591
00:28:46,880 --> 00:28:50,320
Speaker 2: We've seen some relaxation of those rules for restrictions on

592
00:28:50,400 --> 00:28:53,240
Speaker 2: modules coming from Southeast Asia. But it's a clear example

593
00:28:53,240 --> 00:28:55,440
Speaker 2: of the kind of reactions and strategies that we've seen

594
00:28:55,440 --> 00:28:58,760
Speaker 2: employed by companies affected by these policies. The question is

595
00:28:58,840 --> 00:29:01,120
Speaker 2: will that happen to other sectors. Now, Mexico is an

596
00:29:01,160 --> 00:29:04,080
Speaker 2: interesting example. We're about to publish, well, we will have

597
00:29:04,160 --> 00:29:06,480
Speaker 2: published a note by the time this podcast comes out

598
00:29:06,520 --> 00:29:09,640
Speaker 2: on specifically addressing this issue. And what's the issue in

599
00:29:09,720 --> 00:29:13,480
Speaker 2: question is that US policymakers have talked about exports, specifically

600
00:29:13,480 --> 00:29:17,560
Speaker 2: of Chinese electric vehicles manufactured in Mexico being sold into

601
00:29:17,600 --> 00:29:21,560
Speaker 2: the US, where because of the USMCA favorable trade terms

602
00:29:21,560 --> 00:29:24,120
Speaker 2: between Mexico and the US, they're avoiding the twenty seven

603
00:29:24,160 --> 00:29:27,040
Speaker 2: point five percent tariffs that are applied to Chinese EV's

604
00:29:27,120 --> 00:29:29,560
Speaker 2: coming from China into the United States. So it could

605
00:29:29,560 --> 00:29:31,640
Speaker 2: be sort of a back door where you could start

606
00:29:31,680 --> 00:29:34,760
Speaker 2: to see because of low Mexican manufacturing costs, so factory

607
00:29:34,800 --> 00:29:37,520
Speaker 2: workers in Mexico are actually paid less than in China.

608
00:29:37,600 --> 00:29:40,480
Speaker 2: Now it's pretty shocking fact, but there's a real case

609
00:29:40,520 --> 00:29:43,160
Speaker 2: to be made for manufacturing in Mexico, and Chinese EV

610
00:29:43,240 --> 00:29:46,480
Speaker 2: manufacturers could profit from that and set into the US. However,

611
00:29:46,640 --> 00:29:50,280
Speaker 2: there's a few big howevers. One is that there's no

612
00:29:50,360 --> 00:29:53,640
Speaker 2: real existing lithumind battery supply chain in Mexico right now,

613
00:29:53,800 --> 00:29:56,600
Speaker 2: so the current government has been quite interventionist and hasn't

614
00:29:56,600 --> 00:29:59,920
Speaker 2: had the most relaxed approach to foreign or private investment

615
00:30:00,080 --> 00:30:02,840
Speaker 2: into the lithium ion battery space. That's sort of held

616
00:30:02,880 --> 00:30:05,160
Speaker 2: back a lot of investments, whether or not it is

617
00:30:05,200 --> 00:30:09,280
Speaker 2: on the exploration side of things for mineral extraction for

618
00:30:09,400 --> 00:30:12,080
Speaker 2: lithium extraction, or whether or not it's an actual setting

619
00:30:12,120 --> 00:30:15,600
Speaker 2: up battery factories and EV production lines. It's acted as

620
00:30:15,600 --> 00:30:18,160
Speaker 2: a bit of a drag on those investments there. And

621
00:30:18,240 --> 00:30:21,080
Speaker 2: we're seeing an election coming up sort of midyear where

622
00:30:21,120 --> 00:30:24,239
Speaker 2: the likely front runner, Cloudy of Shinbaum, also stems from

623
00:30:24,280 --> 00:30:26,240
Speaker 2: the same sort of school of thoughts. So even though

624
00:30:26,400 --> 00:30:28,760
Speaker 2: we're hearing a lot as she's on the campaign trail

625
00:30:28,800 --> 00:30:31,440
Speaker 2: about opportunities for Mexico to become a big hub for

626
00:30:31,480 --> 00:30:35,080
Speaker 2: battery manufacturing and benefiting from the US's focus on near assuring,

627
00:30:35,120 --> 00:30:37,640
Speaker 2: a lot of its supply chains. There's a lack of

628
00:30:37,680 --> 00:30:39,560
Speaker 2: clarity about whether or not she'll be willing to put

629
00:30:39,560 --> 00:30:41,680
Speaker 2: in place the reforms that would actually enable that to

630
00:30:41,720 --> 00:30:44,200
Speaker 2: happen because of how politically charged they are within the

631
00:30:44,240 --> 00:30:47,720
Speaker 2: current Mexico political ecosystem. Now, the other thing is that

632
00:30:47,800 --> 00:30:52,400
Speaker 2: there are a couple of Chinese EV manufacturers active in Mexico,

633
00:30:52,440 --> 00:30:55,960
Speaker 2: only two that we've tracked. Jac is one of them,

634
00:30:56,120 --> 00:30:58,320
Speaker 2: and it's pretty minor footprint when you compare it in

635
00:30:58,320 --> 00:30:59,960
Speaker 2: the grand scheme of things. We've seen a lot of

636
00:31:00,160 --> 00:31:03,280
Speaker 2: talk of BYD again of a number of Chinese EV

637
00:31:03,400 --> 00:31:05,920
Speaker 2: manufacturers talking about setting up in Mexico, but we've not

638
00:31:05,960 --> 00:31:09,360
Speaker 2: really seen anything confirmed, nothing concrete as of present. And actually,

639
00:31:09,360 --> 00:31:11,320
Speaker 2: what's really interesting too is that a lot of the

640
00:31:11,400 --> 00:31:14,440
Speaker 2: fears or concerns that are cited by US policy makers

641
00:31:14,440 --> 00:31:16,840
Speaker 2: are around, Okay, we've put in place these IRA subsidies

642
00:31:16,880 --> 00:31:21,280
Speaker 2: that also benefit North American EV assembly and manufacturing writ large,

643
00:31:21,360 --> 00:31:24,160
Speaker 2: Chinese manufacturers could benefit from that. Well. Actually, a lot

644
00:31:24,200 --> 00:31:27,080
Speaker 2: of the fine print within those subsidies and the thirty

645
00:31:27,160 --> 00:31:30,400
Speaker 2: D EV or Clean Vehicle Tax credit that provides a

646
00:31:30,440 --> 00:31:33,520
Speaker 2: sort of upfront purchase grant for EV buyers in the US,

647
00:31:33,560 --> 00:31:36,160
Speaker 2: which is incredibly important, receives a lot of media attention

648
00:31:36,280 --> 00:31:39,680
Speaker 2: that isn't available in most cases if a Chinese company

649
00:31:39,760 --> 00:31:43,200
Speaker 2: is involved in the manufacturing process. So already you're seeing

650
00:31:43,240 --> 00:31:45,840
Speaker 2: an environment in Mexico that isn't super favorable to setting

651
00:31:45,880 --> 00:31:49,640
Speaker 2: up a battery manufacturing hub anytime soon. You're seeing a

652
00:31:49,720 --> 00:31:53,200
Speaker 2: lack of real concrete investments by Chinese manufacturers, and you're

653
00:31:53,200 --> 00:31:56,000
Speaker 2: also seeing an environment in the US where market access

654
00:31:56,040 --> 00:31:58,920
Speaker 2: for Chinese firms isn't a given. So our conclusion is

655
00:31:58,960 --> 00:32:02,160
Speaker 2: that those concerns are overblown and overstated. But we are

656
00:32:02,160 --> 00:32:05,040
Speaker 2: going to enter a new era of tariffs potentially in

657
00:32:05,080 --> 00:32:07,760
Speaker 2: the US if Donald Trump wins. We've heard talk of

658
00:32:07,840 --> 00:32:10,960
Speaker 2: sixty percent tariffs on everything coming into the US, and

659
00:32:11,000 --> 00:32:13,320
Speaker 2: we've also heard talk of one hundred percent tariffs, is

660
00:32:13,320 --> 00:32:15,840
Speaker 2: something that was recently mentioned by Donald Trump at a

661
00:32:15,920 --> 00:32:20,280
Speaker 2: speech on specifically Chinese made vehicles coming from Mexico. So again,

662
00:32:20,440 --> 00:32:23,360
Speaker 2: Chinese manufacturers, they're not particularly looking to sell into the

663
00:32:23,440 --> 00:32:27,280
Speaker 2: US because the current environment seems to be incredibly difficult.

664
00:32:27,360 --> 00:32:29,840
Speaker 2: But the big question is what happens to Europe. Europe

665
00:32:29,880 --> 00:32:32,880
Speaker 2: still remains incredibly open when it comes to citing Chinese

666
00:32:32,920 --> 00:32:36,240
Speaker 2: manufacturers or East Asian manufacturers in general, tariffs are still low.

667
00:32:36,280 --> 00:32:38,760
Speaker 2: The big question there is will that change, And that's

668
00:32:38,800 --> 00:32:40,880
Speaker 2: when things will get quite interesting when it comes to

669
00:32:41,000 --> 00:32:43,440
Speaker 2: re examining how that would play out in practice and

670
00:32:43,520 --> 00:32:45,720
Speaker 2: whether or not we could see circumvention implored as a

671
00:32:45,720 --> 00:32:46,760
Speaker 2: strategy and response.

672
00:32:47,080 --> 00:32:49,440
Speaker 1: We spend a lot of time talking about established markets

673
00:32:49,440 --> 00:32:51,960
Speaker 1: in the energy system. So we've talked about the US

674
00:32:52,120 --> 00:32:54,840
Speaker 1: and Europe and China, but let's talk a little bit

675
00:32:54,840 --> 00:32:56,720
Speaker 1: about some of the markets that are growing in many

676
00:32:56,720 --> 00:32:59,680
Speaker 1: respects because of population growth. So I'm thinking of parts

677
00:32:59,680 --> 00:33:02,840
Speaker 1: about perhaps India, where in other parts of the world

678
00:33:02,840 --> 00:33:05,680
Speaker 1: there are growing economies, both in terms of people and

679
00:33:05,800 --> 00:33:09,000
Speaker 1: in terms of energy access. What is happening there and

680
00:33:09,040 --> 00:33:13,960
Speaker 1: how does all of this global economic interplay for these industries,

681
00:33:14,000 --> 00:33:15,040
Speaker 1: how does it impact them.

682
00:33:15,360 --> 00:33:17,800
Speaker 2: There's a big risk when all of these richer countries

683
00:33:17,840 --> 00:33:20,400
Speaker 2: try and outcompete each other by offering subsidies and trying

684
00:33:20,400 --> 00:33:23,720
Speaker 2: to push forward with this onshoring agenda, that this sort

685
00:33:23,720 --> 00:33:26,960
Speaker 2: of deprives much of the developing world of an opportunity

686
00:33:27,000 --> 00:33:30,240
Speaker 2: to profit from those industries and use them as a

687
00:33:30,240 --> 00:33:32,800
Speaker 2: way in which develop their own economies. That's a real concern,

688
00:33:32,960 --> 00:33:35,480
Speaker 2: but it's something that's quite interesting. It really depends again

689
00:33:35,560 --> 00:33:38,280
Speaker 2: on where you're looking. Southeast Asia is becoming a pretty

690
00:33:38,280 --> 00:33:41,360
Speaker 2: big hub for manufacturing clean technology, and that's something where

691
00:33:41,360 --> 00:33:44,200
Speaker 2: we've seen massive investments from Chinese manufacturers, but also an

692
00:33:44,240 --> 00:33:47,240
Speaker 2: increasing focus when it comes to engagement from the US

693
00:33:47,360 --> 00:33:49,400
Speaker 2: or from the EU on having a role to play

694
00:33:49,440 --> 00:33:51,960
Speaker 2: there too. The situation in sub Hian Africa is very different.

695
00:33:51,960 --> 00:33:54,240
Speaker 2: We've seen a lot of excitement around potential sort of

696
00:33:54,280 --> 00:33:58,760
Speaker 2: battery manufacturing or even exports of things like hydrogen for example,

697
00:33:58,840 --> 00:34:02,360
Speaker 2: from subs Hiana, but when it comes to realizing projects

698
00:34:02,360 --> 00:34:05,040
Speaker 2: to tapping into local demand, things are much more complicated

699
00:34:05,040 --> 00:34:07,760
Speaker 2: and difficult. One country that's quite interesting is India. So

700
00:34:07,840 --> 00:34:11,040
Speaker 2: since twenty nineteen and even before, but really twenty nineteen

701
00:34:11,120 --> 00:34:13,719
Speaker 2: was the point where things intensified, we've seen a real

702
00:34:13,800 --> 00:34:17,680
Speaker 2: push from the Indian government to onchore solar manufacturing. Specifically,

703
00:34:17,840 --> 00:34:20,840
Speaker 2: it's deployed all kinds of different tools, from import tariffs,

704
00:34:20,880 --> 00:34:23,640
Speaker 2: from approving a certain list of manufacturers to take part

705
00:34:23,800 --> 00:34:27,040
Speaker 2: in bids. When it comes to soda auctions, it also

706
00:34:27,200 --> 00:34:29,719
Speaker 2: takes the form of local content requirements. There's been a

707
00:34:29,760 --> 00:34:33,480
Speaker 2: real battery of measures that's been deployed for onshoring soda,

708
00:34:33,520 --> 00:34:36,319
Speaker 2: and it's gone well, it's not gone great. There's been

709
00:34:36,640 --> 00:34:41,319
Speaker 2: a degree of uncertainty from investors and developers complaining a

710
00:34:41,320 --> 00:34:45,040
Speaker 2: lot about increased costs, about the lower availability of modules

711
00:34:45,040 --> 00:34:48,200
Speaker 2: at a low prices, increased the cost of doing business

712
00:34:48,200 --> 00:34:52,200
Speaker 2: for developers in India large it's been quite inflatory, just

713
00:34:52,280 --> 00:34:53,840
Speaker 2: in the same way as any of these sort of

714
00:34:53,840 --> 00:34:56,440
Speaker 2: protectionist measures would be. But we've really seen it as

715
00:34:56,440 --> 00:34:58,759
Speaker 2: a sort of sandbox for trying out these measures in

716
00:34:58,800 --> 00:35:01,040
Speaker 2: an environment that's very different to the US, that's very

717
00:35:01,040 --> 00:35:04,719
Speaker 2: different from Europe. What we have seen is limited success

718
00:35:04,760 --> 00:35:08,040
Speaker 2: in growing out four years on from when this started

719
00:35:08,080 --> 00:35:10,920
Speaker 2: out in serious limited success when it comes to growing

720
00:35:10,960 --> 00:35:14,080
Speaker 2: out supply chains up and down the solar value chain.

721
00:35:14,239 --> 00:35:16,880
Speaker 2: But we have seen some pretty big investments in solar

722
00:35:16,920 --> 00:35:21,680
Speaker 2: module manufacturing, and there's increasing interest and detailed talk about

723
00:35:21,719 --> 00:35:24,640
Speaker 2: doing the same for manufacturing cells and even going up

724
00:35:24,640 --> 00:35:27,759
Speaker 2: towards wafers. It's still early days, but it's still a

725
00:35:27,800 --> 00:35:30,239
Speaker 2: really interesting experiment that we're seeing and that would be

726
00:35:30,239 --> 00:35:32,240
Speaker 2: good to track, just because of the fact that local

727
00:35:32,280 --> 00:35:35,640
Speaker 2: demand is set to increase incredibly rapidly, and we've already

728
00:35:35,680 --> 00:35:38,440
Speaker 2: seen a real credible commitment from the Indian government. When

729
00:35:38,480 --> 00:35:41,200
Speaker 2: it comes to clean energy, manufacturing in India is held

730
00:35:41,239 --> 00:35:43,480
Speaker 2: back by all kinds of structural factors. It accounts for

731
00:35:43,480 --> 00:35:45,759
Speaker 2: a smaller share of GDP that you might expect given

732
00:35:45,800 --> 00:35:49,200
Speaker 2: its developmental trajectory, but there's still a big case to

733
00:35:49,200 --> 00:35:51,759
Speaker 2: be made for some of the fact that production costs

734
00:35:51,800 --> 00:35:53,839
Speaker 2: could be quite low, and it could serve as quite

735
00:35:53,880 --> 00:35:57,359
Speaker 2: a useful base when it comes to diversifact fighting manufacturing

736
00:35:57,520 --> 00:36:00,359
Speaker 2: away from relying on China, for example. There's a lot

737
00:36:00,360 --> 00:36:03,040
Speaker 2: of excitement around cooperating with India, as there is with

738
00:36:03,200 --> 00:36:05,920
Speaker 2: places like Indonesia, for example, and playing a more important

739
00:36:06,000 --> 00:36:10,400
Speaker 2: role within those battery or solar value chains. So it's

740
00:36:10,480 --> 00:36:13,080
Speaker 2: still relatively early days in a part of the world

741
00:36:13,120 --> 00:36:15,799
Speaker 2: where the amount of budgetary headroom for achieving these kind

742
00:36:15,800 --> 00:36:18,400
Speaker 2: of objectives is a lot more limited than say the US.

743
00:36:18,560 --> 00:36:20,800
Speaker 2: But I would sort of continue to look at India

744
00:36:20,880 --> 00:36:23,120
Speaker 2: quite closely just because of the fact that the government

745
00:36:23,200 --> 00:36:27,960
Speaker 2: is extremely comfortable with taking quite an aggressive stance on onsuring.

746
00:36:28,040 --> 00:36:31,359
Speaker 2: It's been doing so since much before, several years before

747
00:36:31,440 --> 00:36:34,160
Speaker 2: the IRA came into force. And it's showing a level

748
00:36:34,200 --> 00:36:36,239
Speaker 2: of determination that sort of hints that it might not

749
00:36:36,360 --> 00:36:38,440
Speaker 2: just do that for solar it might also do that

750
00:36:38,480 --> 00:36:41,640
Speaker 2: for say, battery manufacturing when that starts to grow out

751
00:36:41,719 --> 00:36:44,200
Speaker 2: in a more serious way in India, which we expect

752
00:36:44,239 --> 00:36:45,760
Speaker 2: to be the case over the next few years.

753
00:36:46,200 --> 00:36:48,560
Speaker 1: Now, this is a story that is really equal parts

754
00:36:48,680 --> 00:36:52,919
Speaker 1: economics and policy. So just recently, Janet Yellen, the US

755
00:36:53,000 --> 00:36:56,200
Speaker 1: Secretary of the Treasury, was in China negotiating with the

756
00:36:56,280 --> 00:36:58,279
Speaker 1: Chinese government. Can you talk a little bit about what

757
00:36:58,360 --> 00:36:58,919
Speaker 1: happened there.

758
00:36:59,560 --> 00:37:02,640
Speaker 2: Yeah, So this is a concern that we've seen cited.

759
00:37:02,719 --> 00:37:05,680
Speaker 2: If you go back in history, we had semiconductors coming

760
00:37:05,719 --> 00:37:09,400
Speaker 2: from Japan, similar concerns about overcapacity cited about government support

761
00:37:09,400 --> 00:37:12,840
Speaker 2: in Japan leading to perceptions around dumping on global markets,

762
00:37:12,880 --> 00:37:15,000
Speaker 2: and that was something that led to a policy response

763
00:37:15,000 --> 00:37:16,880
Speaker 2: to some of the US And when it comes to

764
00:37:17,040 --> 00:37:19,799
Speaker 2: China specifically, we've seen still be a sort of perennial

765
00:37:19,960 --> 00:37:22,160
Speaker 2: concern that's been brought up again and again and again.

766
00:37:22,239 --> 00:37:25,680
Speaker 2: This time again, these overcapacity concerns have been brought up

767
00:37:25,760 --> 00:37:28,640
Speaker 2: by Janet Yellen in the Treasury Department. They've been brought

768
00:37:28,719 --> 00:37:31,680
Speaker 2: up by Catherine tie in the Commerce Department during a

769
00:37:31,719 --> 00:37:35,600
Speaker 2: recent trip to Brussels, where those talk around Chinese overcapacity

770
00:37:35,600 --> 00:37:38,520
Speaker 2: as a structural issue echoes with many of the views

771
00:37:38,520 --> 00:37:40,640
Speaker 2: that are being cited in the European Commission and across

772
00:37:40,680 --> 00:37:43,200
Speaker 2: member states. So there's a general consensus that something needs

773
00:37:43,200 --> 00:37:45,480
Speaker 2: to be done. There's a desire to engage with China

774
00:37:45,680 --> 00:37:48,040
Speaker 2: about ways in which to resolve this issue, and the

775
00:37:48,120 --> 00:37:52,200
Speaker 2: Chinese government has identified overcapacity as a concern, but I

776
00:37:52,239 --> 00:37:54,520
Speaker 2: think it's just it's still quite difficult for it to

777
00:37:54,840 --> 00:37:58,240
Speaker 2: act at a time when those sectors are potential sources

778
00:37:58,239 --> 00:38:01,279
Speaker 2: of growth, when the Chinese government's ability to sort of

779
00:38:01,320 --> 00:38:04,759
Speaker 2: slow down investment even as it limits IPOs for example,

780
00:38:04,880 --> 00:38:08,040
Speaker 2: and tries to weigh on the decisions to expand manufacturing

781
00:38:08,200 --> 00:38:10,640
Speaker 2: are surprisingly limited when a lot of the incentives are

782
00:38:10,680 --> 00:38:12,920
Speaker 2: given at a local level in China, and at a

783
00:38:12,960 --> 00:38:16,000
Speaker 2: time when things aren't as coordinated as they might seem.

784
00:38:16,120 --> 00:38:18,640
Speaker 2: Those sectors are priority sexers that have been identified by

785
00:38:18,640 --> 00:38:20,719
Speaker 2: the Chinese government, But as I've mentioned, a lot of

786
00:38:20,760 --> 00:38:23,400
Speaker 2: those investments, a lot of that over capacity are the

787
00:38:23,440 --> 00:38:26,520
Speaker 2: results of market forces, are the results of firms trying

788
00:38:26,560 --> 00:38:29,440
Speaker 2: to outcompete each other, trying to outinnovate each other, and

789
00:38:29,480 --> 00:38:32,960
Speaker 2: that's why we're seeing completely bonkers level of overinvestments in

790
00:38:33,080 --> 00:38:36,320
Speaker 2: solar and in batteries and across evs, and that's unlikely

791
00:38:36,400 --> 00:38:38,799
Speaker 2: to change in the short term as a result of

792
00:38:39,080 --> 00:38:41,120
Speaker 2: this kind of engagement that we're seeing at present.

793
00:38:41,520 --> 00:38:44,240
Speaker 1: Antoine, thank you very much for joining today and talking

794
00:38:44,360 --> 00:38:47,239
Speaker 1: us through some of the really important highlights of the

795
00:38:47,239 --> 00:38:51,080
Speaker 1: incredibly complex world of supply chains in global trade as

796
00:38:51,120 --> 00:38:52,680
Speaker 1: it relates to the energy transition.

797
00:38:53,239 --> 00:39:02,640
Speaker 2: It was a real pleasure. As always, Thank you so much, Dana.

798
00:39:05,320 --> 00:39:08,439
Speaker 1: Today's episode of Switched On was produced by Cam Gray

799
00:39:08,640 --> 00:39:12,319
Speaker 1: with production assistance from Kamala Shelling. Bloomberg NEIF is a

800
00:39:12,360 --> 00:39:15,480
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801
00:39:15,560 --> 00:39:18,279
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802
00:39:18,320 --> 00:39:22,040
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803
00:39:22,080 --> 00:39:24,960
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00:39:25,000 --> 00:39:28,760
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805
00:39:28,880 --> 00:39:31,839
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806
00:39:31,880 --> 00:39:35,600
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