WEBVTT - China’s Clean-Tech Glut Undercuts US Onshoring Hopes 0:00:00.400 --> 0:00:03.360 This is Dana Perkins and you're listening to Switched on 0:00:03.600 --> 0:00:06.920 the B and EF podcast. China is churning out clean 0:00:07.040 --> 0:00:10.440 energy technology at a breakneck pace, driving down costs on 0:00:10.560 --> 0:00:14.320 everything from solar panels to lithium ion batteries, with supply 0:00:14.600 --> 0:00:19.560 far exceeding domestic demand. Extremely competitively priced equipment necessary for 0:00:19.600 --> 0:00:23.040 the energy transition is available all over the world. At 0:00:23.040 --> 0:00:26.079 the same time, many countries are looking at onshoring and 0:00:26.160 --> 0:00:29.319 near shoring production of the very same things that China 0:00:29.360 --> 0:00:33.280 is producing. Many China based clean tech manufacturers are experiencing 0:00:33.400 --> 0:00:36.680 razor thin profit margins all the while, six hundred and 0:00:36.760 --> 0:00:39.760 forty nine billion dollars of new factories are set to 0:00:39.800 --> 0:00:42.600 come online between twenty twenty four and twenty twenty seven, 0:00:42.680 --> 0:00:46.199 which would bring prices even lower. On today's show, I 0:00:46.240 --> 0:00:48.919 speak with bnaf's head of Trade and Supply Chains and 0:00:49.000 --> 0:00:52.160 Twan Wagner Jones. We talk about how China and other 0:00:52.200 --> 0:00:54.920 parts of the world are addressing over supply through policy, 0:00:55.080 --> 0:00:58.400 and whether the US's Inflation Reduction Act and the European 0:00:58.480 --> 0:01:01.560 Union's net zero Industry are going to be enough to 0:01:01.600 --> 0:01:05.920 stimulate more local manufacturing. BNF subscribers will be able to 0:01:05.959 --> 0:01:11.080 find Antoine's research note titled China's clean Tech overcapacity threatens 0:01:11.120 --> 0:01:14.479 on Shoring Dreams at BNF dot com or at BNF 0:01:14.560 --> 0:01:17.039 on the Bloomberg terminal. Make sure to subscribe to switched 0:01:17.080 --> 0:01:19.800 on if you want a reminder when we publish future episodes. 0:01:19.880 --> 0:01:21.800 And if you like this show, if you give us 0:01:21.800 --> 0:01:24.640 a review on Apple Podcasts or on Spotify, it's going 0:01:24.720 --> 0:01:27.399 to make it easier for others to find us. Right now, though, 0:01:27.480 --> 0:01:30.840 let's talk to Antoine about overcapacity in the clean tech 0:01:30.920 --> 0:01:43.160 manufacturing sector. Anton thank you for joining today. We're going 0:01:43.200 --> 0:01:45.800 to be talking about oversupply and some of the most 0:01:45.800 --> 0:01:48.520 important parts of the energy transition AIDIA. 0:01:48.600 --> 0:01:49.560 It's great to be back. 0:01:49.920 --> 0:01:52.880 So there were this old three of things that were 0:01:52.920 --> 0:01:56.840 considered Chinese exports that were quite dominant in the industries 0:01:56.880 --> 0:01:59.640 that they were in, which were household appliances, furniture, and clothing. 0:01:59.640 --> 0:02:01.760 But now there's this new three. So what are the 0:02:01.880 --> 0:02:04.480 new three and how long have these been things that 0:02:04.800 --> 0:02:06.520 essentially China's been dominating. 0:02:07.040 --> 0:02:10.040 Yeah, in the early two thousands, China's just joined the 0:02:10.200 --> 0:02:13.880 WTO and it's in this big boom of export lead growth, 0:02:13.919 --> 0:02:16.360 which is really leading to the economy expanding at a 0:02:16.400 --> 0:02:18.760 rapid rate, and it's producing these goods at low costs 0:02:18.760 --> 0:02:20.360 and exporting some of them to the rest of the 0:02:20.360 --> 0:02:22.919 world in the sectors that you just mentioned. Since there's 0:02:22.960 --> 0:02:24.799 been a bit of a shift and right now the 0:02:24.880 --> 0:02:27.639 Chinese economy is in a very different position, and we're 0:02:27.639 --> 0:02:29.920 seeing basically an implosion of the housing sector, which is 0:02:29.919 --> 0:02:32.639 a real drag on growth, and that's a situation that 0:02:32.720 --> 0:02:35.040 sort of persisted. So the Chinese government's thinking about what 0:02:35.080 --> 0:02:36.880 are some of the other levers that can be pulled on, 0:02:36.919 --> 0:02:39.040 and going back to this idea of export lead growth 0:02:39.080 --> 0:02:42.120 and identifying a few priority areas has been part of 0:02:42.120 --> 0:02:46.359 the solution, and electric vehicles, solar modules, and lithium ion 0:02:46.440 --> 0:02:48.720 batteries are the three sectors that have been picked out 0:02:48.840 --> 0:02:52.079 as especially full of potential when it comes to being 0:02:52.160 --> 0:02:54.880 sectors that are expanding rapidly and for their being growing 0:02:54.919 --> 0:02:58.000 markets outside of China for those goods. And what's really 0:02:58.000 --> 0:03:00.400 interesting is we've seen a shift recently where this has 0:03:00.440 --> 0:03:02.880 been a priority that's been identified by the Chinese government 0:03:03.080 --> 0:03:06.280 in terms of exporting these different goods, but we're also 0:03:06.320 --> 0:03:09.799 starting to see the likes of Bloomberg News Goldman Sachs 0:03:10.080 --> 0:03:14.399 the Financial Times start to draw comparisons looking at those 0:03:14.440 --> 0:03:17.960 sectors and their contribution towards Chinese GDP at a time 0:03:18.000 --> 0:03:20.320 where things are slowing down a bit, and comparing it 0:03:20.400 --> 0:03:23.720 explicitly with the real estate sector and its contribution to GDP. 0:03:23.840 --> 0:03:26.640 So really a repositioning of the energy transition, not just 0:03:27.000 --> 0:03:30.200 talking about China's role in sectors that could be labeled 0:03:30.240 --> 0:03:32.640 as strategic or key to the energy transition, but also 0:03:32.680 --> 0:03:35.920 talking about the macroeconomic weight of those different sectors and 0:03:35.960 --> 0:03:38.200 their contribution to the Chinese economy, which is a pretty 0:03:38.200 --> 0:03:40.320 new shift and one that's quite exciting. Now. 0:03:40.360 --> 0:03:42.600 We did a show not that long ago on battery 0:03:42.640 --> 0:03:46.120 manufacturing in China and this set of new facilities that 0:03:46.160 --> 0:03:48.800 are coming online called gigafactories, which are at a scale 0:03:49.320 --> 0:03:52.080 never seen before anywhere in the world. Can you talk 0:03:52.120 --> 0:03:54.680 a little bit specifically about the battery part of it 0:03:54.800 --> 0:03:56.480 and kind of what's happening there. 0:03:56.720 --> 0:03:59.720 Absolutely. So, what we do at BNF is we track 0:03:59.800 --> 0:04:02.200 inment in lots of different sectors, and we started doing 0:04:02.240 --> 0:04:05.280 the same for the supply chain side of the energy 0:04:05.280 --> 0:04:09.160 transition story. As of last year. We recently re updated 0:04:09.160 --> 0:04:11.960 our numbers in a report, the Energy Transition Investment Trends 0:04:11.960 --> 0:04:14.560 Report that was published earlier this year, and we tracked 0:04:14.600 --> 0:04:17.640 about one hundred and twenty five billion in supply chain 0:04:17.680 --> 0:04:21.160 related investment over the last year, and a big part 0:04:21.200 --> 0:04:24.160 of that was from battery cell factories coming online. So 0:04:24.400 --> 0:04:26.640 huge part of what's being invested what we think will 0:04:26.640 --> 0:04:29.640 we be invested across all clean energy factories are in 0:04:29.640 --> 0:04:31.680 the battery value chain because of the fact that that 0:04:32.000 --> 0:04:35.200 specific supply chain is so capital intensive. Now, when we 0:04:35.240 --> 0:04:37.560 look at where stuff's coming online, that's where things get 0:04:37.600 --> 0:04:40.279 really interesting. So when we look at clean energy supply 0:04:40.360 --> 0:04:43.400 chain investments written large, there's a lot of excitement about 0:04:43.480 --> 0:04:46.359 onshoring and localizing things outside of China, But when we 0:04:46.360 --> 0:04:49.600 look at where new factories are actually coming online and 0:04:49.680 --> 0:04:52.480 still doing so, things are still more than ninety percent 0:04:52.520 --> 0:04:55.599 concentrated in one place, and that's China. So we're seeing 0:04:55.880 --> 0:04:58.479 we're still seeing a lot of momentum bekind new factories 0:04:58.480 --> 0:05:00.400 coming online in one part of the wor world, and 0:05:00.440 --> 0:05:03.280 they're doing so at a massive scale. In the past, 0:05:03.360 --> 0:05:05.800 a lot of the reasons for why Chinese manufacturers were 0:05:05.800 --> 0:05:08.320 starting to try and find footholds in certain sectors was 0:05:08.400 --> 0:05:12.359 due to low labor costs or significant public support. But 0:05:12.400 --> 0:05:15.800 now we've reached a situation where those battery manufacturers are 0:05:15.800 --> 0:05:18.840 at the technological frontier of what's being done in that space, 0:05:18.960 --> 0:05:21.600 where we've reached levels of scale and sort of the 0:05:21.640 --> 0:05:25.360 accompanying networks of providers in certain regions that just allow 0:05:25.440 --> 0:05:28.599 them to outcompete basically any other sort of nascent battery 0:05:28.600 --> 0:05:31.760 making industries outside of China. And that's a real big 0:05:31.800 --> 0:05:34.360 part of why China is so competitive is really down 0:05:34.400 --> 0:05:37.200 to scale at this stage and down to investments in 0:05:37.200 --> 0:05:40.040 supply chains that stretch back quite a few years now. 0:05:40.400 --> 0:05:42.360 So another one of the industries that China has been 0:05:42.480 --> 0:05:44.839 very dominant in arguably for much longer than even the 0:05:44.839 --> 0:05:47.400 battery space is the solar sector. Can you talk about 0:05:47.440 --> 0:05:49.559 some of the history there and how they have also 0:05:49.720 --> 0:05:53.520 used scale in order to really be the largest manufacturer 0:05:53.520 --> 0:05:55.479 in the world for solar modules. 0:05:55.880 --> 0:05:58.200 So now we're going to talk about overcapacity, and we're 0:05:58.240 --> 0:05:59.760 going to talk about it in a way in which 0:05:59.800 --> 0:06:02.479 is quite specific to the two sectors we're talking about 0:06:02.560 --> 0:06:05.520 just now, batteries and solar. What's really interesting with solos 0:06:05.520 --> 0:06:08.640 we've seen sort of cyclical over capacity be a feature 0:06:08.720 --> 0:06:10.960 of the market stretching back for as long as China's 0:06:11.000 --> 0:06:13.719 been involved in manufacturing at scale, so over the last 0:06:13.720 --> 0:06:16.840 decade plus. But right now things are a little bit different. 0:06:17.200 --> 0:06:19.440 So right now we've actually got a situation where in 0:06:19.480 --> 0:06:21.960 twenty twenty two, by the end of the year, China 0:06:22.000 --> 0:06:25.240 had more than enough manufacturing capacity, and whether it was 0:06:25.680 --> 0:06:28.919 in the upper bit of the value chain in polosilicon 0:06:29.000 --> 0:06:31.640 manufacturing or whether it's all the way down downstream to 0:06:31.839 --> 0:06:35.120 module making, it had enough manufacturing capacity within its own 0:06:35.160 --> 0:06:38.120 borders to supply the whole of the world's demand. But 0:06:38.200 --> 0:06:40.880 what we saw over the last year is a pretty 0:06:40.960 --> 0:06:45.839 unexpected boom in continued investments in new factories. They're built 0:06:45.839 --> 0:06:47.880 so quickly in China that many of them came online 0:06:47.880 --> 0:06:51.000 in twenty twenty three. And right now, when we look 0:06:51.040 --> 0:06:54.599 at Chinese manufacturing capacity and we compare it to global demand, 0:06:54.720 --> 0:06:58.520 so China's nameplate manufacturing capacity is more than twice what 0:06:58.560 --> 0:07:01.080 would be required to meet global demand. And based on 0:07:01.120 --> 0:07:04.720 what's been announced, and many Chinese manufacturers don't announce manufacturing 0:07:04.760 --> 0:07:07.400 capacity investments that far ahead of time, but just based 0:07:07.440 --> 0:07:10.240 on announcements that will continue to be the case even 0:07:10.280 --> 0:07:13.760 as demand grows according to our optimistic scenario over the 0:07:13.760 --> 0:07:18.080 next two years. So pretty shocking levels of over capacity. 0:07:18.120 --> 0:07:20.640 That's the case for solar modules. It's also the case 0:07:20.720 --> 0:07:24.520 for polysilicon, where there's over one point one terrawatts of 0:07:24.560 --> 0:07:27.640 polysilicon manufacturing online in China today, and then if we're 0:07:27.680 --> 0:07:31.320 looking at our demand numbers for the world, we're at 0:07:31.360 --> 0:07:35.280 somewhere around six hundred and seventy giga what's required for 0:07:35.320 --> 0:07:38.760 twenty twenty four, according again to optimistic scenario, So just 0:07:38.760 --> 0:07:40.960 to give you an idea of the scale of overcapacity 0:07:41.120 --> 0:07:43.680 is really pretty shocking. And it's also the case for 0:07:43.800 --> 0:07:48.200 battery manufacturing where similarly, battery cell manufacturing capacity in China 0:07:48.440 --> 0:07:51.240 is basically more than twice global demand. That will remain 0:07:51.240 --> 0:07:54.400 the case going forwards based on announced facilities, and it 0:07:54.480 --> 0:07:57.480 means that China's able to pull off pretty impressive feats 0:07:57.520 --> 0:08:00.360 like building enough lift your mind battery cells love year 0:08:00.360 --> 0:08:03.080 to supply all of the world's demand. So we're at 0:08:03.200 --> 0:08:09.040 levels of continued over investment in battery manufacturing, in solar manufacturing, 0:08:09.120 --> 0:08:11.800 we're seeing that continue and we actually track the numbers 0:08:11.840 --> 0:08:15.080 and we identified about four hundred and sixty nine billion 0:08:15.200 --> 0:08:18.920 dollars of overinvestment above what would be required to meet 0:08:19.040 --> 0:08:22.280 demand under our net zero scenario over the next four 0:08:22.360 --> 0:08:25.160 years in battery manufacturing and solar manufacturing. 0:08:25.400 --> 0:08:28.480 Now you had said that Chinese manufacturing facilities come online 0:08:28.520 --> 0:08:31.520 really fast. How fast is really fast? Months? Years? 0:08:32.600 --> 0:08:35.840 It depends on whether you're retrofitting an existing facility. It 0:08:35.840 --> 0:08:38.120 depends on whether you're building something a bit more involved 0:08:38.120 --> 0:08:40.679 when it comes to technology, So polysilicon plants might take 0:08:40.720 --> 0:08:42.600 a couple of years. They are a little bit more 0:08:42.640 --> 0:08:45.360 complicated to set up and get running. A module factory 0:08:45.800 --> 0:08:48.360 is a little bit less complicated, relatively speaking, and can 0:08:48.360 --> 0:08:50.760 be put up in a few months if you're retrofitting, 0:08:50.840 --> 0:08:53.600 if there's an existing production process which is more aligned 0:08:53.640 --> 0:08:55.440 with the one that you're putting in place, then it 0:08:55.480 --> 0:08:58.400 can be done relatively quickly, within sort of I've heard 0:08:58.520 --> 0:09:02.240 three months, but six months being something that's routinely cited 0:09:02.240 --> 0:09:04.520 as the amount of lead time required to put up 0:09:04.520 --> 0:09:06.040 a new module factory. 0:09:06.320 --> 0:09:08.400 So then is it reasonable to say that this is 0:09:08.960 --> 0:09:12.079 very intentional and that this isn't a series of projects 0:09:12.080 --> 0:09:14.640 that were already in the pipeline that then got completed, 0:09:14.679 --> 0:09:17.720 but the market wasn't exactly ready for and the economics 0:09:17.760 --> 0:09:20.600 didn't match what they projected their demand to be. But 0:09:21.000 --> 0:09:25.200 these came online regardless of where current demand was, almost 0:09:25.240 --> 0:09:28.640 reaching then for future demand that maybe they see coming, 0:09:28.679 --> 0:09:30.880 it's sort of if you have the supply, then the 0:09:30.920 --> 0:09:33.880 demand will exist because the economics will be so low. 0:09:33.960 --> 0:09:37.120 So they're kind of creating the market where maybe even 0:09:37.160 --> 0:09:40.360 closer to being paras aligned to thinking about bringing down 0:09:40.360 --> 0:09:43.600 emissions and making the renewable energy transition even faster if 0:09:43.600 --> 0:09:44.240 you think about it. 0:09:44.559 --> 0:09:47.200 Yeah, absolutely, That's one of the big messages from a 0:09:47.240 --> 0:09:49.800 recent piece of research that we've just published is looking 0:09:49.840 --> 0:09:52.160 at this overcapacity story, and there's a number of different 0:09:52.280 --> 0:09:54.800 outcomes and conclusions that you can draw from what's going on, 0:09:54.960 --> 0:09:58.000 and one is that it's brought the cost of renewable 0:09:58.080 --> 0:10:01.480 energy crashing down. It's brought the cost of electric vehicles, 0:10:01.600 --> 0:10:05.320 of batteries, of solar modules, for example, and even within China, 0:10:05.520 --> 0:10:06.880 and this is a bit different to the rest of 0:10:06.920 --> 0:10:10.679 the world's wind industry, the cost of wind turbines falling 0:10:10.760 --> 0:10:14.240 pretty rapidly, so we've seen, for example, the spot market 0:10:14.320 --> 0:10:17.760 rate for a Chinese solar module is now around eleven 0:10:17.800 --> 0:10:20.320 dollars cents per what a year ago it was double that, 0:10:20.520 --> 0:10:23.480 So it's really rapidly falling, and that means the world 0:10:23.480 --> 0:10:25.760 gets to profit, especially at a time when, for example, 0:10:25.840 --> 0:10:28.080 in the West, like the energy transition has never been 0:10:28.160 --> 0:10:30.840 submitted to the levels of political scrutiny that it's under, 0:10:30.880 --> 0:10:33.800 whether that's in Europe, whether that's in North America. And 0:10:34.040 --> 0:10:36.160 now we're at a time where the economic case for 0:10:36.200 --> 0:10:38.360 the energy transition is stronger than ever, and a big 0:10:38.400 --> 0:10:40.080 part of that is due to the fact that we've 0:10:40.120 --> 0:10:44.600 got this massive surplus glut in good quality, low cost 0:10:44.640 --> 0:10:47.400 technology coming from China right now. That is a positive 0:10:47.440 --> 0:10:49.679 story and it's one that should lead to an acceleration 0:10:49.760 --> 0:10:52.120 of the energy transition. We've even seen sort of reports 0:10:52.120 --> 0:10:55.400 of people now in Europe putting up solar modules along fences, 0:10:55.440 --> 0:10:58.200 for example, because you can do that now it's cheap enough. 0:10:58.600 --> 0:11:00.720 So a lot of the forecasts and scenarios that we 0:11:00.760 --> 0:11:03.000 actually run show quite a bit of adoption. And so 0:11:03.200 --> 0:11:04.920 these charts that kind of go up into the right 0:11:04.960 --> 0:11:07.160 when it comes to demand, some of them at a 0:11:07.160 --> 0:11:09.520 steeper curve, and some of them taper off a little 0:11:09.559 --> 0:11:12.679 bit more depending on what's actually happening in the economy. 0:11:12.720 --> 0:11:15.040 And one of these areas where there has been some 0:11:15.120 --> 0:11:18.440 forecast around some cooling demand in particular coming from the 0:11:18.440 --> 0:11:21.720 companies themselves that are the producers, is electric vehicles. So 0:11:21.760 --> 0:11:25.680 when we're talking about electric vehicles, the number of vehicles 0:11:25.720 --> 0:11:28.880 that are actually coming online from China, are those actually 0:11:28.920 --> 0:11:31.880 then being also exported or are those being focused on 0:11:31.920 --> 0:11:32.920 their domestic market. 0:11:33.280 --> 0:11:36.040 Yeah, great question. There's been the recent story of the 0:11:36.080 --> 0:11:39.360 slowdown in growth in electric vehicle sales. It's one driven 0:11:39.360 --> 0:11:41.400 by a number of different factors, such as interest rates 0:11:41.400 --> 0:11:43.600 for example. There's a question now is whether or not 0:11:43.640 --> 0:11:46.160 we're sort of at a historical turning point where we're 0:11:46.200 --> 0:11:49.160 starting to see very explicitly a lot of Chinese EV 0:11:49.320 --> 0:11:52.520 manufacturers BYD being the most commonly cited one, but there 0:11:52.520 --> 0:11:55.240 are many others turn their gaze beyond China in a 0:11:55.320 --> 0:11:57.800 much more serious sense than they were in the past 0:11:57.800 --> 0:12:00.760 when it comes to looking at growing markets. Chinese market 0:12:00.840 --> 0:12:04.360 is becoming increasingly oversaturated, it's incredibly competitive, so there's a 0:12:04.360 --> 0:12:07.880 lot of looking abroad. So again, BYD, the world's largest 0:12:07.880 --> 0:12:11.040 producer of EV's also produces a lot of its own batteries, 0:12:11.320 --> 0:12:14.720 has now been commissioning large carrier ships that are specifically 0:12:14.720 --> 0:12:17.040 designed to carry vehicles, and it's sort of leading the 0:12:17.120 --> 0:12:20.360 charge along with another couple of EV manufacturers like Great 0:12:20.400 --> 0:12:23.280 War Motive, for example, in trying to sell more to 0:12:23.559 --> 0:12:27.240 emerging economies, set up manufacturing there, but also sell cars 0:12:27.280 --> 0:12:29.319 from out of China into Europe, and that's something that 0:12:29.320 --> 0:12:31.640 we've seen recently, a bit of an emerging trend where 0:12:31.640 --> 0:12:34.320 we saw about nine percent of evs sold within the 0:12:34.360 --> 0:12:37.600 EU last year come from Chinese headquartered manufacturers, and that's 0:12:37.600 --> 0:12:39.680 a share that we expect to see growing and that's 0:12:39.760 --> 0:12:41.559 in turn led to a bit of a pivot from 0:12:41.600 --> 0:12:43.800 the European Commission, which is now a little bit concerned 0:12:43.800 --> 0:12:46.560 about that penetration and is thinking about whether or not 0:12:46.600 --> 0:12:48.840 to put in place new tariffs. So there's currently an 0:12:48.840 --> 0:12:52.120 anti subsidy investigation that's been launched by the European Commission 0:12:52.200 --> 0:12:54.600 looking explicitly at whether or not there'd be an argument 0:12:54.640 --> 0:12:57.439 that could be made that Chinese manufacturers are benefiting from 0:12:57.520 --> 0:13:01.040 unfair subsidies and that would provide the backing or the 0:13:01.120 --> 0:13:03.960 cover to put in place new trade measures which is 0:13:04.000 --> 0:13:05.920 something that the EUS shine away from in the past. 0:13:05.920 --> 0:13:09.640 It's got pretty minimal tariffs on most clean technology, especially 0:13:09.679 --> 0:13:11.360 when you compare it to other regions of the world 0:13:11.400 --> 0:13:13.679 that are also aligned with the EU in terms of 0:13:13.720 --> 0:13:16.839 trying to build out local supply chains at local manufacturing, 0:13:17.040 --> 0:13:19.600 like the US, like India, both of which are much 0:13:19.640 --> 0:13:22.600 more comfortable with using protectionist tools as part of their 0:13:22.679 --> 0:13:24.360 industrial strategy. Arsenal. 0:13:24.760 --> 0:13:27.440 So, we've seen battery prices fall and the levelized cost 0:13:27.440 --> 0:13:31.560 of electricity for solar being below what would be considering 0:13:31.559 --> 0:13:35.320 traditional high carbon energy sources like coal, for example, in 0:13:35.400 --> 0:13:37.520 most locations in the world. But when it comes to 0:13:37.559 --> 0:13:40.520 electric vehicles, the argument is often that electric vehicles are 0:13:40.559 --> 0:13:44.440 not yet at price parity with internal combustion engine vehicles 0:13:44.520 --> 0:13:46.680 and that we are moving in that direction, but we're 0:13:46.679 --> 0:13:49.280 not there just yet. So the question is are these 0:13:49.440 --> 0:13:52.520 Chinese vehicles that are coming online in places like Europe, 0:13:52.600 --> 0:13:54.360 are they getting closer faster? 0:13:55.000 --> 0:13:57.120 Yes, they are. There's been a bit of a focus 0:13:57.120 --> 0:13:59.679 in the West on when it comes to ev manufacturing, 0:13:59.760 --> 0:14:04.000 with presenting large SUVs for example, many of which are 0:14:04.040 --> 0:14:05.760 quite pricey. So when you look at the average sort 0:14:05.760 --> 0:14:08.079 of price points for electric vehicles sold in the US, 0:14:08.120 --> 0:14:10.680 for example, you're around forty to fifty thousand dollars. Now, 0:14:10.720 --> 0:14:13.360 the picture in China's very different, And just within China 0:14:13.440 --> 0:14:16.920 you've got things like BYD's cgull hatchback, which is a 0:14:16.920 --> 0:14:18.920 model that's regularly cited now just because of the fact 0:14:18.960 --> 0:14:21.560 that it's being sold at pretty shockingly low prices of 0:14:21.800 --> 0:14:24.920 under ten thousand dollars per car. Now, when BYD is 0:14:24.920 --> 0:14:27.440 sort of setting those cars and exporting them abroad, we're 0:14:27.480 --> 0:14:30.520 typically seeing prices around double that. But even if you're 0:14:30.600 --> 0:14:33.240 stacking on top tariffs and shipping costs and all these 0:14:33.280 --> 0:14:35.560 other things, you're still seeing cars that are sold at 0:14:35.640 --> 0:14:39.680 extremely competitive rates. So the outcome of that will be 0:14:39.960 --> 0:14:42.560 that the tipping points that we'd be seeing would be 0:14:42.600 --> 0:14:45.080 reached more quickly because we're starting to see a wave 0:14:45.320 --> 0:14:48.800 of again, good quality, cheaper cars come into these markets 0:14:48.840 --> 0:14:52.480 where traditionally speaking exactly that economic tipping point was holding 0:14:52.520 --> 0:14:55.040 back adoption and leaving it as the preserve of countries 0:14:55.080 --> 0:14:58.320 that are able to dole out extremely generous upfront grants 0:14:58.360 --> 0:15:00.960 for buyers, or countries that a richer and able to 0:15:01.000 --> 0:15:02.720 afford those cars. We might see a bit of a 0:15:02.800 --> 0:15:05.320 change there, and it's something that will be quite interesting. Again, 0:15:05.440 --> 0:15:07.960 there will be differences based on region and based on 0:15:08.240 --> 0:15:11.040 how comfortable different parts of the world are with employing 0:15:11.240 --> 0:15:14.680 measures around market access. And for example, the US seems 0:15:14.680 --> 0:15:16.600 like a bit of a less of a promising market 0:15:16.680 --> 0:15:20.680 for Chinese auto manufacturers than Europe. So byd and these 0:15:20.680 --> 0:15:23.000 other companies are much less bullish when it comes to 0:15:23.000 --> 0:15:25.640 their ability to set into the US market as opposed 0:15:25.680 --> 0:15:26.800 to other parts of the world. 0:15:27.160 --> 0:15:29.960 So you had mentioned subsidies, and the thing that's really 0:15:29.960 --> 0:15:32.720 coming to my mind given that we're recording here in Europe, 0:15:32.760 --> 0:15:35.440 is this parallel maybe with the agriculture industry, where you 0:15:35.480 --> 0:15:39.080 see governments intervening and actually asking farmers not to produce 0:15:39.120 --> 0:15:41.080 in order to keep prices at a certain place so 0:15:41.120 --> 0:15:43.720 that they're high enough in order to support the farmers 0:15:43.720 --> 0:15:46.160 that are in this industry. It seems like the reverse 0:15:46.200 --> 0:15:49.360 thing is happening in China, where they're actively promoting this 0:15:49.600 --> 0:15:53.360 global oversupply and domestic oversupply in these industries. Can you 0:15:53.360 --> 0:15:55.520 talk a little bit about the role of the Chinese 0:15:55.600 --> 0:15:59.200 government in how solar batteries and electric vehicles are really 0:15:59.360 --> 0:16:01.800 working From the manufacturing side. 0:16:01.640 --> 0:16:04.200 Yeah, there's a bit of a framing of intention, and 0:16:04.240 --> 0:16:06.560 when you look at reporting around this, you often see 0:16:06.560 --> 0:16:09.840 things like the Chinese government's planned to dominate the solar industry. 0:16:09.880 --> 0:16:12.560 These are sectors that have been identified as priority sectors 0:16:12.640 --> 0:16:14.960 by the Chinese government, and there has been sort of 0:16:15.080 --> 0:16:18.120 low cost credit, for example, that's being provided by states 0:16:18.280 --> 0:16:21.360 financial institutions. There are subsidies offered at a local level 0:16:21.360 --> 0:16:23.880 when it comes to power or land, just as happens 0:16:23.880 --> 0:16:25.200 in much of the rest of the world that's trying 0:16:25.240 --> 0:16:28.800 to pursue growth via industrial strategy. But really something that 0:16:28.840 --> 0:16:31.320 goes unsaid is the extent to which this is the 0:16:31.360 --> 0:16:35.120 result of market forces, and to quite a shocking extent. Actually, 0:16:35.160 --> 0:16:37.480 when you look at the margins that we're seeing in 0:16:37.760 --> 0:16:41.960 the solar industry, in the battery making space, in ev manufacturing, 0:16:42.200 --> 0:16:46.000 even among wind turbine makers within China, margins have shrunk 0:16:46.040 --> 0:16:48.960 considerably due to the fact that competition's gone from red 0:16:48.960 --> 0:16:52.480 hot to white hot recently. It's an incredibly tough space 0:16:52.520 --> 0:16:54.800 to operate in and actually a lot of the overcapacity 0:16:54.840 --> 0:16:56.760 that we're seeing is not so much the result of 0:16:56.760 --> 0:16:59.800 an intentional policy to try and flood the world markets 0:16:59.800 --> 0:17:02.280 with this kind of technology, it's more the result of 0:17:02.400 --> 0:17:05.240 companies playing a big game of chicken, and basically the 0:17:05.280 --> 0:17:08.239 first to blink in terms of not constantly updating your 0:17:08.280 --> 0:17:12.200 manufacturing facilities is instantly rendered irrelevant. And what I mean 0:17:12.240 --> 0:17:15.080 by that is that we're seeing very fast technology cycles. 0:17:15.119 --> 0:17:17.800 In solar for example, we're seeing a shift to ND 0:17:17.800 --> 0:17:21.120 type modules called top con modules, away from PERK, which 0:17:21.160 --> 0:17:23.840 was the previous dominant technology. That's happened in just a 0:17:23.840 --> 0:17:26.680 couple of years, and that means that you're constantly having 0:17:26.720 --> 0:17:30.040 to invest in new manufacturing capacity to stay relevant. And 0:17:30.080 --> 0:17:32.560 we're also seeing that in the battery making space, where 0:17:32.600 --> 0:17:36.240 we're seeing rapid shifts from nickel heavy chemistries to ones 0:17:36.280 --> 0:17:38.800 that are more iron based. And again we're seeing the 0:17:38.840 --> 0:17:42.159 picture change extremely dynamically from year to year, and that 0:17:42.240 --> 0:17:44.960 results in the same sort of thing, massive investments in 0:17:45.119 --> 0:17:47.560 just trying to stay relevant in the space. And actually 0:17:47.640 --> 0:17:49.960 proof of this has a big dynamic that we're seeing 0:17:50.080 --> 0:17:52.760 is the fact that these companies' share prices have really 0:17:52.760 --> 0:17:55.680 not been doing great. They've been underperforming the Shanghai Stock 0:17:55.720 --> 0:17:58.560 Market index. That's been a persistent trend that we've seen 0:17:58.560 --> 0:18:01.119 over the last few months and is directly linked to 0:18:01.160 --> 0:18:05.639 this idea of massive overcapacity, pressure on prices, pressure on margins, 0:18:05.880 --> 0:18:08.240 and that is part of the reason why these manufacturers 0:18:08.240 --> 0:18:10.360 are now looking abroad and looking to try and sell 0:18:10.400 --> 0:18:12.719 their products outside of China because of the fact that 0:18:12.800 --> 0:18:16.359 their home market is so oversaturated, and that oversaturation is 0:18:16.359 --> 0:18:18.959 the result of relentless extreme competition. 0:18:19.440 --> 0:18:21.280 So let's talk a bit about how the rest of 0:18:21.320 --> 0:18:25.560 the world is reacting. There's a growing trend of Western 0:18:25.600 --> 0:18:29.959 countries actually looking to nearshore and onshore production. We've actually 0:18:29.960 --> 0:18:33.040 talked about this with you on this show. So how 0:18:33.080 --> 0:18:37.280 has that progressed? And, you know, without giving away the punchline, 0:18:37.320 --> 0:18:39.320 you've talked about this as we've gone through this show. 0:18:39.440 --> 0:18:43.399 Chinese manufacturing has led to dramatically lower prices in a 0:18:43.440 --> 0:18:45.720 lot of the areas that they actually go into. So 0:18:45.960 --> 0:18:50.520 have these nearshore and onshore manufacturing facilities have they been 0:18:50.560 --> 0:18:53.000 able to get anywhere close to being competitive? 0:18:53.440 --> 0:18:55.879 So we can again talk back to those investment numbers 0:18:55.920 --> 0:18:58.280 I mentioned earlier. So when we look at new factories 0:18:58.280 --> 0:19:01.119 that are supposed to come online this year outside of China, 0:19:01.280 --> 0:19:06.280 across solar manufacturing, battery manufacturing, wind manufacturing, hydrogen electrializer manufacturing. 0:19:06.359 --> 0:19:09.160 We see a quadrupling of the levels that we saw 0:19:09.280 --> 0:19:11.760 last year this year, and by the end of next 0:19:11.840 --> 0:19:15.280 year we should be at eight times twenty twenty three levels. 0:19:15.440 --> 0:19:17.520 So we're basically on the cusp when we look at 0:19:17.520 --> 0:19:20.879 what's been announced of a pretty big wave of not 0:19:21.040 --> 0:19:24.359 just breaking ground or starting to make investments, but factories 0:19:24.480 --> 0:19:28.800 actually coming online for clean technologies across North America and 0:19:28.840 --> 0:19:31.480 across Europe. That's a real big shift, and that's really 0:19:31.560 --> 0:19:33.719 driven by a lot of those policies that you mentioned, 0:19:33.720 --> 0:19:36.320 which are things like the Inflation Reduction Act in the US, 0:19:36.440 --> 0:19:39.800 which is incredibly generous when it comes to subsidies for manufacturers, 0:19:39.800 --> 0:19:41.840 many of which are in the form of production based 0:19:41.880 --> 0:19:44.000 tax credits, but also in the form of the Federal 0:19:44.040 --> 0:19:46.560