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It’s not all doom & gloom in China
Yes, China's got problems, but one sector is still booming
Tim Vollans
September 12, 2023 • Estimated Reading Time: 5 minutes
China’s got 99 problems, but exporting vehicles ain’t one
& the peak oil narrative’s getting another play on the global stage…
Right. China’s in a whole world of trouble right now. You’ve probably seen the headlines. Peak growth, terrible demographics, leadership problems, high youth unemployment, property downturns.
You name it, China’s facing it.
However, there’s one huge bright spot within the gloom. China’s vehicle exports.
China’s about to become a global leader in vehicle exports:
Now, there are always stories within stories with this stuff. The chart is a moving average of vehicle exports, and the pandemic massively distorted supply chains & sales data.
The trend is clear though. China’s coming on strong. Hail Emperor Xi!
Plenty could go wrong. Analysts love to say that a trend isn’t ‘built on solid fundamentals’ (usually to justify calling it wrong), but in this case, it would be bang on.
See, China’s built up massive capacity, following the usual path of industrial policy, subsidies & centrally-led development, but the domestic market just can’t absorb the vehicles produced.
From the FT article:
A stark mismatch between production at Chinese factories and local demand has been caused, in part, by industry executives mis-forecasting three key trends: the rapid decline of internal combustion engine car sales, the explosion in popularity of electric vehicles and the declining need for privately owned vehicles as shared mobility booms among an increasingly urbanised Chinese population.
The result has been “massive overcapacity” in the number of vehicles produced in factories across the country, said Bill Russo, former head of Chrysler in China and founder of advisory firm Automobility. “We have an overhang of 25mn units not being used,” he said.
Years of supportive industrial policy and private sector investment have boosted China’s competitiveness in the industry. Domestic manufacturers, including EV champion BYD, are now outselling foreign automakers and targeting overseas markets for growth.
At some point, China will pick the winners and losers. Consolidation will be necessary. Another part of that trend is the growing export of Electric & Hybrid Vehicles, especially BYD.
The Veteran dug into EV stocks for premium members earlier today:
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One final point on the auto trends. Germany’s economy is struggling too. The loss of cheap energy was a shock to the chemical industry, making German production prohibitively expensive. While China’s undeniably out-competing the German auto industry.
If Europe (& the US) take a more protectionist route & favour domestic firms… What will China do with all that spare capacity?
Peak Oil Again
Yep. You know how all the films you see now turn out to be remakes of stuff that’s been done (at least) once before?
Peak oil is that movie. Just in the real world.
It’s been played to death & remade soooo many times. I made this montage in 5 minutes.
Now, Fatih Birol, executive director of the International Energy Agency has written an OpEd committing the cardinal sin of predicting not just peak oil, but peak fossil fuel demand this decade.
Clearly he hasn’t heard about the energy demands of the AI ruling class.
I always take these predictions with a truckload of salt. But there’s one thing that bothers me.
If not now… When?
Solar & wind power is intermittent, but adding to the overall grid capacity at the margin.
Battery tech is improving all the time.
Nuclear power is finally shedding that long, unjustified stigma, & new generations of modular reactors are being developed and installed.
It pays to be cautious though. We’ve been here before MANY times, and forecasting a decade into the future is practically impossible.
Our energy demands continue to rise and always have. As we add ever more computing power to our lives, that seems unlikely to reverse.
These trends might not mean peak fossil fuel demand at all, just peak fossil fuel share of the global energy mix.
Less catchy I know. But potentially more accurate.
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