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ESG Focus: The Little Big Things – 31-10-2023

ESG Focus | Nov 01 2023

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FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

ESG Focus: Little Big Things

In this edition we return to the green theme as green deflation kicks in on the national energy market big time; global analysts forecast a slump in global electric vehicle demand; lithium price forecasts are hammered; and for a little light relief, the world’s first flying car keeps coming to market.

-Green deflation kicks in on grid
-EV and ICE discount wars begin
-EVs compare well in head-on-crashes
-Flying cars keep coming 
-Unintelligent driving systems

Compiled by Sarah Mills

Green Deflation Kicks In On Grid

Regular readers will know this column is partial to stories relating to greenflation (or deflation as the case now appears to be), given its ramifications to a global economy in the grip of geopolitical and covid-driven inflation.

So it was with some interest we observed Michael West Media’s scoop earlier this month, reporting regulators announced an almost -70% fall in wholesale prices on the National Electricity Market (NEM).

The reason? Deflation driven by falling renewable energy costs, despite soaring fossil fuel prices.

The mainstream dailies did not initially consider this worth reporting.

Wholesale energy constitutes about a third of retail prices, so theoretically, retail prices are set to fall unless big capital has other ideas.

Michael West observes a 12-month lag in pricing by July 1, 2024, so expects the cuts should flow through to consumers by 2024.

The AFR followed up the story later in the month with a business-oriented perspective, advising wholesale electricity pricing fell to below zero a record 19% of the time during the September quarter.

Renewable energy reached almost 39% of total electricity supply in the quarter, and is forecast to dramatically increase from here, as investors double down on renewables and batteries (we discuss this further in our next grid story). 

At one point, rooftop solar helped renewable energy hit a record 70% of total electricity supply within a half-hour period.

Rooftop solar also hit a record of 11.9GW according to AEMO.

The whole situation was buoyed by above-average temperatures over the period. 

EV And ICE Wars Begin

While the majority of global forecasts in the past few months have been for a sharp increase in EV demand, it appears the foundations for these forecasts are collapsing with ramifications for Australia’s critical minerals companies.

EV growth is still strong, just slower than expected, falling to 49% in 2023 from 63% in 2022, and is expected to fall further. 

Bloomberg’s Opinion columnist David Fickling wrote an article headed A Two Speed Electric Car Market Is Heading For a Crash.

And he's not the only one. UBS has cut its growth forecasts for the market by -5% to -15% out to 2030. This is despite fossil fuels trading at geopolitical induced highs.

The broker has also just slashed its lithium price forecasts -10% to -50% out to 2030 (EV demand comprises 75% of lithium prices).

UBS sharply downgraded target prices for Pilbara Minerals ((PLS)), IGO Ltd ((IGO)) and Mineral Resources ((MIN)) accordingly, with Pilbara Minerals downgraded to a Sell from Neutral.

There are several reasons mentioned, not the least of which are global economic uncertainty and high interest rates.

Another big one is a forecast price war between internal combustion vehicle manufacturers and electric vehicle manufactures as ICE manufacturers dig in for a last-ditch battle – trying to make hay while the sun shines using the slowdown as an opportunity to fight their corner and buy time.

UBS cites lagging charging infrastructure and shrinking subsidies as other reasons. Another contributor is the horrendously high capital expenditure requirement for new automobile factories, which has been exacerbated by rising interest rates.

Bloomberg points to a two-speed EV market, with China and Europe hitting 25% of new auto sales in August, add plug-in hybrids to the mix and that figure rises to 38%. In China, EVs are now cheaper than gasoline cars.

Meanwhile, the US and India have won the Captain Plod awards, barely breaching 10%, while a recalcitrant Japan sits at 3% (Honda Motor Co announced it was dropping plans for a sub US$30,000 EV with General Motors).

ICE manufacturers are laughing all the way to the bank (Toyota nearly doubled its profit in FY23), given ICE capital expenditure investment is being wound down as product lines and research and development are cut, observes Bloomberg. The cuts reflect the assumption ICE sales are on a trajectory to zero within 10 years.

It has placed ICE manufacturers in a strong position to embark on a discounting war, observe pundits.

Feeling vindicated by the EV market's recent woes, Toyota’s Chairman Akio Toyoda, a long-time detractor who was forced to step down from his position as CEO earlier this year for his position on EVs, can now barely contain his glee.

He claims slower EV sales show “people are finally seeing the reality” of EVs.

Toyota was ranked as the third most obstructive company towards the green transition under Toyoda’s management.

Toyota’s Australia chief recently stated that EVs don’t make sense in Australia and that hybrids, a market in which the company coincidentally has a strong advantage, are the way to go.

Although in light of the above falls in NEM prices, the case for electric vehicles is looking better all the time, and Tesla’s model Y is selling like hot cakes.

If nothing else, the predicted slowdown should buy ICE manufacturers time to get their EV offerings up to scratch. How much grace they will receive has yet to be revealed.

The dynamics driving a slowing in EV demand already appear to be affecting the world’s largest electric vehicle manufacturer, Tesla.

Both Tesla and Ford have slowed their planned EV ramp-ups, citing economic uncertainty and higher borrowing costs.

They are not the only ones. Major manufacturers across the board are pulling EV plans and investments. Most, if not all US EV makers, disappointed investors during this results season. 

Batteries manufacturers are also feeling the pinch.

Panasonic Holdings Corp announced its first loss in three quarters from automotive batteries operations due to a shift in demand from Tesla’s Model S and Model X cars due to tax incentives for sub US$80,000 vehicles. The company slashed domestic output of batteries -60% and has advised it won’t run at full capacity any time soon.

Musk And Fed In Mexican Stand-Off

EV makers are now relying heavily on, and are testing, big capital’s desire to accelerate the transition.

Tesla CEO Elon Musk says high interest rates will slow EV uptake, even in the face of substantial price cuts, which the company announced earlier this year.

Throwing the ball back into the US Federal Reserve’s park, Musk has stated he will only ramp up the company’s factory in Mexico if interest rates come down – a Mexican stand-off.

Earlier this year, Musk said the US Fed would be forced to lower rates by year end or early 2024, whereas most estimates are predicting June next year.

Perhaps the only thing to be gleaned from all of this is that either a fierce battle is raging amongst big capital, possibly for concessions as the world transitions – be it on nuclear energy or other key issues – or that perhaps geopolitical conflict is the flavour of the day and the transition is being shelved for a time as the media (owned by big capital) beats the drums of war. 

The next year should be informative on all fronts.

Crash Tests Suggest EVs Not Prone To Igniting

Speaking of EVs, Electrek reports Mercedes-Benz conducted the world’s first live head-on crash test between two EVs in a real-life simulation at roughly 55kmh.

It also crashed the cars with a 50% overlap.

The video shows the cabin stayed intact and both doors could still be opened – no signs of fire.

The high voltage system was designed to be switched off automatically upon impact to avoid the possibility of a fire.

Dan Caesar of Fully Charged says the highly publicised Luton car park fire involved a combustion engine and observes hybrids, which can also catch fire, are -20% less likely to do so than ICE vehicles.

A sorely needed shot in the arm for EVs as the market enters tough times.

World’s First Flying Cars Coming To Dealerships Nowhere Near Aussies

Nearly every major country with the ability has launched the world’s first flying car as manufacturers rush to gain pole position in the eyes of the consumer.

Electrek observed in July the world’s first flying electric car, produced by Alef Aeronautics, was headed for US dealerships, having racked up US$750m in pre-orders for its scaled prototype and proprietary electric propulsion technology.

Tim Draper, an early investor in Tesla, provided US$3m in venture capital for the project. The car can fly 200 miles per hour with a range of 100 miles.

It became the first electric flying car to receive a Special Airworthiness Certification from the US Federal Aviation Administration.

It is only one of several cars vying for the world’s first title. 

The PAL-V Liberty was approved for road useage and is now on the roads but is not really flying (yet). Similar to the ALEF, every man and his dog is putting in an order.

The Helix eVTOL (successor to Blackfly) is expected to hit the market in 2024 for US$190,000 in spare change – and drivers won’t even need a pilot’s licence, perhaps because of its underwhelming specs: top speed of 62 miles per hour and a range of 20 miles.

Japan and China are all claiming the title of world’s first flying car. Japan has its Evtol, China has its X2, by Xpeng (funny, the X moniker is also a favourite of Tesla’s Elon Musk). 

Even India and Indonesia are having a crack, laying claim to the title of Asia’s first flying car. Australians are likely to get sore eyes looking for any innovation on the sleepy country's front.

Putting paid to all this folly, the first flying car was supposedly invented in 1917 by Glenn Curtiss, the Curtiss Autoplane, nine years after the invention of the Model T Ford. To be fair, while it could rise off the ground, it never achieved full flight.

Glaswegian Kidnapped By Electric Vehicle

Meanwhile, a Glaswegian was kidnapped by his electric vehicle – an MG ZS – which refused to brake, forcing him to endure dodging of red lights and roundabouts. 

Police eventually stopped the runaway car by allowing it to slowly crash into a police van. It appears to have been a problem with the electrics, although no mention was made as to whether it had an intelligent driving system.

To be fair to EVs, electrics problems are not confined to EVs.

This journalist recently hired a Haval ICE vehicle with some kind of unintelligent driving system, which consistently attempted to override the driver. 

On a three-lane highway for example, it would swerve into another lane when other cars drove in the lane beside it. It would brake in the strangest places – a real hazard – including in response to marginal increases in speed when overtaking, making the endeavour death defying. It was a battle with the car at every turn of the wheel. 

Note to self – never buy a car with unintelligent driving capabilities. And car hirers beware – rentals may be a testing ground.

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