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On Today's Bloomberg Intelligence Show. We dig inside the big business stories Impactney Wall Street and the global markets.
Each and every week we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts cover worldwide.
Today, we'll look at how the most volatile quarter since the heights of the pandemic has delivered a windfall to Wall Streets trading desk.
Plus, we'll discuss how Volkswagon and Mercedes are being impacted by electric vehicles in China.
But first we look at ASML, one of the world's leading suppliers for the semiconductor industry. ASML shares plunged the most in twenty six years after the company reported weak orders last quarter for its chip making machines.
ASML also lowered its guidance for next year, and this is now forcing investors to reevaluate the health of the semiconductor industry.
For more on this, co host Alex Steele and I were joined by Mandeep Sing, Bloomberg Intelligence senior tech industry analyst. We first asked man Deep if this is a negative sign for AI chip demand.
I mean, look, when it comes to ASML, again, everything is driven by CAPEX, and when I say CAPEX, it's really coming from the foundry guys like TSMC, like Samsung. We know Samsung had layoffs recently, so clearly they are not doing value well. But TSMC is so the fact that their buyers are so concentrated and the geopolitical tensions continue, and you know the second half estimates the comps are tougher. To me, this is just a sign of expectations kind of going up to the point where you will not
see any positive revisions from the print this quarter. And that's what happened with Expectations had gone up and they didn't surprise to the upside, so we could expect the same from others.
The magnitude of the miss on the orders versus the estimate seemed huge to me. Yes, that typical or not to play. When they missed, they really miss well.
So's that comes down to how semis typically is when you go back to prior cycles. When these companies miss, they miss big. We have seen that with Micron, we have seen that with some of the other names. But in the case of a SML, the secular drivers are intact. When you think about, you know, every foundry looking to use their machines, looking to go to you know, smaller nodes TSMC so they are their largest customer. And when you think about, you know, how well TSMC has done
in terms of their AI revenue. I don't think they are cutting back capex, but it's always about that incremental buyer when it comes to these semi companies, especially the ones that are reliant on CAPEX spend. And if you take China out of the equation or the fact that they are restricted in some way. Those are some of your incremental buyers.
This is a really ignorant question. Where does in Nvidia sit in this story that we're talking about.
Well, Nvidia is sort of the first derivative. So if TSMC is not buying machines from ASML, that means they are not expanding their supply for you know, the latest cost packaging and the foundry side in terms of manufacturing Nvidia's chips. So TSMC determines what kind of capacity expansion they're looking for for twenty twenty five and beyond, and based on that they are placing an order for a
SML equipment. So it is a very big sign. And to your point about Intel being a buyer, well, Intel is under pressure to curtail their capex as well, so you're taking a lot of the incremental buyers out of the equation even though there is no substitute for ASML. So it's not as if ASML is losing market share to anyone. It's just the incremental buyers are fewer compared to where they were. You know, a couple of quarters back.
Okay, what I know about AI you can put into a shot class. So answer this question like, I'm a five year old. Is this fundamentally change the AI story for tech?
It doesn't. It's just that everyone is expecting some sort of digestion period when it comes to AI. We have had you know, a long up to the right sort of scenario so far. When it comes to generative AI, and everyone expects a pause at some point, their signs are you know, in Vidia chip demand remains in say siable despite the restrictions, but when it comes to you know, SEMIS, the way it works is first your foundry guys are
gonna slow down their supply expansion. Then you know, and video will see fewer beat and raises, and so there is a derivative aspect to how it flows through. It doesn't all happen in the same quarter, and to me ESML missing is one of the first signs that you know, things may be cooling down a little bit. It may not get reflected in Video's quarter this time around, but two quarters down the line and Vidia could get effected.
Which then also reads the question like which customer is the problem for ASML, like what are their customer lists are calling them saying like, guys, look, we don't really need the equipment, like we know it may not be TSMCS, then is an Intel because that's more of an idiosyncratic Intel issue rather than like a broader AI chip story issue.
Yeah, and Intel and Samsung, I mean, look, Samsung, we know isn't doing very well on the manufacturing side. When people talk about generative AI chips and GPUs, everyone is going to MC as if there's only game in town. Samsung isn't able to switch to that latest note for you know, generative AI chips, and that's where we heard Samsung doing a layoff. So clearly they are curtailing their costs.
Intel is curtailing their costs. So you take out two of the top buyers of ASML gear and we know they sell you know, multimillion dollar machines, So these are expensive purchases. And it's not as if ASML is losing business, it's just it won't get reflected in the next quarter or you know, the couple of quarters.
Our thanks, saman Deep saying Bloomberg Intelligence senior tech industry analysts.
Each week we look at research from Bloomberg and EF previously known as New Energy Finance.
They're the team at Bloomberg that tracks and analyzes the energy transition from commodities to power, transport, industries, buildings, and agriculture sectors. This week, we take a look at how corporations are on pace to purchase record clean energy in twenty twenty four.
For more on this, co host Alex Steele and I were joined by Kyle prison bnef's head of sustainability research first to ask Kyle to take a look at the kind of corporations that are signing green power purchase agreements.
So they're locking into long term contracts for typically solar windpower, but we're now seeing them expand into other forms of low carbon technology for example, like nuclear, like hydro and geothermal. Big technology companies have really led in this space. So it's the companies like Amazon, Meta, Google, Microsoft, they're signing
the most deals at a large scale. But we're seeing a lot of heavy emitting, hard to abate sectors getting into this space now, so materials companies, industrials, oil and gas companies. They're starting to break into new markets where big tech maybe doesn't have as big of a footprint, and they're starting to sign these long term, large scale clean energy deals.
Where are the clean energy deals happening is it here in the US, is it in Europe? Or where are these things mostly happening?
Historically was the US, So between twenty fifteen and twenty twenty two, around two thirds of all these corporate clean up energy power purchase agreements were signed in the United States. In twenty twenty three, that number drop to around forty five percent. So corporations are increasingly spreading out and signing deals in Europe, in Latin America and Southeast Asia, for example.
In Asia in particular, you have a lot of demand for electricity from corporations and you have a huge supply chain footprint, and historically those companies haven't been able to buy clean energy. But through a lot of policy lobbying and a lot of work on the ground with regulators, you now have opportunities to buy clean energy. In Japan, South Korea, Vietnam's a new market, so there's a lot of new, exciting expansion.
What's the price for these things and how do they compare it to traditional energy?
So that's been one of the biggest drivers in the growth of this market right. So through September of this year, companies have announced over thirty one gigawatts of clean energy through corporate power purchase agreements. That's the size of a small country in a given year, and we're on record pace. And the biggest reason for that is that sol earned wind on a new build basis are now cheaper than
colon gas in many markets around the world. So as a corporate buyer, I can undercut those prices for power that I might be paying, for example, from a utility or from the grid by locking into a long term, fixed contract for renewables and for renewables.
Is this is the adoption of renewables or the growth of the renewables market. Is that driven by the market or by regulations governments saying you gotta do this?
What do we learn I mean to the last question, it's really primarily driven by economics. But reliability is a huge factor here. So big technology companies they're now going out, they're building these data centers. You're seeing a big expansion in manufacturing capacity. All of this requires the lights to be on twenty four to seven, right, So you can't afford to have a power outage or a grid failure. So locking into one of these contracts for solar and wind,
that gives you more reliability. And again that expansion into other forms of what we would call zero carbon base load power that could generate twenty four to seven, like nuclear and geothermal, that also kind of emphasizes that reliability. So it's a combo of that along with sustainability.
And how do you think that this sort of partnership and evolution happens. It's still going to be these long term power purchase agreements or is it going to be like these hyper scalers And you know, maybe even like a sman industry or the hard to debate industry just sets up like their little small modular reactor right next to their facility, or a wind farm right next to their facility. I mean, I'm being hyperbole, but you get the idea versus plugging into the grid for example.
You definitely need collaboration on the grid side, right, and the utility scale side of this market. Of course, there are opportunities to build a solar project or a wind farm on site and leverage energy storage to get that power directly, but we need utilities, right, and we need grid planners to start collaborating with these corporate buyers to
ensure that this grid scale up is done sustainably. If we start to build all these hyperscaler data centers in for example, the Data Center Corridor in the eastern US or in Texas. You need to ensure that there's enough transmission capacity to ensure that that power gets moved from A to B. Right, So that's to involve regulators, that starts to involve utilities. So it really is kind of an approach that everyone needs to be involved in for this to be successful.
You know where they do wind farms in a big way, Ireland, driving around tons of that.
A lot of data centers in Ireland as well, so it's extra important there.
Yeah, so they were ever there, just big ones as well, and it's windy there, so it works being an island and all talk to just about you mentioned nuclear energy. What's the future of nuclear here in this country? Can we build these little nuclear plants that can do things and not pose a big risk.
So I, unfortunately I can't comment too much on nuclear We have an guy, we do have a nuclear guy. I'll leave it to him, but what I would say is right, there was a lot of noise around this announcement from Microsoft around through my island. Through my island is a name, right, that's a project that obviously evokes a lot of emotion, but we're going to see a lot of corporations continue to look for those deals with that zero carbon based load power. So we wrote about
this the other week. This won't be the last nuclear deal from big tech, right You'll see more geothermal deals. So it's going to play a really important role here as a reliable source of power that's also low carbon.
What region is signing the most of these clean PPAs right now?
It's Texas and it's based purely on economics. So in for example, northern and western Texas, the price of power for wind is incredibly cheap and you have fantastic wind resources, so you have a lot of companies going out and signing deals there. But increasingly companies want to emphasize where can they make the biggest impact by adding clean power.
If you already have all of this low carbon wind and solar generating in Texas, are you really making that much of a difference by adding another project there, for example, compared to the eastern US where you have more coal power, right where you can have a bigger impact on decarbonizing the grid. So what we're going to slowly start to see is more corporations expand that footprint, both to other parts of the United States outside of Texas, but other new regions in the world.
Are thanks to Kyle Howrison, bnef's head of sustainability research.
Coming up, we'll get how a slump in demand from is impacting the luxury goods maker LVMH.
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We move now to US bank earnings.
The most fallat a quarter since the heights of the pandemic has delivered a windfall to wall streets trading desks last quarter.
Goldman Sachs Bank of America City Group and JP Morgan Chase posted equities and fixed income trading halls that surpassed analyst estimates.
This week, Morgan Stanley joined the party and reported better than expected trading revenue, fueling a thirty two percent profits last quarter. As a result, Morgan Stanley shares surged the most in four years.
For More, we were joined by Alison Williams, Bloomberg Intelligence, senior analysts for Global Banks. We first asked Allison to break down Morgan Stanley's quarterly results.
I think the real number that's giving investors confidence in our opinion, you know, is the wealth flows.
So we've had some uneven flows.
Last quarter was was relatively weak, and I think o the rebound this quarter maybe instilling a little bit of confidence. As you know, they are strong institutionally, but they have shifted their business over time to this, uh more towards the wealth business. Gorman had sort of put some aggressive targets out there before handing over the rains its head pick and so and so to be clear, they really,
you know, beat the numbers across the board. It was led by the institutional business, the equities trading business, in which they're relatively more skewed did very well, partly because they are skewed that business, and they did outperform. They had the best growth in trading and fees across the big six US bank so upset across the board, benefiting
from their mix, benefiting from their performance. But the wealth flows are really what the focus is for investors also because stocks are aiding their asset values, aiding fees and so that pre tax margin in the business. The other key metrics also doing better.
Alison, how much can we expect the wealth assets to keep growing?
So, you know, that is the multiple trillion dollar question. That is one of the aggressive targets that was put out there was to you know, sort of aggressively grow this assets, and it did seem like there were some pretty healthy market gains priced in. So the markets are delivering on those gains certainly this year, and the flows are also helping. But you know, we would want to see a couple more quarters of evidence that you know,
they've really built the momentum there. We would expect Morgan's family to have a strong quarter in wealth this quarter, just where stocks are. I mean, the global market cap reached a record high, according to Bloomberg data at the end of the third quarter, and I would keep in mind that the pricing of those wealth fees really relates to the beginning of quarter value.
So that's helpful for the bank for the fourth quarter as well.
But you know, to your question, outs, when we're thinking about the overall franchise and we're thinking about the growth, we should keep in mind that there is a big talent to the business this year from markets, and to some extent, the future growth is sowhat dependent on that.
It just seems Allison, as I kind of read your research and yeah, I know you guys have break data on market share across all business lines, it just seems like we're going to Stanley, Golden, Sachs, Morgan, they're just kind of running away from everybody else on the planet. I mean, is that in fact the case.
They have been?
And you know, whenever we expect you know that like, okay, who's gonna who's left that can you know, blow up that's a technical term, if you will, and see some more share to these banks who are kind of running out of names. But if you think about, for example, what's happening in prime brokerage, right, so a lot of these larger institutional hedge funds that have you know, sort
of these multipod shops, et cetera. To the extent that those bigger firms are gaining assets and doing better, that's benefiting you know, the leaders Morgan, Stanley Goldman and JP Morgan, and so as as the bigger clients get bigger, that's helping those firms as well. Within the trading business. The other thing I would point to is, you know, the investments in technology. These companies made the investments in technology, and that's also helping them to win share in the trading businesses.
I'm gonna steal Paul's comment slash question saying what does this all mean about the European banks And are the US banks eating their lunch or is the lunch being spread around?
So I think for this quarter, the pie is getting bigger.
So you know, in terms of whether eating lunch or pie, you know, the US banks have been gaining share against the Europeans for many many years. We think that does continue, but we think the pie is also bigger this quarter. And what we heard specifically was, you know, for example, JP Morgan strength across regions, and what we heard from these banks was strength across derivatives, prime and cash equity,
so it is really broad based. The other thing that we think is notable for UBS in particular is the strength in Asia. So not surprisingly we saw a pickup in activity in Asia that really benefited the banks, specifically called out by JP Morgan and Morgan Stanley.
We think that that is really going to be a help to UBS.
So how about on the cost side, Alison, was there any discussion about compensation? I feel like that's been less of a discussion point is. I guess Wall Street compensation has become a little skewed, a little bit more towards the fixed and a little bit less on the variable.
Yeah, so there's that element of it.
Paul.
You know, the two things I would point to is keep in mind compensation.
Is a cruel din a cruel through the first three quarters, so to some extent it represents the business trends, and to some extent it represents how they think the full year we'll shake out. Secondly, you know, compensation for the investment banking fee side of things sort of was stickier than we would have expected on the downside, and I think that's because there was such a scramble to Higher
Town in twenty twenty one. So and investment banks have been talking about a recovery in that fee business for several quarters now, and so I think they that COMP didn't come down as much, So there might not be as much of a search to the upside. But if we looked at costs, if we looked at COMP, you know, in general the profitability was good just because the upside
to revenue was so much. Now, is that because the investors banks are keeping conservative and going to see how the fourth quarter shakes out in terms of the accrual basis? Is part of it because of the stickiness as I mentioned, But you did see COMP coming in sort of above estimates, just not as much as the revenue upside.
Our thanks to Allison Williams, Bloomberg Intelligence, Senior Analyst, Global Banks and Asset Managers.
We move next to earnings from the luxury goods maker LVMH.
This week, shares of LVMH plunged for the company reported that sales of fashion and leather goods fell for the first time since the pandemic. The company cited a slump in demand from once insatiable Chinese consumers.
For more on this co host Alex Steel and I were joined by Deborah Aik and Bloomberg Intelligence Luxury goods analysts were first asked to break down LVMH.
Earnings quite a mixed bag, but yeah, generally across the board are a little bit of a shock in the Q three to everyone, and we felt it would really ripple through the industry with their organic sales down three percent in the Q three and that was all when we went reagion by region. This a small amount of growth in Europe and in North America, but we have decline in sales in China down mid single digit. And what that does overall for nine month, it moves organic
sales grow flat year on year. So it's not about pricing, it's about product volume is down around five percent, price and mixer up slightly.
So I know, just from talking to you over the year's deb and reading your research, China is really key for this luxury market. What's happening there? Is it just simply reflection of a you know, a tough economic environment there, particularly for the consumer.
Yeah, I think if we look at consumer sentiment, it's back to COVID twenty nineteen, twenty twenty lows, it's that bad, and we waited for the financial stimulus package. Boomberg had popped out a consensus seeking two hundred and eighty three
billion in terms of stimulus package into the marketplace. And while they talked about supporting housing, residential housing and other back in local government spreadsheets doing a lot more for real estate, they just aren't any numbers yet in the marketplace. And then through October overall the beginning of October, we've had Golden Week and that's been really contrasted money spent
on experiences on food. In Shanghai, there have been vouchers going out in the lower income areas in about one in ten or ten percent of money coming in has been via voucher for meals over that period of time, but there's just not as much going into the shopping baskets.
How about the Great market I know that's always been a challenge for the luxury brands in China, well around the world, but particularly in China. Is that still a headwind?
The companies won't really, you know, talk so deeply about that, but they do try as much as they can in terms of managing that marketplace. I think though a lot of the generation and what these companies are doing online and with newness. There are products even within the Louiston range like they're never full new style bag, which is reversible.
Those types of products are doing very well, whether it's from an LVMH or another brand that's struggling, like Ferrogamo, some of its new brands coming out it also reported and you know some of the some of the products coming out there are doing very well and resonating with
a younger generation. So they do want authenticity. They've just been very much more aware in that middle range and that are certainly feeding through on some of the portfolio within even within you know, they're very wide and deeper product range that Alvia mage As. I mean, they still did sixty billion, but when you look at their numbers and overall they were one billion off, that's how big they are.
Okay, interesting, So if I'm a big you know these luxury brands, European and American luxury brands, what's my strategy in China? Do I just wait for the consumer to turn around? Do I maybe pursue some discounting that I historically would not do to move product?
What's the strategy?
I think neither of those. I think price is relatively flat after two three years of heightened inflation. Costs are under control generally, and what you do is you innovate. You stay mindful and in the face of the consumer in a very targeted way, and on the back of that you have to have a new product coming through. There's a huge amount of investment of cape spend in
supply chain, in distribution logistics online with third parties. There are projects out there that are collaborative projects with local A star celebrities. So you've been very mindful in your ticking boxes in the biggest cities being there and also being really relevant in events too. So you keep going and new wait for the base our thanks.
To Debacon, Bloomberg Intelligence luxury goods analysts.
Coming up on the program a look into how climate change is making parts of the planet unensurable.
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This week, we focused on a Bloomberg Big Takes story titled Catastrophe Bonds Will Help Florida but Failed Jamaica.
You can find it on Bloomberg dot Com and The Terminal. The story looks at the use of catastrophe bonds as climate change makes parts of the planet unensurable, and it examines how vulnerable nations can be left out of luck when disaster strikes.
For more, co hosts Alex Steel and I were joined by one of the story's authors, Gautam Nike, Bloomberg's ESG editor. We first asked Gautam to walk us through the story.
So essentially, this particular story I've done with a couple of colleagues looks at catastrophe bonds. These are a bet on the probability of huge natural disasters like earthquakes, wildfires, floods, are hurricanes, and obviously the incidents of some of these events have scotten higher and the severity of some climate related events like hurricanes and floods have become more intense.
So these catastrophe bonds are a way for insurance and reinsurance companies to pass on the risk of growing disasters onto Wall Street, onto the capital markets, and not to put it on their own balance sheet. The way it works is that if you're an investor in the bond, you can make a very large return that could be fined hard to find in you another fixed income product. However, if the particularly disaster is defined in the bond does occur, then you could lose some or even all of your
invested capitals. So it's a gamble on a weather disaster.
Very simply, do these work, Yes, they.
Absolutely do work. So just to give you the broader context, about seventy percent of all catastrophe bonds are focused on the US windstorm sector because hurricanes and other severe name storms, and a big chunk of that relates to Florida. Obviously, this came into focus recently because of Hurricanes Helene and Milton back to back that caused a lot of flooding
and wind damage as well. And the way it works is that if a particular threshold of losses is met for most of these catastrophe bonds, then the issuing party will get a good chunk of the money that's taken out from the money that the capital markets of the Wall Street investors put in when they bought the bond, and that money then goes to pig to fix people's roofs and you know, rebuilt homes.
When has it not worked? As I mentioned the title was they helped Florida but failed Jamaic US. So what's the scenario where they don't pay off?
Yeah, So catastrophe bonds have been around for about twenty five to thirty years and they've largely developed, as I said, in the US, but also in Europe and Japan against earthquake risk. But increasingly institutions like the World Bank, the IMF,
the OECD are trying to popularize them in the developing world. Now, this is a part of the globe that is being disproportionately hit by a lot of climate losses to which they're not directly linked because you know, most of the emissions have come from since the Industrial Revolution in the western parts of the world, but a lot of these
weather disasters are focused on southern hemisphere. So the World Bank and other institutions are trying to get developing countries that are facing these risks to issue these catastrophe bonds that have been around in the West. But there is a problem the way the bond is structured. In the West, the ways it developed seems to work quite well, but in a developing country, because they don't have an insurance market, you can't actually calculate the total claims on an insured basis.
So they've come up with a different way of structuring the bond. It's called a parametric approach. Basically, for a hurricane, it would simply be if the pressure of the hurricane hits a certain threshold, which indicates wind speed, then the bond will pay out. But if it misses, you get nothing. Even if you're missed by the tiniest fractions, the rule say you will get zero, and that's sort of what happened with Jamaica.
If you believe in climate change, and if you believe that weathers can become more and more unstable, it might be really hard to price the risk out here because it seems like the risk would always be going up of more and more again unstable weather and catastrophes here, how does the market account.
For that, You've been pointed at problem. So when someone's trying to calculate the risk of these kind of weather related catastrophe bonds, all you have really is historical data. So for hurricanes, you have one hundred and fifty hundred and seventy years a pretty robust data going back, and
you can make a good estimate. But unfortunately the calculation has been muddied now with climate change, and these forecasts are of course forecasts is something that hasn't happened yet that will project it to happen, but you just don't know how it might unfold depending on, you know, how the world reacts to increased CO two missions. So the whole question is how do you incorporate the climate effect into this historical data and provide a really reliable metric
for someone to make a financial bet on. And it's the uncertainty of well, to some extent, the models that are used there by no means perfect, but also this extra new element that we've seen in the last few decades of climate change.
So, you guys, as I mentioned in the beginning, this is part three of a series that you guys have done into how climate change is making the planet unensurable.
What is your key takeaway here?
I think one of the main takeaways would be that it is very hard to accurately model the risk of climate change, and of course their attempts being made to refine it constantly. But if you're trying to ensure a large proportion of the world that is not insured, in the developing world, also parts of Europe. I mean, there's a huge insurance protection and YAP in Europe, and even in the US, for example, in Florida, you know, insurance
companies have moved out. They're not providing insurance in California for earthquake risks and wildfi. They're moving out. So the main takeaway is that it's becoming a more difficult problem, it's becoming a more uninsurable planet because of climate risk.
Our thanks to Galatam Naike Bloomberg ESG editor. Another great Bloomberg Big Take story we looked at focused on how a lot of the auto industry is getting squeezed by cheap electric vehicles from China.
The piece is entitled VW and Mercedes are getting left in the dust by China's evs. From what on the story costs. Alex Steele and I were joined by Oliver Crook Bloomberg, your correspondent. We first asked Oliver, just how far behind Mercedes and VWR?
It depends kind of where you want to approach this question from when we talk about the Chinese market, which again is a very key market for Mercedes, BMW and Volkswagen. This is their biggest market, or has traditionally been their biggest market for a very long time. You look at just the three third quarter deliveries that we got just a couple of weeks ago. BMW alone was down thirty percent in terms of the sales that they were making in China, and that is their biggest market. So that
illustrates the scale of the importance of this here. The problem is is that this is not just a question of the Chinese slowdown, right. This isn't a question of just we're going to put some stimulus in. Demand's going to come back. The nature of that demand in China
is now changing. So what we see now in the Chinese market is that more than half of the car is being sold, there are EV's and so while they still retain a lot of these German car companies some of that market share, a good amount of that market share, it's really not in the EV section and they're not even in the sort of top five or ten in the leader board for evs. So the question is going forward, how do you get competitive again? The problem they have
is they had that IC market share. It's about winning that electric market share, and they're just way behind on the inside of the car and the electronics.
Yeah, the IC is the internal combustion engine part, which is the hardest part for these guys.
Is it actually the battery, Is it just doing it all cheaply?
Or is it the bending in the metal?
For the evs?
Where is the struggle?
I mean, it's a combination of all of these things. There is, of course, are the battery components, even the sort of the evs that are sold here in Europe, even the ones that are produced here in Europe. The batteries are still coming from China. All of the components are coming over from China because they've really sort of been very proactive with their raw material policy. Everything from the lithium to this processing that all goes on to China.
The other issues, of course, the cost base, and we're starting to see that hit here in Europe where Volkswagen is talking about closing factories for the very first time in its history. They're talking about closing a factory in Belgium, closing a few factories in Germany. And to understand why that's so important, this is a company that has literally never done that before in Europe, in large part because you know, their supervisory board half of their seats are
held by sort of union representatives. So if they are moving forward and making that decision, it's because things are very, very challenging the cost base. If you look at the hourly wages of its sort of autoworker in Germany, it's close to like sixty two euros an hour. You go to Hungary just not too far away, it's sixteen euros an hour.
Okay, how do they fix it?
And that's a silly question, but like do they need a massive amount of subsidies to stimulate demand or do they need sort of unions to get out of their way. What would make this process a little bit easier.
It's going to be a combination of all of those things. And one thing that makes it even harder, Alex if we haven't talked about yet, is there actually our new EU regulations coming into force at the end of this year that basically stipulate that twenty percent of all the cars that they need to sell basically need to be EV's. The problem is there's a mismatch between what policy makers wants and what the market wants. Right now, the market
is stuck. These guys are still selling below fifteen percent evs. If they fail to hit that twenty percent by the end of this year, they're looking at potentially billions of euros worth of fines. So that's just another sort of overlay there. But this all, you know, I mean, the policy sort of dissonance that exists is one issue. But really these are car makers that have it's partially their own doing, right, They were just far behind on this.
The former Volkswagen CEO he really wanted to lean into electrification. They weren't into that. They got rid of him, they brought in somebody new, and now they're really paying the price.
Holl Or, how much of this is nationalism We've seen with Apple with the iPhone, maybe the concerns that the Chinese consumer on the margin doesn't want to buy Western products.
So listen, I think that that is going to be part of it. And of course this is the Chinese policymakers have been trying to gear their sort of economy to not have the kind of dependencies that they've historically had. Remember, the Chinese were really sort of welcoming with open arms Volkswagen back in the nineteen eighties when they first sort of started producing cars in the Chinese market, because there
was no automotive industry in China. What is interesting now is you're seeing some of these European car makers now sort of inverting that sort of same dynamic, where you have partnerships with say Stilantis and Leap Motor, a Chinese company have a joint venture here in Europe where now Stilandis owns fifty one percent, so that they are starting
to build Chinese cars at their own plants. And that is so we talked about the sort of threat to the Chinese market that is also coming very very quickly and very soon to the European shores.
As well, which is so ironic because if Europe really wanted to green stuff fast, they would just import a boltload of Chinese evs on the cheap and have their consumers buy them to your point. Then it becomes like a nationalized point. Who's in the worst who's in the best spot of this tobackle?
Have you really really put me on the spot here we're try to get for I mean, listen, I'll tell you this. The Lantis lost a fifth of their value since the profit warding two weeks ago. For thinking about companies that are really well positioned in Europe. You think about Tesla, They've got manufacturing over in Germany, and guess what they make only evis, so they're able to even sell some of those credits when those regulations kick in next year.
Our thanks to Oliver Crook, Bloomberg Europe Correspondent.
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