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On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting 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 our analysts cover worldwide.
Today, we'll look at a potential bank takeover that could reshape Europe's banking landscape.
Plus we'll discuss why German automake are now sinking deeper into an industry wide crisis.
For first, we dive into US politics, Vice President Kamala Harris and former President Donald Trump are in a closely contested race to be president, and we're now less than two months away from election day.
Recently, Bloomberg Intelligence took another deep dive into the US presidential election. The research looked at how a potential Harris or Trump presidency could impact different sectors and policies in the US.
For more on this, we were joined by Nathan Dean, Bloomberg Intelligence Senior policy analyst.
We first asked Nathan to break down some of the sectors that could be impacted after the US election.
In some of our key sectors to watch where we're like renewables tied to the Inflation Reduction Act. There's a lot of tax carrots, if you will, in there that are spurring renewable investment, especially in cap backs and a lot of up states. Others involved the banks, you know, the Basel three end game, a proposal that would increase capper requirements around nine percent for the investment banks.
If President Trump wins, that may not go forward.
Other things are global manufacturers due to the tax change's healthcare there are twenty five billion dollars in Obamacare subsidies that are up for renewal next year. Only big tech you know, whether if you be Kamala Harris, wins, are gonna have a continuation of the very stringent M and a anti trust authority that the Biden era regulators are putting on big tech.
But if JD.
Vance's idea of economic populism gets into the White House, you could see a Republican president.
Also be very skeptical of big tech. So a lot of what ifs, but a lot of.
You know, you know, scenarios in which those industries could be heavily impacted.
You know, I listened to former President Trump's economic planeting Economic Club of New York. I don't know hard time making heads or tails out of it, but I guess it was lower taxes, higher tariffs. Is that kind of the basis of his economic I guess platform.
Yeah.
I think that's the really good point to point out, because I think it's almost like a phase one, phase two type of deal with President Trump.
Wins.
Phase one is tariffs. You know, this is something that he can do. The power of the presidency is a lot more powerful there, and so sorry the first half of twenty twenty five, you could see a lot more tariffs coming in.
Now. I would argue that a lot.
Of these tariffs are negotiation ploys. You know, if he holds up an execut order and says I'm going to sign a tariff, there's probably a language in that executive order saying two hundred and seventy days from now, it won't go into fruition until then, because you're gonna give the opposite side multiple times to negotiate. But it's certainly something that he's comfortable with and I think, you know, would easily put out if he feels that it's necessary.
But then the tax reform debate is what's going to come next, because at the end of twenty twenty five, those Trump Ara tax cuts for individuals expire. Now President Trump has said fifteen percent corporate tax rate. I'm not sure he'll be able to get that. You know, he's gonna have to negotiate. We've seen a little bit of statements from House Republicans saying, yeah, maybe we should go down to twenty or nineteen or eighteen percent. But being able to pay for that fifteen percent it's going to
be somewhat difficult for these deficit hawks. So but you know, there's a lot of provisions of the Trump are tax cuts that have already expired for industry, and I think President Trump is going to try and institute those though at a large level, think Trump two point zero is going to do another version of the same tax cut.
I literally remember having the exact same conversation in twenty fifteen, twenty sixteen, like the phase to how you get it done, et cetera. So what's an interesting to me, though, is the lack of response though in say, high tax companies versus low tax companies, like the things that would make sense because those policies are so different, say on corporate taxes. Are we seeing that reflected within market moves?
You know?
I think so, But you know a lot I've been talking to a lot of investors over the last few weeks, and a lot of folks come to me and they say, we just really don't know what's going to happen on tax until we know the makeup of Congress. And the reason being is is that if President Trump wins but the Democrats take the House, pretty much all of his tax vision, if you will, is going to be curtailed, negotiated,
and a lot more restricted. Now, if he ends up winning the House and the Senate, they can use reconciliation to essentially bypass the Democrats, and they have a very broad net that they can cast. So a lot of people that I've been talking to you of saying, look, we understand the Trump era desires and we understand that these broads deficit inducing tax cuts potentially could be on
the horizon, but we're not excited about it. Just yes, because we need to see how the House and Senate races play out.
What is the thinking currently in Washington, Nathan about how that will play out in Congress?
Well, look, I mean, you know, if you go to the function on the terminal WSL election, you can see all the data there. But I think you know when it comes to the Senate, that's going to be somewhat very difficult for the Democrats to control because right now it's fifty one to forty nine. You're gonna lose West Virginia because Senator Joe Manchin is retiring, So now you're at a fifty fifty and the Democrats essentially have to run the board just to keep that fifty to fifty.
Think of Senator Shery Brown in Ohio, Senator John Tester, and Montana Senator Jackie Rose in Nevada. So assuming that if the Democrats lose one, the Republicans are most likely going to take the Senate. And if President Trump wins, then obviously allow him the ability to put in.
Judges and his regulatory leadership when it comes to the House. I've seen pulling up both sides.
But my general view, and this is just my personal view, is that whoever wins the President also wins the House.
Our thanks to Nathan Dean, Bloomberg Intelligence Senior Policy Analyst.
We next take a look at the coffee chains Starbucks. Starbucks CEO Brian Nicchol officially took office this week, and expectations for him are high.
The company shares sort of eighteen percent after it named Nicol CEO, and this comes after two consecutive quarters of sales slumps. For more, we were joined by Michael Halen, Bloomberg Intelligence Senior Restaurant and Food service centerals.
We first asked Michael just how long the market gives Nicol before judging him.
It's tough to say, right, you know, I think really it's going to take some time. You know, you don't turn around an aircraft carrier on a dime, you know, Starbucks is a behemoth of a company, so I think the market gives him some time. He's got a phenomenal track record, right what he's done at Taco Bell and then Chipotle, obviously we're very impressive, you know, and he's really you know, the first thing he's going to do, I think is just try to change that culture, right,
bringing in a culture of transparency, accountability. He's going to talk about hard work and compensating his employees for doing a good job, because you know, those are some of the things he talked about changing at Chipotle on his first earnings call there. So you know, all that stuff's going to take a little bit of time, and because of his track record he'll get he'll get a pretty long leash.
I think, what are the challenges facing this company? Because just as a consumer, I mean the Starbucks and Route thirty five in Wall Township, New Jersey, they do a great job. People are great. It just works like a charm stores in great shape. The one in Summit's good, it's always packed. What do they need to do here? I don't think anything's broken.
You know, it sounds like that location is doing pretty well. But they have of thousands and thousands of locations across the globe. I mean, you know, in the US, operations is a big issue. You know, drink orders have become
more complicated. Digital orders have kind of changed the experience for the in cafe customer, right, Like it was it became popular because the briests new your name, right, and the level of service was phenomenal for a chain of that size, right, and through digital ordering and these very complicated orders, you know, they've lost some of that, right, and so so operations, you know, they're losing a lot of orders because people are trying to place them on
the app and the wait times are are kind of obnoxious at times, right, And so I think operations is going to be his primary focus. Running the best cafes possible is really going to be job number one. But there's a bunch of different issues, you know, operations is just one of them. Politics has been an issue, right.
Starbucks has always been a brand that kind of puts their politics in your face, and I think Brian Nichol is going to want to step back from that, right because you know, all the issues they've had with their customer base, right, people haven't been happy with you know, there's been some boycott talks online about their stance on the Israel Hamas War, about their stance and how they've handled the union negotiations. You know, So that's a big thing.
And then you know, we think eventually, once they have the stores running really really well, they're going to start spending some more money on marketing. Maybe not a ton of money, but we would expect them to start spending on marketing.
You know.
It's not something that that Starbucks has traditionally done. But it also wasn't something that Chipotle had traditionally done, and it's been paying them dividends now for a handful of years.
So I think with Chipottle though, we just maybe Paul can attest. Is it like there's a menu and it's basic, like they're add ons, right, but like it's a basic menu. Starbucks menu is like explosive, Like they can't even have all the options up on the ordering board because they're just too many. So it is working with operations and getting that better. I mean, they have to pair back their menu and get back.
To their base. Yeah.
Probably.
You know, we had been critical of the previous management team because they kept rolling out new menu platforms and then in the in the next breath talking about improving throughput. But you can't have baths, so we we fully expect them to pair back this menu, make it easier to execute in the cafes, right, make lie it's easier for their employees and get the orders out faster. So yeah, I think that's going to be a major part of what they do going forward.
I mean, Bloomberg had a story from last in twenty twenty three where I mean the variations. If you add all the potential options, there's like billions of different types of drinks that could be oh yeah, yeah, you know.
So it's just at it and there's like the cold drink, there's the tea, there's the refreshers. Then there's the frozen refreshers and the blended refreshers. And I know those because my daughter likes those things. But sometimes you get them frozen and sometimes they're not. It's very complicated.
I know how they do it, and my power, you know, my hats off to them. All Right, let's step back and look at the restaurant space in general. Here, You've got some research out recently restaurant promotions marketing heat up. That's not what shareholders want to hear, do.
They no, But restaurants are kind of desperate right now to get some traffic into their stores. Low income consumers spending has been very weak. This seems to be spreading to the middle income consumers, right, based on the industry data that we've seen, which showed an improvement you know, last month in August, but it was still negative at casual dining restaurants, at family dining restaurants, and at quick service, right, and so they bounce from that horrific July numbers that
we saw, but still are negative. And so yeah, restaurants are trying to do whatever they can to bring you know, those low income consumers and middle income consumers back into their restaurants. You know, just for example, it was you know, I think it's thirty five out of the last thirty seven quarters quick service chains have had negative traffic, right, And so that's that's not a sustainable type of situation when you have same source sales rising because your prices
are going up, but traffic can continues to decline. Eventually there's a tipping point, and that's what we've seen this year.
So to that point, then, which ones are do you have faith that can maintain some kind of margin and also grow their top line.
You know, it's some of these chains that have a big gas on pricing, you know, in terms of you know, they've been pricing less.
Than their competitors.
Right, So if you you're providing a lot of value, and value can be two ways. It can be a better price, but it also can be a lot more food for what you pay. But some of these companies that people see value at, you know, Winkstop, Chipotle, Texas Roadhouse, these are all of the chains that have been outperforming. These all of the chains that have been able to drive traffic, and a big part of it is being
priced below competitors. You know, Winkstops raise prices about half as much as their competitors, and on their last earnings call, they credited that as a big reason for their phenomenal qorder our.
Thanks to Michael Halen Bloomberg Intelligence, senior restaurant and food service.
Centers coming up will break down Apples rise into the most valuable company in the world.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies in one hundred and thirty industries. You can access Bloomberg Intelligence via b I go on the terminal on Paul.
Sweeney and a Malex Steele. This is Bloomberg.
This is Bloomberg Intelligence with now like Steele and Paul Sweeney on Bloomberg Radio.
We look next at European banks. This week we heard that Unit Credit has built a nine percent stake in Commerce Bank and plans to enter into talks with the lender.
This raises the possibility of a full takeover that could reshape Europe's banking landscape for more. We were joined by Philip Richards, Bloomberg Intelligence, senior analysts for European banks.
We first asked Philip to break down the possibility Commerce Bank will actually be taken over.
It's an interesting one. As you say, this is not a new boombed deal. It's been going on for literally well over a decade now in terms of big cross bordered deals. But the simple case of mains, any big cross border transaction among European banks so hasn't happened in the last fifteen years since the clasis. Will it happen now? Yes, it's possibility, but there's still a lot of hurdles on left in terms of the German government allow and specifically
when it would flag. The German market is very different to all the other European markets, very big cooperative or mutual society. They've got the Sparcasm and the Landers banks. So actually the private banks Deutsche Bank and Commerce Bank are a much smaller part of the overall market. And therefore could they take out the second biggest germin Bank? I think it is possible on our front.
Would it be a good deal for Unit Credit? I guess what I'm asking is how good of a management team, how good of a franchise is UniCredit?
Well?
Is it a good deal? I mean that will come down to the price. And one good thing about Commerce Bank is is pricing is a low level in terms of what you get for it. Yes, the earnings have been very very weak for the last fifteen years, one of the lowest return and equity of all banks in Europe, but they have increased massively with rate risers across Europe. But of course the flip tide to that, of course,
is interest rates now going down. So the question becomes what will happen to Commerce Bank's earning is going forward? And frankly they're probably going to be going down and therefore that's where the pressure on them will lie. So are they getting a good deal or they're paying almost at the top in terms of their earning potential?
What company would that make UniCredit like, would this be a gient investment bank and a giant retail bank.
Well, they will become the third largest European bank if they did the deal in terms of a market cap basis. Obviously Commerce Bank is almost entirely now a retail and commercial bank is sold or the investment banking operations that had after the financial crisis, So this is amount of the case of expanding in terms of that retail commercial space.
UniCredit have a big presence in Germany already through hyper Variant Bank, so one of the attractions to sort of deal for them would be combining that so Commerce Bank and hyper viands and therefore trying to get the constand news out of them. But say, it's veryment on a commercial retail side rather than investment banking.
So Philip talk to us about I mean, just the German banking market. Does there need to be consolidation.
Does they? Yes? I mean it's probably the least consolidated market in Europe in terms of as you said, you've got this huge number of coopertive banks or sparkasms, et cetera. So it is a very difficult and diluted market. But the fact is, you know, Commerce Bank itself has got a sub ten percent market share. So even if you got it, did buy it and combined hyper virans with it, they're still probably just getting over about that ten percent mark.
So will it change the dial in Germany not at all, you know, because we're only talking in a thirty percent subsector. In terms of the private banks, we're seventy percent or so off the market you know, is in this mutual side.
So you were talking earlier that this has been rumored for ten years. I remember talking about this at least six plus years ago. Also, why do you think that now could be actually the moment.
Well, you asked us about you know, what they get in terms of the Commerce Bank. We heard your CEO of Commerce Bank said he will not renew a tenor which I missed fires at the end of next year. So you know that does open a hole at the top of the bank would obviously be in traction for them.
There's one potential way of doing it. Who would have bought Commerce Bank given the excessive risks they had, say three or four years ago, where we had the commercial real estate risks, we had the bank trading at point three times book value. We had earnings are very very low. So in a way the risk has gone away a lot of Commerce Bank because simply because the earnings are much stronger now because of those rate rises. Also, the German government took a big stake in the bank, so
as they sell that than further down. That's part of the way Unichledate built their state. Today that obviously becomes more and more attractive because it comes more into the private sector. So there are numbers more reasons why it could happen, but doesn't mean anything will happen then, No, is.
This going to ignite maybe a little bit more discussion about more across M and A trades just broadly defined across Europe.
Without any doubt it will trigger more emine spectation today, And I think the fact that you said they build a temperate stake and yet the share then rally twenty percent shows that the market doesn't think this is the end of the story and there's going to be more of a deal and the potential by bid for Commerce Bank is possible. That said, you know, why has there been no big m and A across the sector now
for fifteen years? And because a number of the regularly hurdles are main You know, there's not a single rule book across Europe, government interference, people don't want to leave their biggest banks and be taken over by a foreign institution, et cetera. All these hurdles and nothing's actually changed on that front. So you know, no big deals have happened. Could this be the first, Yes, but it's by no means certain it will.
Thirty seconds if the deal does happen. Would the bank be able to lend more and do stuff?
I would have said yes three years ago just because of the week of financial position that Commerce Bank was in. I think because of the eaight hikes. Now is in a much stronger position. It's got a service capital position itself, so there's no real bowriers in terms of the supply side,
their potential to lend more. What's restraining them from growing actually more the weaker Germany economy, and we're hearing more about that over the press, and that's what's being holding them back and Franklly, nothing changes with his unique credit deal there those heard will still remain. So no, I don't think this would really help in terms of the lending or the growth potential. It's much more I think about the synergies in terms of the cost takeout potential.
All right.
Thanks to Philip Richards, Bloomberg Intelligence Senior analyst for European Banks, we now.
Turned to big tech and Apple. Apple was the subject of a Bloomberg Big Take piece this week titled How Apple Rules the World.
It discussed how Apple ascended from a scrappy tech underdog to the most valuable company in the world.
From More.
We were joined by Austin Karr, Bloomberg News technology reporter.
We first asked Austin to connect all the dots for Apple from the nineteen eighties until now.
You want me to summarize forty years and can you go up?
Okay?
Well, well, really, what this story does is chart why and how Apple found in its position today, facing a big antitrust lawsuit in the US, a lot of regulatory pressure in Europe, as well as a lot of really just skepticism and criticism for a lot of the partners and developers that have depended on Apple over the years, and it charts out basically Apple has changed from that nineteen eighty four era when it released the Mac it was seen as this sort of disruptive force in the
technology industry to twenty twenty four when a lot of people think that this is a sort of domineering force that needs to be disrupted. So we go through from the Mac to the iPod and iPhone up through present day, and it's just really just putting all the pieces together about how Apple finds itself in that position now.
And Austin, along with Max Chafkin, you guys reported this story just fantastic work. But for me, Cameron Galley, he does all the illustration. It just made it really cool and really interactive, some awesome stuff as always. So Austin, where do you think Apple goes from here? Is it just new products? Is it maybe getting more ingrained in our daily lives if that's even possible. What do you think kind of a longer term vision is for the folks in Kupertino?
Look, I mean, I think a really good question for listeners right now or even you guys, is just this new iPhone? If you guys are Apple users have you ever seriously considered switching to a different device, or is it just the default now that I'm going to upgrade to the iPhone sixteen, maybe at default, And so I think the question is how long can that last where
it is just sort of the default. I mean, even their new features they are all about you know, AI and how that ties into some of its hardware, But in all honesty, they're two years late to AI. A lot of the features. Mark Kerman or Apple colleague is reporting that won't really release until twenty twenty five, at which point maybe you should just wait for the iPhone seventeen. And I just think there's a big question about you know,
Apple's products are still good. They still make you know, the best laptop, the best you know watch and earbuds. I'm talking through my AirPods right now. But at the same time, when they don't face that type of pressure, does their products just become too incremental and too boring? And I think that is when you're going to see a lot more disruptives trying to change the way computing works and work outside of the Apple ecosystem. But the problem for consumers like us is we're kind of stuck
in it. I'm not going to switch anytime soon for sure.
Well then to that point. But I found also interesting, and I didn't know in the piece that you wrote, was sort of Tim Cook's role in managing Apple supply chain, and you dug deep into Apple would have a supply chain partner and then in essence look to manufacture that in house, and then booed that company, which is really messed up tons of companies around the world. Can you give us some detail on that.
Sure.
The most infamous example actually goes back about a decade ago. Apple was developing these new sapphire screams that were going to be alter durable instead of the glass that they currently use, and they sort of outsourced it to a partner and then left that partner on the hook with all the liability when Apple decided not to go that route because the sapphire wasn't quite going as fast as
they could develop it for the iPhone. And I think that we sort of position that a symbolic of what Apple has seen with a few of the partners they've worked with over the years, not just in the supply chain,
but also on the software ecosystem side. It's really fascinating all this sort of trend that we see of a partner really excited to work with Apple in the beginning, like Goldman Sachs on the Apple card or even General Motors we sid as another example of working them on CarPlay, and then years go by and suddenly they're not so
happy with the relationship with the Apple anymore. And I think that really has become our trend in recent years as the company has grown to this massive, multi trillion dollar force that essentially it's Apple's where or the highway. And I'm just curious how long that will last with partners before they say, you know what, enough is enough?
And you know, Austin, I think for a lot of investors one of the longer term issues that's still always out there and is probably increasing in concern. It's just the regulatory risk for not just Apple but kind of big tech in general, but certainly for Apple given their marketing position. How do you think the companies kind of how do they react to that, and just in terms of a long term thread or headwind.
Well, actually, I mean the DOJ case in the US. You know, they just released their their complaint in March. Apple is pushed to dismiss it just earlier in August. That's going to play out over the course of years. I think that, you know, the preceding cases with the
DOJ and IBM or DJ and Microsoft. I mean this last many, many years, but we're already seeing sort of a precursor to that, and what's happening in Europe with the Digital Markets Act, which has already pushed Apple to change a ton In fact right now in Europe because of those regulatory changes, you can get an alternative marketplace, meaning you don't just have to rely on Apple's App store. You're you're actually able to delete a lot of native
Apple apps that you can't delete the US. You can delete Safari, you can, You'll eventually be able to delete your phone app, your camera app, the app store and just use alternative products from the third party ecosystem. And so what you're seeing in Europe is this almost two track system where they have a lot more flexible sort of computing platform than anywhere else if you're an Apple user.
So I think what they've sort of done is take this almost whack a mole approach to regulation the EU, and even in some of the pressure they've seen in the US, they've had to open up that walled garden that, as we refer to it, sort of their closed ecosystem a little bit more in a way that Apple doesn't like because they lose control. But for consumers in a lot of ways, it's a little bit interesting to watch this company have to change and not just have it
the Apple approach. They're going to have to, at least in Europe so far, open up their wild garden a little bit allows some more players within their ecosystem to run some of those fundamental cards.
All right.
Thanks to Austin car Bloomberg News technology reporter.
Coming up on the program, a look at why activity in the carbon capture industry is starting to slow in the US.
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I'm Paul Sweeney an a Malex Steel, and this is Bloomberg.
Your listening to Bloomberg Intelligence Nowlex Steel and Paul Sweenie on Bloomberg Radio.
We move now to the auto industry and focus in on Europe. German carmakers are now sinking deeper into an industry wide crisis.
This week, BMW warned their profits We'll get hit by a costly brake problem to Volkswagen scrap job protections that workers have enjoyed for three decades for more.
We are joined by Michael Dean, Bloomberg Intelligence, Head of Global Autos, and we first asked Michael to dig deeper into YBMW lowered its expectations for the year.
So BMW had a profit warning, and that was partly on the back of a warranty issue has with its breaks not on the xtreek.
So you'll fine Paul Good, but they're going to have to.
Recall one point five million vehicles and that's going to cost a high three digits million in terms of earnings for twenty twenty four. But that doesn't tell the whole story because they've downgraded their margin by about two hundred bases points, which is about two billion v bits. So the balance of that is coming from we could China sales,
lower pricing in Europe, lower demanding you. So just the demand and pricing environment globally has been very difficult and that's part of the reason for the profit warning.
Which then leads us to Volkswagen. So the latest news is that it's ending its job protections for autoworkers in Germany as part of its cost cutting push. There are several agreements that were linked to a three decades old pack that was supposed to safeguard employment un till twenty twenty nine, but now those guarantees are going to run out by the middle of next year.
I mean, wow, yeah.
So you know, Volkswagen was in the news last week because it said it needs to close half a million units of capacity in Germany. So that's very difficult because
of workers' rights. And you know, worker's rights have been very one sided for Volkswagen in particular because you have VW law and this is where twenty percent of the ordinary shares, the voting shares are owned by the States of Lower Saxony, which is where Volkswagen's biggest battery is, and funnily enough, and they have the ability to block certain agreements. So workers rights are very strong for Volkswagen employees. And now I think management are saying, okay, hold on
a minute. The automotive world is changing rapidly. We need to do something to reduce costs. And part of that is the close factories and reduce jobs.
Michael, give us it just a thirty thousand foot view of kind of the global auto business here. I mean, the weakness that you're seeing in Europe, the weakness you're seeing in China. Is that just general economic weakness effect that we've seen in past cycles or is this something to do with this ongoing transition to electric vehicles.
Yeah, it's a bit of both. So you know, you have the transition to battery electric vehicles. It's going much slower than expected in Western markets. Other markets probably going quicker than expected, such as China. But the problem Volkswagen has is that the competition is so intense and has overtaken them in China, such as BYD So. Volkswagen a couple of years ago was the market leader in China.
Now byd within two years has overtaken Volkswagen. And really it's going to be a survival of the fittest in these markets.
Well, I mean, these companies aren't going to go under or anything, right, So I guess I'm wondering when the trough is When do we know what is a trough actually going to look like?
Well, you say, well, a lot of companies could could go under, particularly the pure play battery electric vehicles.
And I mean I just meant that, like Germany is not gonna let Bolkswagon.
Go bankrupt now, of course.
And the interesting thing if you look at the valuation of Volkswagen today is valued at forty five billion euros.
I've had a lot of clients talk to me about this.
They have almost forty billion of cash on the balance sheet, there's seventy five percent stake in Porsche is worth forty five billion euros. They own Lamborghini brands, which has higher probability rates than Ferrari, which is currently valued at seventy seven billion. So we think Lamborghini's worth thirty billion to use a Ferrari valuation. So there's some of the parts of volksg is huge compared to the actual valuation at Volkswagen at the moment.
So you highlight an area for me that just kind of feels like a long term issue, which is China. I mean, if you they spend decades they being any auto company Volkswagen, BMW, Mercedes, whatever, building brand value and brand loyalty in a market like China, and in a period of two years they've lost that. It seems like, I mean, is that the real barish case for some of these global auto companies.
It's a it's a big case.
So for the German auto makers, in the past few years, China was the most profitable market, accounted for thirty five of their profits. Now this year it could be as low as ten percent, and you know what the market's pricing is is that could be zero in the future. And that's because the technology changing and the way that startups in China are pushing through so quickly. They're really fighting for market share at the moment and their future.
So then it goes back to my question, what does the bottom for either US car companies or for European car companies wind up looking? Like as the tariffs go into place, as China keeps producing those really CHEAPVS, as we have different restrictions here in the US, like what is that?
Well, you look at what GM and Ford have done, I mean, in particulate, it's looked at different markets and if it's not profitable, it's pulled out of those markets. So China's one example, Europe's another example. So it's whether the German automakers take a view that can they be profitable in China in the future, and many foreign carmakers are saying no. Volksnagen at the moment is saying yes we can, and they've got this long term plan and
they've invested in Xpeng so hopefully accelerate their transition. But it's going to be very, very difficult for foreign carmakers to continue to make profits in China.
So I mean again it feels like is there an even discussion of whether they should be there at some point.
Certainly within the markets, but for the company itself that they've invested heavily in China and they've got a plan now to try and catch up with local producers, to catch up with BYD, which is with this partnership with XPANG. So they think they've got an opportunity because they've got a good brand in China.
But it's going to be very tough. I mean, pricing in.
China is really really competitive at the moment, so the point where battery electric vehicles are actually priced below internal combustion in vehicles compared to that to Europe, where the average battery electric vehicle is thirty five percent higher than a ice vehicle, and they still can barely make a profit in Europe, so yeah, it's a very tough environment.
Thanks to Michael Dean, Bloomberg Intelligence, Head of Global Autos.
Each week we look at research from Bloomberg n EF previously known as New Energy Finance. The team in Bloomberg the tracks and analyzes the energy transition from commodities to power, transport, industries, buildings, and agricultural sectors.
This week we looked at carbon capture. After two years of consecutive and dramatic growth, activity in the carbon capture industry is starting to slow in the US.
For more, we are joined by Brenna Casey, Bloomberg BNEF carbon Capture Analyst.
We first asked Brennet to define what carbon capture is.
Basically simply CCUS carbon capture, utilization and storage. It's kind of just a way to abate emissions from heavy industry, so things like petrochemical refineries, integrated steel mills, hydrogen blue hydrogen.
Okay.
Natural gas processing is a huge historical and use sector.
So basically there's some sectors that you cannot decarbonize you and they have to exist, like you need cement for example. So this is a way to kind of get them out of the air, and then the question is kind of what do you do with it? Do you reuse it somewhere, do you put it somewhere, do you store it in a rock or somewhere else. And it's been a huge focus for a lot of companies, energy companies and a like in oil companies for example, what has been the investment cycle like and.
Where are we now in that cycle?
Yeah, So if we're looking particularly to the US, following the Inflation Reduction Act, we saw this catalysis of not only project announcements, but kind of you know Series A, you know, lots of equity finance into that into the market right now, as you know, the IRS has still yet to address forty five Q. So that's the inflation reduction Yeah. Yeah, So the Inflation Reduction Act, which was signed into law you know, two years ago. Forty five Q is an investment tax credit that the government is
proposing to you know, heavy emitters. They can if they meet X, y Z requirements, then they can take this credit and apply it to their tax burden. And you know, kind of helps to mitigate the cost of ccs because it's extremely capex intensive.
So if you store your carbon er get it out of the air, you get a tax credit.
Okay, Yeah, it's like eighty five dollars per ton if you store it, and then sixty if you reutilize it.
Yeah, exactly.
However, the IRS has yet to finalize the criteria, so developers don't know what actually constitutes as a project that can qualify for these sorts of credits, and so what we've actually seen is not only investment taper off, but just announcements of you.
Know, future projects into the sector.
Which what's kind of ironic is that if you look at INVESTM numbers for last year for ccs in total, it was globally eleven point.
Three billion higher than it's ever been before.
The US to come around two point eight billion of that, however, that is all bolstered by just DOOE grants. So the DOE has you know, these direct air capture hubs. They're trying to throw money at growing out midstream infrastructure, so trans like pipelines, the storage like storage basins you mentioned earlier. But there's really no FIDS being taken in the sector at all. Besides, I think it was the hydrogen Bomont complex last year.
So FID is foreign investment decision final best financaim sorry, And it basically means like, Okay, I have enough and I understand enough of the economics where I can actually like put money in the ground and like put a shovel in the ground and do some stuff. And that's where we're really lacking, which raids of the question is it building this stuff is still too complicated? Or is
it the demand side? So I'm a company and I'm like, I can capture your carbon and I can store it for you, but how much are you willing to pay for that? Is that part of the issue now?
Yeah, it's definitely kind of a sector by sector issue.
So we look to power.
We're seeing the most cancelations in the power sector just because CCS is tremendously expensive and so for seeing a project announced around, you know, thirty percent of those projects in the power sector are like they're probably going to get canceled. And that's because retrofitting with CCS adds around fifty six percent.
To the total l COE. So it's eight hundred million plus capex investments. If you look to something which how did they recoup that?
Because that's about power, it's either the company is paying for it or like I'm paying for it in my bills, right, And that's the definite.
Way of how they recoup that cash.
Especially if you know the forty five Q credit if you are in amit or to qualify, it only lasts twelve years. A lot of these lifetimes are twenty twenty five years, and so yeah, how do you kind of make that investment back.
Hard and capture losing some momentum because maybe just the transition to green in the US has become a little politicized and maybe it's losing a little bit of impetus. Are we falling behind other countries for example?
I mean, the US is definitely the market leader.
So globe there's around four hundred and twenty four million metric tons of CU two capture capacity do to come online by twenty thirty five. Now, out of that, around one hundred and sixty I think it's one sixty three million tons is based in the US and following you know,
the forty five Q Inflace Reduction Act. Even though there's you know, hiccups here, hiccups with transparent storage permitting, we do see the United States as the best place in the world is to kind of build one of these projects.
So what companies do you feel like have the real deal it? So I talk to a lot of companies and they're all going to try and sell me their carbon capture products and like why they're the best, and how their economics.
Work and all that stuff.
Who actually can make this work?
Yeah, I mean, if we're looking at power and hydrogen, which are the two leaders right now, kind of the biggest players here, we're.
Seeing Occidental Energy.
So not only are they looking to retrofit they're you know, natural gas assets with carbon capture, but they're also kind of taking this first mover run into the direct air capture space. So that's really interesting company to watch in that kind of little corner. There's also you know, like
air products for hydrogen excelon MO. It's primarily these oil and gas majors that are moving around in the market because they have you know, just previous expertise, but they also understand the geology, how to store these things, how to build you know, these big expensive projects.
So yeah, air products oxy All right.
Thanks to Brenda Casey, Bloomberg bn EF Carbon Capture Analyst.
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