Monday 12/09/22

1. In MACRO & ENERGY NEWS, India overtakes the UK and we look at the latest on energy in Europe and the UK
2. In ELECTRIC VEHICLE NEWS, we look at bottlenecks for EV sales
3. In MISCELLANEOUS NEWS, agriculture is hit by higher energy costs, Netflix teams up with Ubisoft, Byju causes concern and Gieves & Hawkes sparks interest
4. AND FINALLY, I bring you a meat vending machine…

So India overtakes the UK and the energy frenzy continues…

India is quietly laying claim to superpower status (The Guardian, Martin Farrer) highlights the fact that the UK has just been overtaken by India as the world’s fifth biggest economy and is on course to overtake Japan and Germany to become third biggest after the US and China by 2030, according to the IMF’s latest figures. The country will need to keep growing its manufacturing sector to challenge China’s supremacy as the world’s #1 exporter but it needs to take advantage of having a youthful workforce, continued investment and strong consumer demand to achieve this. It’s looking good, though!

Meanwhile, it’s all chaos in Europe! Can the EU agree a plan to ease energy crisis? (Financial Times, Alice Hancock) looks at the current state of affairs regarding the energy crisis and what options are on the table. As you know, European ministers met at the end of last week to discuss the response to the crisis but they have yet to agree on the details, particularly regarding a price cap on imported gas and how to implement windfall taxes. EC president Ursula von der Leyen is due to talk at the annual State of the Union address this Wednesday and will be expected to lay out the response that will hopefully avert power blackouts across the bloc. Europe has been pushed into taking action now because Moscow said last week that gas supplies would not flow through the Nordstream 1 pipeline until sanctions against Russia had been lifted. Gas from Russia accounted for 40% of Europe’s total supply pre-Ukraine war and although it now accounts for 9%, this is still not zero. Also, EU gas storage levels are now at 83% of their total capacity – which is more than the 80% target that was set for the end of October. Right now, talks are focused on reductions in peak electricity demand,

windfall taxes on non-gas power production, a broader price cap and the relaxation of liquidity requirements for producers who are having to put up ever-rising amounts of collateral. The tricky bit is coming up with a plan to address these areas! The debate continues, but all parties need to come to a workable solution asap.

Meanwhile, European heavy industry steps up measures to deal with energy crisis (Financial Times, Sylvia Pfiefer) shows that some of Europe’s biggest energy users are doing their own thing while the politicians thrash things out at a higher level. They are making their own production cuts to take the edge off rising energy prices and falling demand. One of Europe’s biggest steelmakers, ArcelorMittal, has recently announced blast furnace shutdowns from the end of this month, Spain’s Ferroglobe has already shut two furnaces and UK packaging company DS Smith is preparing for winter energy rationing. Chemicals companies Evonik and BASF are also playing around with different fuel sources. Still, decisions need to be made further up the food chain to help businesses sustain themselves.

Talking of which, Truss told to speed up energy help for business (Daily Telegraph, Tim Wallace) shows that the energy industry is intensifying pressure on the new PM to flesh out plans announced last week so that any measures can take effect before winter hits. Details were thin on the ground regarding how businesses would be helped through the energy crisis and it seems that the government is going to announce something this week. The reason for the delay is that the way companies pay for energy is more complicated than the way households pay for it. We’ll just have to wait!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

We have a look at why EV take-up is lagging the hype…

Switch to electric cars held back by costly leasing deals (Financial Times, Peter Campbell) takes a look at the current gap between the hype (that many countries have committed to phasing out engine-driven cars by 2040 or earlier) and the reality (that EV sales are being held back because they are generally expensive). Not only are the prices higher, banks are reluctant to make leasing deals cheaper because it’s really tricky to work out what the residual value of an EV might be in three/four years time when the agreement comes to an end. The main reason for this is that there is no precedent! * SO WHAT? * On the plus side, it seems that batteries – which are the biggest cost of a new EV – have proven to be quite robust. Interestingly, after ten years of driving a Nissan Leaf, the battery retains about 80-95% of its range. This means that the residual value of the battery should actually be quite high, meaning that the value of the car shouldn’t depreciate too sharply. Also, fewer moving parts on an EV mean that maintenance costs are comparatively low although Hertz, which recently started hiring out Teslas and Polestars, says that tyre costs are slightly higher because the vehicles tend to be heavier. That said, another

potential danger for used prices is the rapid advance in tech making used vehicles look less attractive to potential buyers. Banks can do their bit to help sales of EVs by providing cheaper loans, but it seems that is going to take time…

Then in City net-zero rules slowing electric car switch, warns mining chief (Daily Telegraph, Howard Mustoe) we see another hurdle standing in the way of stronger EV sales. The co-chairman of the Global Battery Alliance, Benedikt Sobotka, said that some existing ESG rules that encourage investors to put money into socially responsible projects are choking new mining projects because they are classed as being “dirty”. This has contributed to prices of raw materials going through the roof while the demand for cobalt, lithium and other metals is set to grow as the world transitions towards EVs. * SO WHAT? * I’ve said this before, but ESG is one of those things that sounds quite simple in practice but is actually heinously complicated because the definition of what it is exactly differs enormously, depending on who you ask. It does seem somewhat hypocritical for a fund to invest in, say, Tesla, but not in its suppliers because they don’t make the grade. In order for EV makers to keep up with rising demand, something clearly has to give…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Agriculture takes an energy hit, Netflix teams up with Ubisoft, Bjyu causes concern and Mike Ashley looks at Gieves & Hawkes…

Salad days are over for European food producers as energy costs bite (Financial Times, Andy Bounds, Judith Evans, Emiko Terazono and Sarah White) shows that the cost of heating greenhouses is causing growers to cut production as they battle massive heating bills. * SO WHAT? * Crops that need heat to grow in colder climates – like cucumbers, tomatoes and lettuce – are likely to be the most affected from this. If you add into that the higher cost of things like fertilisers, the costs just rack up. The Netherlands accounts for almost 20% of world tomato exports – but many of its glasshouses are set to go dark due to high electricity prices. This could be disastrous for the industry as many are forced out – just further pressure on politicians to find a solution to the current crisis.

US heat wave hits supermarket produce sections (Wall Street Journal, Jaewon Kang and Jesse Newman) highlights another issue that is affecting US growers – that of the effects of a heatwave on their crops! * SO WHAT? * The heat is fuelling diseases that attack crops like lettuce – and given the heatwave we’ve had in Europe recently, I wonder whether we will suffer to the same extent!

Elsewhere, Netflix partners with Ubisoft to bolster fledgling gaming division (Financial Times, Anna Gross) shows that the two have teamed up to help the streaming giant bolster its developing gaming business. Netflix will launch three new mobile games next year based on Ubisoft’s games, including the highly successful Assassin’s Creed. * SO WHAT? * Clearly, this is part of Netflix’s

overall aim to stem the user exodus by making more compelling content. The games will be made exclusively available to Netflix subscribers with no ads or in-app purchases. It’ll be interesting to see whether this agreement helps Netflix to improve user retention.

Then in Byju’s failure to publish accounts prompts scrutiny of edtech giant (Financial Times, Mercedes Ruehl and Chloe Cornish) we see that India’s most valuable start-up (valued at $22bn) is facing increased scrutiny from the government, investors and creditors because it has made repeated failures to publish its accounts as fortunes appear to have changed for the education technology sector which boomed under lockdown. * SO WHAT? * The edtech sector has been hit particularly hard in India as students return to schools and the company has had to make a lot of cuts. It was only at the end of last year that there was talk that it would float via a SPAC, but sentiment has changed markedly since then. Given that more people are going to return to schools, you would have thought that Byju’s situation is going to get worse and maybe it will have to do a proper strategic rethink. Delaying the publishing of accounts is not a good way to inspire investor confidence and although it seems that they will publish annual financial results this week, there will be a lot of explaining to do!

Back home, Ashley’s group eyes Gieves & Hawkes (The Times, Jessica Newman) shows that Mike Ashley’s Frasers Group is looking like a potential buyer of Gieves & Hawkes, the troubled Savile Row tailor. Gieves & Hawkes has a 250-year history, but its Chinese owner was placed into liquidation. Frasers has form in buying distressed assets, so I’m sure if it buys this it’ll do so at a knock-down price. Other bidders are in the frame.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

Japan is famous for vending machines that sell all sorts of stuff! Well I’ve never seen one of these before: Wagyu beef gacha vending machine dispenses meat at random in Japan (SoraNews24, Oona McGee). It’s basically meat roulette!