Chinese EV makers are charging abroad. 

After a strong boom in electric vehicle sales among Chinese carmakers, the numbers have started to wane. Now, auto manufacturers that are producing more cars than they can sell are trying to regain that momentum overseas, The Wall Street Journal reported.   

These Babies Sell Themselves

In the past few years, Chinese automakers like BYD, MG, and NIO have sold millions of EVs — more than US and European manufacturers combined. However, sales don’t always translate to profit, to which too many Chinese automakers can attest. A bigger problem, though, was that much of that sales growth was driven heavily by government subsidies and support from large backers like Alibaba, Tencent, and in BYD’s case, $130 billion man Warren Buffett. 

While it allowed carmakers to expand capacity and pump out EVs at a blitzkrieg pace, government subsidies have declined and Chinese consumers are tightening their belts. To counteract the slowing demand in their homeland, the Chinese government is encouraging auto companies to look to foreign markets to fuel their growth:

• Earlier this month, China’s Ministry of Commerce established a set of guidelines to help local car companies navigate international trade rules and engage with foreign governments. Automakers are also being urged to set up R&D centers with partners abroad to build supply chains.
• BYD, which began to outpace Tesla as the top global seller of EVs recently, has a bit of head start thanks to its factory in Uzbekistan and one in Thailand that’s expected to start deliveries in July. BYD plans to open factories in Brazil, Hungary, and possibly Mexico, the last of which might be able to export vehicles to the US. It also intends to buy ships to export cars to European markets. 

Running Scared: The European Union launched an anti-subsidies probe late last year against Chinese automakers, concerned that low-price imports could hurt local manufacturers like Volkswagen. BYD intends to sell 400,000 cars overseas this year, the WSJ reported, but it only exported a little over half that last year, and only 13,000 were delivered to the EU. 

In the US, where Chinese cars are scarce thanks to expensive tariffs, big automakers like Ford and General Motors are desperately trying to lower production costs and EV prices to compete with a possible flood of Chinese cars. With BYD’s cheapest car selling for about $12,000 in some markets, it’s easy to see why other carmakers are starting to sweat. 

At this rate, why even bother wintering in Florida?

After the warmest winter since at least the 1950s, natural gas prices in the US have experienced a freefall to their lowest levels in about three decades, according to an analysis over the weekend by the Financial Times. A surge in production hasn’t helped the supply-demand equation, either.

Is this Gaslighting?

Global temperatures are up across the board. According to not-so-comforting data this month from the Brussels-based Copernicus Climate Change Service (C3S), the 12 months between February 2023 and January 2024 marked the first-ever such period in which the average global temperature hit 1.5 degrees Celsius above pre-industrial levels — the critical threshold outlined in the 2015 Paris Climate Accords for averting the worst effects of climate change.

In the US, the December-to-February period is on track to be the warmest on record, likely 3% higher than the previous record set in 2015-16, according to the Commodity Weather Group. Among the many costs of climate change are energy companies’ once-reliable winter revenue:

• Benchmark Henry Hub natural gas contracts for March went for $1.61 per mn British thermal units at the end of Friday, a more than 50% drop from mid-January levels.
• That’s good for the lowest closing price on month-ahead contracts since 1995, per the FT’s analysis — save for that brief, magical moment of virtually free energy prices at the outset of the Covid-19 pandemic.

Pedal to the Metal: Supply is firmly outstripping demand as US gas production hit a record 105 billion cubic feet a day in December. After slightly dipping in January, production has hit the same high so far through February, and inventories are now 11% higher than a year ago and 16% higher than the five-year average, according to the US Energy Information Administration. The fossil fuel industry that helped send temperatures soaring, in other words, is sleeping in the bed it made.

The formula’s been ridiculously simple: 1) pick the sector that everyone is crazy about; 2) pick the company in that sector building that industry’s picks and shovels; 3) buy that stock; 4) make gobs of money.

Now comes the tricky part, especially for hedge funds seeking maximum returns: saying when: Is there ever a good time to offload shares that have doubled, or even tripled, and still show no signs of heading lower?

Free Money

Nvidia’s stock has rode on the runaway hype train that is generative AI, but that doesn’t make the company’s run any less impressive — in 2023 alone, the stock more than tripled as the company’s reputation as AI chipmaker du jour became common knowledge throughout financial markets. Then, as if we all didn’t get the point, Nvidia’s stock has just… kept going — its rise has even accelerated in the new year, jumping 48% already and making it the third most valuable company in the world with a market cap of nearly $1.8 trillion.

As the Financial Times noted over the weekend, that’s been a boon for hedge funds that boosted their bets on the stock during the fourth quarter and let it ride:

• Boston-based Arrowstreet Capital built its Nvidia position to $2.1 billion by the end of 2023, according to regulatory filings. Assuming the fund held its entire stake, that’s meant an additional $1 billion in gains in 2024.
• Then there’s D1 Capital Partners, which sold more than 146,000 shares of Nvidia in last year’s Q4 — certainly good for an impressive profit, but also bringing the unenviable task of explaining to clients why it bailed on another 48% rise that other hedge funds “saw coming.”

Tale of the Tape: It’s not like Nvidia’s run has been all hype. The company also has brought the receipts: In its last earnings report, it blew past profit and revenue expectations, beating Wall Street’s top-line consensus estimate by nearly $2 billion. This brings us to the company’s Q4 report scheduled for this Wednesday. Any hint of a crack in demand for AI chips could finally derail the stock: but at this point, how sure can you be?