OpenAI CEO Sam Altman’s investment appetite seems open-ended, but the nukes in his portfolio stand out the most. 

The Wall Street Journal published a sweeping account on Monday of Altman’s various investments, the sheer breadth of which, along with the popularity of OpenAI’s software, leaves him open to uncomfortable questions about conflicts of interest. One previously unreported nugget was that a nuclear fusion startup backed by Altman is negotiating a deal with OpenAI to furnish it with energy. The potential deal is a tell that Silicon Valley investors like Altman may be looking to either influence or participate in the future of energy infrastructure.

Energetic Algorithms

The amount of computing power needed to both train and run AI models like OpenAI’s has serious implications for future energy capacity. The generative AI hype race is already slowing down renewable transition goals in US states because it needs too much energy too fast to rely on renewable buildout, and Microsoft’s emissions in 2023 spiked 30% largely from jumping into AI (it’s OpenAI’s biggest backer).

Altman is a big believer in nuclear power. He invested in nuclear fission startup Oklo, which plans to grow small modular reactors — mini versions of good old-fashioned nuclear power plants. The WSJ’s reporting, however, focuses on another company in his portfolio called Helion that specializes in nuclear fusion, a process that is far from a commercial reality:

• Researchers at the ​​Lawrence Livermore National Laboratory announced in December 2022 that they’d successfully achieved a nuclear fusion reaction, after which funding came pouring into startups touting their ability to commodify the process.
• More breakthroughs have been achieved since then, with scientists in the UK setting a record last February for the most energy produced by nuclear fusion, but these discoveries remain confined to scientific research labs, rather than companies, for now.

“We are still a way off commercial fusion,” Dr Aneeqa Khan, a research fellow in nuclear fusion at the University of Manchester, told The Daily Upside. “Building a fusion power plant also has many engineering and materials challenges. However, investment in fusion is growing and we are making real progress. We need to be training up a huge number of people with the skills to work in the field and I hope the technology will be used in the latter half of the century,” she said.

Slow Burn: In an interview at Davos in January, Altman said technological breakthroughs including fusion would be the only way to stop AI’s energy needs from intensifying the climate crisis. In Khan’s view, however, fusion will take far too long to ride to the rescue. “Fusion is already too late to deal with the climate crisis,” she said, adding: “In the short term, we need to use existing low carbon technologies such as fission and renewables, while investing in fusion for the long term, to be part of a diverse low carbon energy mix.”

With China’s electric vehicle makers facing tariff hikes in the EU, Great Wall Motors said this past weekend it would close its European headquarters in Munich this August and lay off roughly 100 workers. But the exit has more to do with Great Wall’s lack of appeal than it does with tariffs, which fellow Chinese EV makers have mostly greeted with a yawn. 

Made in China

We’re not gearheads, so we can’t tell you which country makes the best electric vehicles, but we can tell you which makes the cheapest. China’s government heavily subsidizes production to the point where BYD, the world’s largest EV maker, can price its Seagull model at just $10,000. That’s a nightmare for auto manufacturers in Europe struggling to hook drivers with their battery-powered lineups. 

The share of made-in-China cars is expected to account for just over 25% of all EV sales in the EU this year, according to the European Federation for Transport and Environment. That’s way too high for many local manufacturers and EU policymakers. So if China plans to help its companies with cost, the European Union is going to make the cost of entry higher:

• In October, the European Commission launched an anti-subsidy probe that could result in raising the duty on Chinese-made EVs to 20%. According to Germany’s Kiel Institute for the World Economy, that would likely mean a 25% drop in the volume of EVs imported from China, cutting out about $4 billion in trade for Beijing.
• Regardless of tariffs, Great Wall, China’s largest independent auto company, just never made much of a splash in the West. Last year, it sold only about 6,300 cars in Europe, excluding Russia. 

Not Going Anywhere: While Great Wall might be in retreat, other Chinese companies aren’t exactly cowering at the threat of tariffs. Last month, BYD said it would consider building a second assembly plant in Europe by 2025, Nio opened a showroom in Amsterdam, and Zeekr says it’s expanding into six new European markets by the end of the year. It all comes down to profit margins. Market researcher Rhodium said duties in the range of 15%-30% can’t keep a company like BYD out of Europe. Heck, 50% is likely not enough, either. The EU could take the scorched-earth approach of the US and raise the tariff to 100%. However, that would probably spark retaliatory tariffs, destroying the potential for cost-cutting EV partnerships and cutting European makers like Volkswagen out of Chinese markets. Trade wars are complicated.

To the airline industry, you’re nothing more than an iced latte. 

The less-than-uplifting insight comes after a report from The International Air Transport Association (IATA) on Monday that attempted to explain why an expected 2024 industry-wide profit of $30.5 billion isn’t as wonderful as it seems.

Smooth Air

The IATA’s semi-annual report raised the industry’s profit forecast for the year by nearly 19% from six months ago and said it expects revenue to climb nearly 10% to $996 billion. “With a record five billion air travelers expected in 2024, the human need to fly has never been stronger,” IATA Director General Willie Walsh said in a press release.

And yes, costs have also jumped: the trade group pointed out that total expenses are expected to rise 9.4% to $936 billion, keeping margins thin and keeping return on invested capital below historical averages. But Walsh and the IATA couldn’t leave it at that: “And earning just $6.14 per passenger is an indication of just how thin our profits are — barely enough for a coffee in many parts of the world.” It’s a good thing then that you can multiply that $6.14 by 5 billion passengers.

Meanwhile, several US airlines have been less sheepish about their success: 

• Shares of JetBlue were up slightly on Monday after the company raised its revenue forecast for the second quarter, which followed United Airlines reaffirming its Q2 outlook last week.
• Travelers might be finally getting a break. The latest CPI report indicated that airfare prices fell 5.8% in April from a year earlier, after rising 25% over the past year before that. With demand not relenting, airlines have increased available seats by flying larger planes on domestic routes.

Get Off Our Backs: With the hedge that the industry is merely “on the path to sustainable profits,” the IATA’s report also called for “relief” from “the parade of onerous regulation and ever-increasing tax proposals.” Funny how the feds seemed less onerous when they handed out $25 billion in pandemic bailout money four years ago.