Daily Brief: China’s High Energy Costs Are Causing Its Recovery To Short Circuit

Daily Brief: China’s High Energy Costs Are Causing Its Recovery To Short Circuit

over 2 years ago3 mins

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Data out over the weekend showed that power shortages and emissions targets are putting the country’s economic growth at risk.

What does this mean?

A global shortage of coal and natural gas is by no means the only issue for China’s businesses, many of which have been forced to cut production to meet the government’s new emissions targets as it looks to hit carbon neutrality by 2060. And since that means there’s now less of… well, everything for shoppers to buy, it’s been putting a damper on the country’s spending. That might play some part in why investment bank Nomura said last week that China’s economy will only grow 7.7% in 2021 – down from 8.2% earlier in the year – and why Morgan Stanley slashed its growth forecast for the fourth quarter too.

Coal prices

Why should I care?

The bigger picture: You scratch my back...

China’s electronics industry is one of the few that hasn’t been forced to make any major production cuts so far, which might be because it’s one of the country’s biggest employers. It also can’t hurt that the sector’s keeping the government sweet, with Taiwan’s Pegatron Corporation announcing on Monday that it’ll be rolling out energy-saving measures to comply with China’s eco-minded targets. The rest of the world might be hoping it stays on China’s good side: Pegatron supplies the likes of Apple, and a drop-off in production could see the prices of some of your favorite goods climb too.

Renewables

Zooming out: Ah poop.

This isn’t just a China problem: Europe’s fertilizer companies have been having to slash production in response to high energy costs, if not shut down completely. And since farmers will end up feeling the pinch from the supply bottleneck, they might need to bump up their own prices – pushing up the price of food at a time when it’s already increasing at its fastest rate in over a decade.

Keep reading for our next story...

Swedish EV Start-Up Polestar Announced Plans To Go Public

Polestar image

Polestar announced plans to list on the stock market via a SPAC on Monday, in a deal that’ll value the Swedish electric vehicle (EV) maker at $20 billion.

What does this mean?

EV-makers have been the talk of the town for the last year or so, and special purpose acquisition companies (SPACs) – listed shell companies that merge with unlisted companies to fast-track their arrival on the stock market – have been happy to jump on that battery-powered bandwagon. The latest comes courtesy of Volvo-spinoff Polestar, whose $20 billion valuation makes it one of the most valuable EV-makers to list via a SPAC. It’ll also add another $1 billion to the company’s war chest, which it’s planning to use to bump up production, introduce a new model to its line-up, and boost its reach from 14 countries to 30 by the end of 2023.

Why should I care?

For markets: Polestar tops Tesla.

EV-maker valuations have been hitting dizzy heights across the board as the green revolution really starts to bite, and Polestar’s is no different: this deal values the company at more than 12x this year’s forecasted sales. It’s still lower than Tesla’s 15x, mind you, and Polestar’s sales growth is in a more promising place too: its revenue is expected to double next year, while Tesla’s is “only” expected to climb 37%.

Zooming out: Make chips, not war.

Polestar does have at least one big hurdle to overcome in the immediate future: ongoing chip shortages, which one consultancy thinks means 14.5 million fewer vehicles – both EV and traditional – will be built between now and 2023. Still, Tesla’s pointed out that chipmakers are going to a lot of effort to build more, which should help improve availability in the sector as soon as next year.

Chip shortages
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