No 837 - The NEV dynamic

磐石金融有限公司（ BANDS Financial Limited ）在香港注册成立，是一家持有香港证监会（SFC）2号牌照的期货经纪公司，业务涉及中国以外全球大部分活跃期货及期权市场。

Today is Defender of the Fatherland Day a public holiday in Russia. The holiday commemorates 17 February 1918, the date of the first mass draft into the Red Army in Petrograd and Moscow during the Russian Civil War. In 1919 the 17th February date fell on a Monday, so it was decided to move the holiday to the following Sunday, 23 February and it has been held on the 23rd eversince. Hopefully, today will be a less volatile day in terms of Russian/Ukraine news.US President Biden announced the US is initiating sanctions on Russian financial firms, sovereign debt, and high net worth individuals. As China is not directly engaged it is unlikely, we will see a direct response from China to the issues. Indeed, my usual skim through the Peoples Daily contains no meaningful references to the issue. Market reaction has been muted, US stock market futures have lifted off their lows although earlier this morning the auction of US 2-year notes settled at 1.553% significantly higher than the 0.99% fixing of last month. Let us remember that only in September last year 2-year notes were trading at 0.25%Here I quote from Wikipedia. “Lithium carbonate is an important industrial chemical. Its main use is as a precursor for compounds used in lithium-ion batteries. In practice, two components of the battery are made with lithium compounds: the cathode and the electrolyte. The electrolyte is a solution of lithium hexafluorophosphate, while the cathode uses one of several lithiated structures, the most popular of which are lithium cobalt oxide and lithium iron phosphate. Lithium carbonate may be converted into lithium hydroxide before conversion to the compounds above.” So let us assume that Lithium Carbonate is the root chemical of the current New Electric Vehicle (NEV) battery. Although it is not easy to find the data, Lithium carbonate prices in China have risen to RMB 447,500 tonne in mid-February, marking a gain of 50% so far in 2022, and is a 12-fold increase since the Rmb 35,400 per tonne in December 2020. Lithium is in fact not a scarce commodity, but current production capacity has not kept up with demand. Although adverts for NEV‘s dominated the recent US Super Bowl, NEV’s are only 4% of US new car purchases, whereas in China NEVs were 16% of all cars sold in 2021 and expected to rise to 25% in 2022. Indeed, BYD the Chinese car manufacturer has reported a very strong start to the year with a new monthly record having sold 92,926 plug-in cars in January almost entirely in China, which is 268% increase from a year ago, which is remarkable considering the current downturn in the Chinese economy.The Tesla share price fell to its recent low following its investor conference call on 28th January, although the results were firm, perhaps disappointingly for technology investors Tesla sounded just like any other car manufacturer, with car manufacturer production and supply chain issues. Simple assumptions suggest that demand for NEVs continue or indeed accelerate therefore for all manufacturers, alongside “chips,” battery prices and battery technology will soon enter political and the public consciousness, and indeed in the short term, change the NEV dynamic.Have a good day