by Louis Navellier
April 12, 2022
Have you noticed that it seems to take “forever” to get any new item delivered these days? Due to the war in Ukraine and the resulting sanctions and embargoes – on top of the already-interrupted supply chain, plus a new COVID outbreak in China – global trade is grinding down to a slow-motion “holding” action.
Currently, shipments from Shanghai are down 40%. China’s ongoing COVID restrictions in Shanghai have prevented Tesla from re-opening its manufacturing plant. There are reports of factory workers sleeping at manufacturing plants to keep factories running, but when China is forced to shut down its most productive coastal manufacturing province, there is no doubt that supply chain woes will persist.
As a result of these disruptions, the Purchasing Manufacturing Indices (PMIs) all over the world are at an 18-month low, and Europe is in a recession. Here in the U.S., where big order backlogs persist, we have so far been able to avoid falling into a recession, but with the exception of Tesla, U.S. auto manufacturers posted first-quarter sales declines, due largely to semiconductor chip shortages and other supply chain glitches. In March, U.S. vehicle sales were only 1.25 million, an anemic annual sales rate of 15 million. In the first quarter, GM’s sales declined 20.1%, while Ford’s sales declined 17.1% and Stellantis’ sales dropped 14%. Toyota’s sales declined only 4% last quarter, aided by all the hybrid vehicles it sells.
Interestingly, electric vehicle (EV) sales remain strong, on a percentage basis, and there is a waiting list for most EVs, but U.S. volume sales are anemic: GM only sold 457 EVs in the first quarter, 99 of which were Hummer EVs. Ford sold 6,734 Mach-e’s last quarter, but that is not enough to compete with Tesla. The main reason for these tiny sales figures is an acute shortage of lithium-ion batteries, along with the soaring costs of nickel and cobalt. It will be interesting to see if more U.S. companies follow Rivian and switch to less efficient and cheaper iron-phosphate batteries like Tesla has done at its Shanghai plant.
Frankly, since virtually all U.S.-made EVs, with the exception of Rivian, are betting on lithium-ion batteries, the production outlook looks bleak unless significantly more raw materials can be obtained.
However, that has become much more difficult, since Russia is a major nickel supplier. The bottom line is that the shortage of rare earth metals to build lithium-ion batteries continues to derail the EV revolution.
The Biden Administration is trying to make up the shortfall by invoking the Defense Production Act to ramp up production of these rare earth metals. Although a Presidential declaration would be welcome, the U.S. is not a major nickel producer and does not have the capacity to mine major amounts of cobalt, which comes predominately from the Congo – where children are forced to crawl into dangerous hand-dug 100-foot shafts to extract cobalt. It looks to me like the EV revolution is stalling, unless the U.S. and the rest of the world can find sufficient supplies of both nickel and cobalt for lithium-ion batteries.
In the meantime, The Wall Street Journal reported that the Biden Administration is seeking ways to boost crude oil imports from Canada, even though it has cancelled the Keystone XL pipeline over concerns that it would be shipping crude oil from Alberta’s tar sands. Specifically, the Biden Administration now wants Canada to ship Alberta’s crude oil via rail instead of via existing pipelines, which are near capacity.
Navellier & Associates owns Ford Motor Co (F), and a few accounts own Tesla (TSLA), per client request in managed accounts. We do not own Rivian (RVN), General Motors (GM), Stellantis (STLA) or Toyota Motor Corp (TM). Louis Navellier and his family personally own Ford Motor Co (F) via a Navellier managed account. He does not own Rivian (RVN), Tesla (TSLA), General Motors (GM), Stellantis (STLA) or Toyota Motor Corp (TM).
This is basically driving Canadians nuts, since shipping crude oil on trains is far more dangerous than using pipelines, especially during winter months, when trains can derail as train tracks shrink. In Canada, the memory of the July 2013 Lac-Megantic rail disaster, when 73 crude oil tankers derailed, killing 47 people and effectively destroying the Quebec town of Lac-Megantic, remains painfully in the minds of many Canadians, so they overwhelmingly prefer transporting crude oil via pipelines versus trains.
Today’s Inflation Statistics Will Dominate the News This Week,
After Last Week Delivered Few Key Market Indicators
We go to press the same time the Consumer Price Index (CPI) is released, but last week’s indicators were mixed: First, the Commerce Department announced that factory orders declined 0.5% in February, the first decline in 10 months. Also, January factory orders were revised up to a 1.5% increase from a 1.4% rise first reported. Ongoing supply chain glitches were cited as the primary reason for February’s decline.
Last Tuesday, The Institute of Supply Management (ISM) announced that its non-manufacturing (service) index rose to 58.3 in March, up from 56.5 in February. One strong component was the New Orders index, which rose to 60.1 in March from 56.1 in February. All 17 industries surveyed reported March expansion.
On Wednesday, the Fed released its latest Federal Open Market Committee (FOMC) minutes, which confirmed that the Fed will be reducing its quantitative easing by $95 billion per month, which consists of $60 billion in Treasury securities and $35 billion in agency debt. The FOMC minutes also revealed that the Fed wants to shrink its bloated balance sheet, which has swollen to $9 trillion due to spending to alleviate suffering in the Covid pandemic. The Fed minutes openly acknowledged that it was behind the curve (i.e., trailing market trends) and that 0.5% increments in Fed funds increases may be forthcoming.
On Thursday, the Labor Department announced that new weekly unemployment claims declined to 166,000 in the latest week, compared to a revised 171,000 the previous week. Continuing unemployment claims rose a bit to 1.523 million in the latest week, compared to a revised 1.506 million in the previous week. Economists were expecting 1.302 million in continuing unemployment claims, so this was a negative surprise and likely attributable to new seasonal adjustment formulas. On the positive side, economists were expecting new weekly unemployment claims to come in at 200,000, so 166,000 was a positive surprise. We’re still seeing the lowest weekly unemployment claims in 54 years (since 1968)!
Another piece of good news was that the Atlanta Fed on Friday revised its first-quarter GDP estimate up to 1.1% estimated annual GDP growth, up from 0.9% annual GDP growth previously estimated.
Ironically, despite all this good news, former Fed Governor, Laurence Lindsey, told CNBC, “I think we’re going to have a recession, probably in the next quarter.” Lindsey added that “inflation is eating into consumer spending power, they’re going to have to cut back.” Translated, this means retail sales must exceed inflation in upcoming months, or else “stagflation” will erode the consumer’s purchasing power.