by Louis Navellier

April 20, 2021

The world is simply growing too fast for the global supply chains. Taiwan accounts for approximately 65% of the world’s semiconductor production, but the worst drought in 50 years is proving to be very challenging to semiconductor production, which requires a lot of water. There are three major industrial parks in Taiwan, where most of its semiconductor chips are made. Major companies have had to curb their water intake. One major chip company has arranged for trucks to bring in extra water supplies, while another is exploring using groundwater. Since more than 50% of Taiwan’s water supply comes from typhoons (Pacific hurricanes), the island may undertake plans to route big tropical storms to hit the island.

Another industry crisis is expected to be the lithium battery shortage. VW Group announced, during its “Power Day,” that the premium lithium batteries with cobalt, which is in scarce supply, will be reserved for its premium vehicles, like Porsches, while cobalt-free batteries will be used in lower-priced electric vehicles (EVs). Tesla is utilizing cobalt-free batteries at its Shanghai plant and even though these vehicles do not have the range of its other EVs, Tesla just posted record sales in China and strong sales in Europe.

The primary reason that you have to wait to get a Hummer EV is that the batteries, from LG Chem to make the Ultium battery packs, are not yet available. Clearly, VW Group is keenly aware of the impending lithium battery shortage, since it just announced six Gigafactories during its Power Day with partners in Europe to improve its future supply chain. In the U.S., LG Chem and SK Innovations are expected to dominate the supply of lithium batteries through the development of new manufacturing plants.

One other supply “glitch” is that LG Chem and SK Innovation were fighting over trade secrets at the International Trade Commission (ITC). LG Chem won this fight, and the ITC imposed a 10-year ban on imports from SK Innovation, which further complicates the U.S. supply chain. SK Innovation has a massive new lithium battery plant in Georgia and received temporary ITC approval to sell to Ford for four years, and VW Group for two years. Fortunately, LG Chem and SK Innovation reached an agreement last week to settle their dispute, whereby SK Innovation will pay LG Chem $1.8 billion and additional royalties. Despite this settlement, I expect that lithium battery shortages will persist for several years.

Deutsche Bank last week said the new Mercedes EQC “could be a game changer” due to its 478-mile EV range and a host of luxury features. The EQC automatically uses regenerative braking as it approaches traffic circles and automatically scans the road ahead to be safe and efficient. The quality of the EQC interior, with a massive OLED and LED integrated screen encompassing both the driver and passenger, as well as the center console, is getting rave reviews. Until VW Group unveils its Artimus project, code-named “land jet,” in 2025, as a new Audi, Bentley and Porsche model, it appears the Mercedes EQC will be the most futuristic luxury EV with a long range. Although Tesla had record sales in the first-quarter, EV competition is rising fast, so Tesla is expected to continue losing market share to new competitors.

Navellier & Associates does own Tesla (TSLA) in a managed account for one client, per client request.  We do not own VW Group (VWAGY) or Deutsche Bank (DB). Louis Navellier does not own Deutsche Bank (DB), Tesla (TSLA), or VW Group (VWAGY) personally.

Stunning March Retail Sales Lead the Statistical Highlight Reel

The Commerce Department announced on Thursday that March retail sales soared 9.8% (month over month), substantially more than the economists’ consensus estimate of a 6.1% increase. That rise was due mostly to the $1,400 stimulus checks, combined with the February slowdown due to the cold snap. February’s retail sales were revised to a 2.7% decline, up slightly from the 3% decline previously reported.

March’s retail sales were the strongest in 10 months, and that bodes well for first-quarter GDP growth statistics. Sporting goods sales (spurred, somewhat, by rising gun sales) soared 23.5% in March, while clothing sales surged 18.3%. Vehicle sales were very strong, rising 15.1% in March, while bars and restaurant sales rose 13.4%. Building materials and garden supplies were also impressive, rising 12.1%.

In the wake of the March retail sales announcement, the Atlanta Fed on Thursday revised its first-quarter GDP forecast up to a sizzling annual rate of 8.3%, up from its previous estimate of 6.2%.

On Tuesday, the Labor Department announced that the Consumer Price Index (CPI) rose 0.6% in March, which was just slightly higher than the economists’ consensus estimate of a 0.5% increase. Gasoline prices surged 9.1% in March and accounted for approximately half of the CPI increase. Excluding food and energy, the core CPI rose 0.3% in March. During the past 12 months, the CPI and core CPI rose 2.6% and 1.6%, respectively. In the past 12 months, retail gasoline prices have risen 22.5%. Excluding these presumably “transitory” energy costs, the CPI is not rising faster than most economists’ expectations.

Clearly, the Fed has succeeded in fueling inflation, but we now have to see if this inflation is “transitory,” which is how the Fed has previously described it. So far, the inflation news has been essentially in-line with economists’ expectations. If you’re worried about future inflation, this is a good time to invest in growth stocks , which post earnings above the rate of inflation, as stocks are typically great inflation hedges.

Last Thursday, the Fed reported that U.S. industrial production rose 1.4% in March, led by a 2.7% surge in manufacturing and a 5.7% increase in mining (mostly crude oil & natural gas production). Due to mild March weather, utility demand declined 11.4% in March, suppressing the overall industrial production figure, so I expect that April’s industrial production figures will likely be significantly higher.

The Labor Department announced that weekly jobless claims declined to 576,000 in the latest week, down from a revised 769,000 in the previous week. Continuing unemployment claims actually rose a little, to 3.731 million, compared with 3.727 million in the previous week. Since weekly jobless claims are now running at a pandemic low (the lowest level in 13 months), this was, on balance, a very positive report.

Over in China, wholesale inflation is brewing. The Chinese National Bureau of Statistics announced that its producer prices soared to an annual rate of 4.4% in March, after rising at an annual pace of 1.7% in February. The cost of crude oil, copper and food are all rising in China. Interestingly, China’s wholesale prices have typically been closely correlated with the U.S. In China, despite a robust manufacturing sector recovery there, Chinese household spending has not been recovering as fast as it has in the U.S.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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Louis Navellier

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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