by Louis Navellier

September 14, 2021

In addition to battery element shortages, the chip shortage has limited electric vehicle (EVs) production.

At the auto show in Munich last week, several auto executives commented on the chip shortage. Daimler CEO Ola Kallenius said, “Several chip suppliers have been referring to structural problems with demand,” and added that, “This could influence 2022 and (the situation) may be more relaxed in 2023.”

BMW CEO Oliver Zipse said, “The general tightness of the supply chains will continue in the next 6 to 12 months,” while Volkswagen CEO Herbert Diess said, “The internet of things is growing and the capacity ramp-up will take time. It will be probably a bottleneck for the next months and years to come.”

Interestingly, a Ford Focus uses roughly 300 semiconductor chips while a Ford Mach-e utilizes almost 3,000 semiconductor chips. In other words, the EV boom is exasperating the global semiconductor chip shortage. Tesla supposedly reprogramed its EVs to utilize fewer semiconductor chips, but unfortunately its Shanghai plant still had to curtail production due to a lack of semiconductor chips. Ford Europe Chairman Gunnar Herrmann estimated that the chip shortage could continue through 2024, adding that it’s difficult to pinpoint exactly when it will end. Regarding shortages, Ford’s Herrmann said, “It’s not only semiconductors,” adding that lithium, plastics and steel are also in relatively short supply.

Volkswagen CEO Herbert Diess added that it was “impossible” for the company’s electric transformation to happen any faster. Diess seemed clearly frustrated with the lack of lithium-ion batteries now available, which is slowing his company’s ability to launch new EV models. With more EV models already available via its Audi, Porsche, Seat and VW brands, VW Group’s Bentley and Lamborghini brands may have to slow their upcoming EV models due to a lack of lithium-ion batteries.

VW Group has sold more EVs in 2021 in Europe than Tesla, but it has lost market share in China due largely to the semiconductor chip shortage. Overall, the electrification of vehicles may be characterized by perpetual shortages for years, due to the lack of semiconductor chips, lithium, nickel and cobalt.

Toyota announced last week that it would spend $9 billion over the next decade to build factories for electric car batteries as it ramps up to sell two million EVs by 2030. Although Toyota did not specify how many battery plants it would build, it did say it planned 10 EV production lines by 2025 and would eventually have 70 EV production lines. (Naturally, one factory can have multiple production lines.)

Interestingly, Ford, GM and VW Group have all said that they plan to build their own battery factories. These future battery plants will most likely be built in conjunction with their battery suppliers, like LG Chem, Panasonic, SK Innovation and Samsung. Right now, I suspect that Panasonic is likely the big winner from Toyota’s battery announcement, since they are working closely with Toyota on developing a solid-state battery. Also, as Tesla’s U.S. supplier, Panasonic has expertise in lithium-ion batteries.

Regarding Toyota’s research into solid-state batteries, Masahiko Maeda, Toyota’s chief technology officer, said that they are still dealing with development challenges, in particular the solid-state battery’s lifespan. Maeda added that Toyota was seeking to sell an EV with a solid-state battery this decade.”  Specifically, Maeda said, “We cannot be optimistic yet. There are a lot of difficulties we are facing.”

I should add that Toyota has been mentioned as a possible manufacturer of the Apple Car in addition to Magna International. If Apple picks Toyota, it would be because it wants to throttle up even more, since Toyota has more manufacturing capacity than Magna. However, these are all just speculative rumors for now, but there is no doubt that Apple is planning on launching an EV in the upcoming years.

Regarding the Apple Car, Doug Field who helped develop the Tesla Model 3, has been working on the Apple Car since 2018. However, Field was wooed away last week by Ford to help bolster its efforts to better integrate EV software. Ford’s CEO, Jim Farley, said, “This is just a monumental moment in time … a moment in time that I think we have now to really remake a 118-year-old company.”

Field will be reporting directly to CEO Farley and will be Ford’s chief advanced technology officer in charge of embedded software systems. Clearly, the EV wars are heating up and Doug Field said that Ford has the industrial expertise and scale to make EVs. Specifically, Field said, “It’s awfully fashionable to start either autonomy companies or car companies,” and added, “Many of them won’t have the staying power, the resources, or the capabilities. Making vehicles is actually really hard.” Overall, Ford is clearly very serious about making EVs, which should explode when it starts manufacturing the F-150 Lighting.

Navellier & Associates does own Tesla (TSLA), for one client, per client request, Ford (F), VW Group (VWAGY), Apple Computer (AAPL) and General Motors (GM) in managed accounts.  We do not own Magna International Inc. (MGA), or Toyota (TM). Louis Navellier and his family do not own Magna International Inc. (MGA), Tesla (TSLA), General Motors (GM), Toyota (TM), or Ford (F), personally. They do however own VW Group (VWAGY), and Apple Computer (AAPL) via a Navellier managed account and Apple Computer (AAPL) in a personal account.

Inflation Refuses to Become “Transitory,” Defying Fed Chair Powell

Last Friday, the Labor Department announced that the Producer Price Index (PPI) surged another 0.7% in August, higher than economists’ consensus estimate of a 0.6% increase. In the past 12 months, the PPI and core PPI have risen 8.3% and 6.3%, respectively, so wholesale inflation continues to run at the fastest pace in several years. Wholesale food prices surged 2.9% in August, while trade margins surged 1.5% and were likely inflated by port bottlenecks. These are monthly rates, so their annualized pace is much higher.

The most amazing inflation trend is that wholesale inflation in China is even worse than it is in the U.S. Specifically, China’s Producer Price Index surged 0.8% in August and has soared 9.5% in the past 12 months, the fastest rate in 13 years. Chemical, energy and metal prices remain the primary catalyst behind China’s wholesale price surge. Higher coal prices are causing electricity rates to rise steadily in China.

It will now be interesting to see if the People’s Bank of China will try to fight domestic inflation by draining liquidity and/or raising key interest rates, but the most surprising China news last week was that China’s General Administration of Customs on Tuesday announced that outbound shipments surged at an annual pace of 25.6% in August, following a 19.3% increase in July. Despite the Covid-19 Delta variant hindering China’s service and manufacturing sectors, China’s exports remain robust, which may help to alleviate some supply shortages. The upcoming holiday shopping season is going to be very interesting if the current supply shortages persist. That might make cash or “gift cards” popular gifts this time around.

In other economic news, the Fed on Wednesday released its Beige Book survey in preparation for its upcoming (September 22) Federal Open Market Committee (FOMC) meeting and stated that economic growth “downshifted” in August as Covid-19 resurged due to the Delta variant. Specifically, the Beige Book survey said, “The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most districts, reflecting safety concerns due to the rise of the Delta variant.”

The Beige Book survey also noted that labor markets are tight and “Inflation was reported to be steady at an elevated pace.” The Fed also cited supply chain bottlenecks for continued inflation pressure. Overall, the Beige Book survey was dovish, so it will be interesting to see if the Fed will kick its tapering decision down the road due to slowing economic growth.

On Thursday, the Labor Department reported that new claims for unemployment declined to 310,000 in the latest week, down from a revised 345,000 in the previous week. Continuing unemployment claims in the latest week declined to 2.78 million, down from a revised 3 million the previous week. Both weekly and continuing claims are now at pandemic lows. The expiration of supplemental unemployment benefits may help reduce continuing claims in the upcoming weeks as more people return to the workforce.

The other big news on Thursday was that the European Central Bank (ECB) announced that it would scale back its quantitative easing via its bond buying program due to a resurgence of inflation in the eurozone. Essentially, the ECB will begin “tapering,” so I now expect that the Fed may announce the same thing in its September 22nd FOMC statement. This will effectively put the ECB and Fed in “synch.”

Interestingly, the ECB left its key intrabank interest rate at -0.5%, even though inflation in the eurozone is running at 3%, well above its 2% target rate. The truth of the matter is that, due to massive budget deficits for many eurozone countries, raising interest rates may no longer be an option for the ECB.

Speaking of budget deficits, Treasury Secretary Janet Yellen told Congressional leaders last Wednesday that the deficit ceiling needs to be raised; otherwise, the U.S. could default on its debt in October. With another proposed $3.5 trillion spending program and related tax increases stalled in the Senate, a watered-down spending program may be tied to the debt ceiling. However, since 10 Republican Senators are needed to increase the debt ceiling, I suspect that it will be lifted without being tied to any specific bill.

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

Please see important disclosures below.

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