Trump’s Tariffs Create Perfect Time to Jump into the EV Market

There aren’t too many people who agree with Trump’s tariffs.

In case you missed it, Trump is putting tariffs on imported steel and aluminium. It will make the price of international steel and aluminium more expensive for US importers.

The idea is to get US manufactures to support their domestic steel and aluminium industry. But it should be obvious why this protectionist policy could do more harm than good to US industries.

That’s why others believe Trump’s tariffs are just a middle finger to China.

He has long criticised China for flooding the US with cheap commodities and the 25% and 10% tariffs on steel and aluminium.

But like I said, there are few who actually like Trump’s plan.

Head of the Reserve Bank of Australia, Philp Lowe is not one of them.

Lowe stepped into the debate in the last few days, saying tariffs leading to a trade war would be a ‘very big shock’ to the global economy.

But there’s one US tech founder who appreciates Trump’s policy.

Elon backs Trump

Elon Musk, founder of electric car manufacturer Tesla, is not in favour of tariffs. He’s said before that he’s completely against them.

But the current rules between China and the US make it very difficult for Elon to do business there.

Here’s what Musk tweeted on Friday:

Elon Musk - Fair rules for cars: China and USA 12-03-2018

Source: Elon Musk – Twitter
[Click to enlarge]

Trump ate it right up. As reported by South China Morning Post:

Trump read off Musk’s post just hours earlier noting that China charges a 25 per cent import duty on cars, 10 times the 2.5 per cent levy the US puts on China-built vehicles.

“That’s from Elon, but everybody knows it,” Trump said. “They’ve known if for years, they never did anything about it. It’s got to change.”

Not only is Musk annoyed about the unfair tariffs on US autos. It’s also been a headache for him to try and build an assembly factory in Shanghai.

For a long time, Tesla bought parts from their Chinese supplier, Ningbo Xusheng Auto Technology. Then they would assemble the EVs in America.

But if Musk wants to jump into China’s growing EV market, he’ll need to have an assembly factory in China.

Problem is Shanghai’s government is being difficult as usual.

Building a factory in China is not as easy as it sounds.

First of all, it’s hard to get money into China.

Most companies enter the nation through joint venture (JV) partnerships. Meaning they set up another company, which they co-own with a Chinese partner.

But for many of these JVs, foreign businesses cannot own more than 50%.

Then to getting your money out of China is another ordeal. Without the government’s approval, you cannot send more than US$50,000 out of China within any given year.

Musk has thus been restricted to Shanghai’s free trade zone, and still has to jump through hoops.

South China Morning Post continues:

Tesla reportedly reached an agreement with the Shanghai government last month (October 2017) to build a fully owned factory in Lingang district, located in Shanghai’s free trade zone.

Although the company is still likely to incur China’s 25 per cent car import tariff, this move is expected to help Tesla slash manufacturing and shipping costs, and make its cars more affordable for consumers in the world’s largest car market.

EVs big in China, not so much in the US

I remember months back when Warren Buffett bought Pilot Flying J. The US gas station had more than 750 locations in 44 US states and Canada.

Pilot Flying J. isn’t your typical Shell or Caltex. Their main customer is truckers, stopping to fuel up or get something to eat.

The reason I bring this up is because many thought it was Warren’s bet against EVs. Everyone now rages about Tesla’s EV trucks and the EV revolution. But according to Buffett’s Pilot Flying J. investment, diesel and petrol powered trucks will be on US roads for a long time to come.

But the situation could be completely different in China. And you could say Buffett agrees. In the depths of the financial crisis, Buffett bought a $232 million stake in BYD, a growing Chinese auto business.

The company manufactures cars, trucks and forklifts. But arguably their biggest future project is developing EVs and rechargeable batteries.

And as China’s government continues to wage a war on pollution, it could be Buffett’s best bet in the East.

China doesn’t want, they need EVs

A bad winter’s day in Melbourne is enough to make people stay indoors. You might only go out to the shops to get some milk or bread.

But a bad winter’s day in China kills people. In 2015, when air pollution was extreme, it was a contributing factor to 1.6 million deaths.

Air pollution is not just in pockets of China. It’s almost everywhere.

Air pollution is not just in pockets of China. It’s everywhere. 12-03-2018

Source: Bloomberg
[Click to enlarge]

That’s why EVs are a must in China, not just a fancy new technology they’d like to have around.

Bloomberg wrote on Friday:

Leaders at the congress said they will raise spending to curb pollution by 19 percent over the previous year to 40.5 billion yuan ($6.4 billion) and aim to cut sulfur dioxide and nitrogen oxide emissions by 3 percent. They said heavy air pollution days in key cities are down 50 percent in five years.

Some of that money is going to encourage people to buy more EVs. It’s why EV sales in China have rocketed, and are expected to continue.

EV sales in China have rocketed and are expected to continue. 12-03-2018

Source: Bloomberg
[Click to enlarge]

Among the Chinese autos benefiting is Buffett’s BYD, which soared 67% last year, selling more EVs than Tesla.

But instead of letting Musk and Buffett get all the rewards, why not jump on this trend yourself?

Down under we have plenty of resource companies linked to EV technology. If one can gain a contract with a Chinese EV manufacturer, the shares could explode.

So why not do some digging in an industry most investors avoid? Why not go digging for some EV gold?

Kind regards,

Härje Ronngard,
Editor, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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