In today’s Money Morning…breaking a century-old trend…tight borders — even for Australians…a need for alternatives…electric vehicles get turbo injection…and more…
North Korean missile tests.
A tanker stuck in the Suez Canal.
And our Prime Minister trying to reassure us that Canberra isn’t full of debauched sociopaths.
These are the headlines plastered across our media this morning. Which is fascinating, because for the first time in what feels like a long time, I’m not seeing much COVID-related news.
At least, from a local perspective.
Granted, that doesn’t mean that the threat of the virus has gone away. It just suggests that the media isn’t getting any engagement out of it. Inferring that Australians’ concerns about the pandemic may be over, for the most part.
It’s easy to see why, too. With the threat of COVID (seemingly) almost a non-factor again.
Queensland is the only state grappling with a low number of active cases at the moment. Something that is certainly worth keeping an eye on but not worth losing sleep over.
Or, at least, that’s what seems to be happening.
The real question is though, will it last?
Because while it may be fine and dandy to think we’re safe for now, our response to the pandemic has come at a cost: isolation…
Breaking a century-old trend
Earlier this week, when our latest demographic data was released, we received somewhat of a shock.
While it was obvious that immigration has come to a grinding halt in 2020, what wasn’t expected was a decline in population. With a slim but nonetheless telling 0.02% fall in the total number of Australians. Totalling roughly 4,200 people.
It is the first time since 1916 (the First World War) that our population has gone backwards. A far more worrying stat than many may realise.
Anyone familiar with Japan’s demographics will tell you why a falling — and ageing — population is a ticking time bomb. As one Harvard sociologist puts it:
‘An ageing population will mean higher costs for the government, a shortage of pension and social-security-type funds, a shortage of people to care for the very aged, slow economic growth, and a shortage of young workers.’
The thing is though, Japan is often its own worst enemy in addressing this issue. Taking a hard-line stance on immigration that only inflames their population problem.
In Australia, despite what the politicians might tell you, it is the opposite story.
Immigration has been integral to our rising population for decades. With overseas arrivals easily outweighing our natural, local repopulation.
And while it can be a contentious topic at times, this immigration helps lift our economy. Providing more labour to constantly improve our overall productivity.
So, now that migration is down, could we end up in a similar position like Japan?
Given enough time, we certainly could.
But it would take decades to pan out, not a matter of months.
Nevertheless though, the short-term impact will likely still be felt. With plenty of industries that are extremely reliant on migrant workers or even transient workers for that matter.
The fruit picking sector, for example, is in dire need of workers. Just one of a handful of industries that have grown reliant on foreign labour. Which begs the question, when will regular migration return?
Well, it all depends.
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Tight borders — even for Australians
Coming back to the topic of COVID-19, as a Victorian, we know all too well just how fearful our government is of people from overseas. Even if they’re returning Australians.
The botched hotel quarantine program was proof of that. Forcing Melbourne to prevent international arrivals once more when things got out of hand.
Proof that bringing in people from overseas — whether they’re citizens or not — is a real challenge.
And while things are going smoothly right now, as can be seen by lack of stories on COVID, that may be about to change once more. Because if you haven’t heard, Victoria has reopened its hotel quarantine program…
Yup, we’re going for round two of this rodeo.
Along with fresh promises from the government that it will be different this time around. Stating that they will have it under control.
You’ll have to forgive me if I’m a little sceptical. Especially when active cases in Queensland have been linked to people returning from PNG.
So, while I am empathetic to the Australians who are desperate to return home, I wouldn’t be surprised if it led to a new outbreak. After all, just look at what is going on in Europe right now. With perhaps the worst breakout in infections to date for many nations, particularly in the UK.
All the while we’re seeing reports that the virus itself is mutating again. Potentially posing a risk to the vaccine rollout and the effectiveness of these jabs.
Which means, I wouldn’t count on immigration returning to normal for quite some time.
A need for alternatives
So, where does all of this conjecture leave us?
Well, first and foremost, we can’t count on immigration to lift our productivity anytime soon. In fact, I wouldn’t be surprised if the fallout of this pandemic changes immigration for good — a theme that fits into the broader decline in globalisation.
But, that’s a topic for another day.
The matter to be addressed right now is a potential shortage in productivity. Which some people may counter by pointing to our employment figures. With a clear gap that could be filled with local workers.
Trouble is, it’s not that simple.
Take the fruit picking example from earlier, for instance, the kind of job that isn’t usually done by locals. Whether Aussies think it is beneath them, or a desire to not live and work in a rural area, or perhaps even an issue with the pay — it is hard to imagine that fruit picking will reach full employment without migrants.
But if migration isn’t possible, the industry will need to find new ways to address this problem.
And this is where new innovations — such as robotic automation — come into play. A chance for tech to become a new and improved source of productivity.
Something that is often sorely lacking in the agricultural sector. Which is precisely what was covered in our recent Money Morning Podcast. Which I highly recommend you check out.
Because while things may be returning to normal in a sense, it is clear that not everything will go back to the way it was. Which is precisely why, as an investor, you need to start looking at what is coming next.
Here’s to hoping it will be innovation, rather than capitulation.
Editor, Money Morning
Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
The number on the dashboard kept ticking down…fast. Would we make it?
But let me backtrack.
Around three Christmases ago we decided to spend New Year’s in Sydney. We travelled by car, with an overnight stop off in Canberra.
As a side note, I have to say, I loved Canberra. The city, the layout, the museums. It loosely reminded me of one of the cities I grew up in, Brasilia, the capital of Brazil, which is also a planned city.
Anyway, after spending close to 20 hours in Canberra we set off to Sydney with about 100 km left in the tank. We saw a petrol station on the way out of the city but missed the exit. So, we kept driving thinking another one would come up soon.
We couldn’t have been more wrong.
We drove almost halfway to Goulburn and still no signs of a petrol station.
That’s when we decided to look it up and realised the nearest petrol stations were either the one we had seen back at Canberra…or straight ahead in Goulburn.
The petrol gauge showed we had 17 km left…and there were 12 kms to the nearest gas station. A quick mathematical calculation showed the odds were slightly on our favour…if you believed the numbers.
Oh, and did I mention it was a 40-degree summer’s day? Having the aircon blasting was caning our petrol supply.
That’s when anxiety kicked in.
Without much choice, we decided to keep going. We switched the aircon off, closed the windows to reduce air resistance…and hoped for the best.
As the petrol gauge ticked to 9 km, we saw the signs for Goulburn and then the iconic ram in the distance. Phew!
Covered in sweat, we pulled into the petrol station, with some kilometres to spare.
Who hasn’t experienced the anxiety of searching for a petrol station before running out of petrol?
We imagine this anxiety is probably much worse for electric car owners…because there isn’t much infrastructure for them in place yet.
EV owners even have a name for it, something they call ‘range anxiety’.
It’s one of the things that’s somewhat holding EVs back — more charging infrastructure. Obviously, the more EVs on the road the more incentive there is to increase infrastructure for them.
In 2020, while global car sales dropped, EV sales around the world actually increased from 2.26 million in 2019 to 3.24 million in 2020.
The increase was mostly driven by Europe, where EV sales increased by a massive 137% from the previous year, passing China for the first time in EV growth. Still, China also saw a 12% increase.
There are more EVs on the road…and charging infrastructure is starting to ramp-up too. Leading the way in this is China.
Here is Bloomberg (emphasis added):
‘The most remarkable thing is just how fast China is pulling ahead on this front. China had over 800,000 EV charging outlets available for public use installed at the end of 2020, up from 516,000 in 2019 and 300,000 in 2018. In December 2020 alone, China installed 112,000 public charging points — more than the entire U.S. public charging network.
‘[A]t the end of 2020 China represented almost two-thirds of all public charging points installed globally.
‘China also is building ahead of demand, and preparing for much higher levels of EV adoption. The ratio between the number of public charging points and the size of the EV fleet is much lower in China and has improved steadily for the last few years, even as EV sales took off.’
The other factor holding back EVs is costs.
While EVs have fewer moving parts and are easier to maintain, they still have higher upfront costs. Making more affordable cars will be crucial for adoption.
Much of that cost is the battery.
So far, Bloomberg calculates the average price for a lithium-ion battery pack is US$137 per kilowatt hours. This is 13% cheaper from the US$157 in 2019. And an even further drop from the US$1,100 they sold in 2010.
The expectation is that to compete with internal combustion vehicles, battery packs need to drop to around US$100 per kWh, something Bloomberg NEF expects battery makers will hit as soon as 2023.
On these points, it was interesting to see Volkswagen, the second largest carmaker in the world, take a massive step into speeding the transition to EVs…
During their recent Power Day, the company revealed a roadmap to reduce their battery production costs by up to 50% and drive down the price of EVs for mass adoption.
Thomas Schmall, Volkswagen’s Board Member of Technology, said:
‘We aim to reduce the cost and complexity of the battery and at the same time increase its range and performance. This will finally make e-mobility affordable and the dominant drive technology.’
Their roadmap also includes having six battery cell production plants operating in Europe by 2030 and setting up 18,000 public fast chargers by 2025. That’s five times the current number of EV chargers in Europe.
EVs could roll out faster than we think.
For Money Morning
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