China charges ahead in electric car battle

Today’s top stories

• The UK’s competition regulator blocked Microsoft’s $75bn acquisition of Call of Duty maker Activision Blizzard in a possibly fatal blow to the software giant’s biggest-ever deal.

• China’s president Xi Jinping spoke on the phone with Ukrainian president Volodymyr Zelenskyy, the first conversation between the leaders since Russia’s invasion of Ukraine. Zelenskyy described the call as “long and meaningful”.

• US regulators and financiers scrambled to stabilise First Republic bank after it revealed customers had withdrawn $100bn of deposits during last month’s banking turmoil.

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Good evening.

One in five cars sold this year will be electric — and those vehicles are increasingly likely to be Chinese.

Global sales for 2023, including battery-only and hybrid models, look set to pass 14mn, according to today’s projections from the International Energy Agency. The market has been turbocharged by drives to decarbonise the car market, such as the EU’s plan to ban the sale of all combustion-driven models by 2035.

The IEA now projects that 35 per cent of global car sales will be electric in 2030, compared with a forecast of just 25 per cent a year ago.

China accounted for almost two-thirds of all electric car sales in 2022, thanks to subsidies, with the Europe and the US, which also offer incentives, the second and third-largest markets.

Brian Gu, vice-chair of Guangzhou-headquartered XPeng, told the FT this week that intense global competition meant the global car industry could shrink to just 10 companies in a decade. China’s domestic manufacturers are increasingly expanding overseas, with the country set to overtake Japan as the world’s biggest exporter of cars by volume, having already leapfrogged Germany.

As Alan Beattie writes in his Trade Secrets newsletter (for premium subscribers), China is doing with cars what it has failed to do with previous products — develop its own brands capable of competing on the world stage. This could lead to trade disputes involving anti-dumping and anti-subsidy duties of the type that often occur after the introduction of new technologies, Beattie writes, as companies race to establish market share.

The need for batteries to power the new generation of electric vehicles is also driving a surge in investment. In the US, the battery market is dominated by South Korea’s LG Energy Solution, SK On and Samsung SDI, which yesterday announced plans with GM for a new $3bn plant.

Companies are increasingly taking advantage of subsidies on offer in Joe Biden’s Inflation Reduction Act: LG Energy Solution today reported a 145 per cent surge in first-quarter profit thanks to the incentives and strong sales of electric vehicles in the US and Europe.

The South Korean groups’ nickel-manganese-cobalt (NMC) batteries are, however, facing increasing competition from Chinese companies such as CATL, the world’s largest maker of electric car batteries, which has licensed its technology for cheaper lithium iron phosphate (LFP) batteries to Ford.

Price wars for vehicles are brewing as competition heats up. Tesla this week raised US prices on its two most expensive models following investors’ concerns that recent reductions were eating into profits. The cuts were also criticised by Tesla’s rivals.

The big story, however, remains China’s dominant position. As one industry expert put it at last week’s Shanghai motor show, the world’s carmakers face a “moment of truth”. Although some have begun to appreciate the existential threat from Chinese manufacturers, many are in danger of simply being too slow to react.

Join us for the Future of the Car summit on May 9-11 in London for an objective analysis of the industry’s toughest challenges. Register here.

Need to know: UK and Europe economy

“We’re all worse off.” That’s the view of Bank of England chief economist Huw Pill on how energy price rises have made Brits poorer. Former chancellor George Osborne warned of the risk to BoE independence from “political vandals”.

The European Central Bank is asking lenders about their exposure to rising interest rates and Silicon Valley Bank-style losses. Christian Lindner, Germany’s finance minister, wrote in the FT that EU fiscal rules needed to be strengthened, rather than diluted, as proposals for reform have suggested.

Russia’s oil export revenue fell almost a third in the first quarter of 2023, highlighting the impact of western price caps. The EU and Japan rebuffed US proposals for G7 countries to ban all exports to Russia ahead of next month’s summit.

Need to know: Global economy

US president Joe Biden confirmed he would run for a second term, hoping he can set aside worries about his age and lacklustre polling. He is sticking with Kamala Harris as his deputy.

One of the biggest challenges for the next US president will be how to handle China. As chief economics commentator Martin Wolf explains in his latest column, the relationship between the two countries will probably determine humanity’s fate in the 21st century. No pressure, then.

Colombia’s eight-month-old coalition government is teetering after president Gustavo Petro lost his majority over health reforms.

Climate change will keep inflation at elevated levels, according to the head of Norway’s $1.3tn oil fund, the world’s largest sovereign wealth fund. Contributory factors include rising food costs and the price tag for the green energy transition as well as a reversal of the globalisation that had held down manufacturing costs for decades.

The World Bank said economies with ageing populations would need to do much more to attract foreign workers over the next decade. Its warning follows UN projections highlighting how countries needed to rethink their growth models as their populations age. The UN this week confirmed India had passed China as the world’s most populous country.

Need to know: Business

The EU, in the first overhaul of pharmaceutical legislation in 20 years, aims to create a “single market for medicines”. The revamp would cut drugmakers’ period of exclusivity, prompting fierce criticism from the sector.

Microsoft and Google parent Alphabet got the Big Tech reporting season off to a strong start, with core businesses holding up better than expected in the first three months of 2023.

Nestlé, the world’s biggest food company, increased prices at the fastest pace in more than three decades last quarter but appears to have encountered little resistance from customers. Like other consumer goods companies, Nestlé has been grappling with the dilemma of how far to pass on increased costs for raw materials.

A new Big Read examines why Europe’s stock markets are failing to challenge the US. European hopes of building a comparable equity investment scene is strewn with practical, political and cultural obstacles, investors say.

The payment of almost $800mn to halt a trial over Fox News’s role in peddling election conspiracy theories and the dismissal of the channel’s biggest star Tucker Carlson are just the latest pieces of bad news in a difficult 12 months for media mogul Rupert Murdoch.

Young shoppers are increasingly cool with counterfeits. That seems to be the message from TikTok trends, which show fake luxury products gaining a life of their own.

The World of Work

Columnist Sarah O’Connor reports on the woeful state of labour market enforcement in the UK, whether it’s workers underpaid the minimum wage, missing holiday pay or failing to be enrolled in company pension schemes.

The departure of Dominic Raab as deputy prime minister last week has highlighted the dysfunctional nature of political workspaces, writes columnist Stephen Bush.

Some good news

US researchers have come up with a tabletop vaccine printer that produces shots on patches that can be stored at room temperatures and applied to the skin without the need for injections.