BYD: China’s foot on EV pedal
While Elon Musk has been playing around with his rockets, Tesla’s Chinese rival BYD has announced sales growth that is every bit as explosive as the Starship.
BYD’s net income for the first quarter was up more than 500% year on year, and its annual net profit for 2022 was up 400% as it cemented its dominance of the Chinese electric vehicle (EV) and plug-in hybrid markets. For the first time it has overtaken Volkswagen to become the best-selling car brand in China, a truly seismic shift for the auto industry.
The conglomerate started off making batteries for mobile phones before sniffing the EV movement and pivoting accordingly, and it has benefited from generous state subsidies, tax incentives and regulatory support from a government that recognises the strategic and environmental importance of the EV sector.
BYD has created a vertically integrated supply chain covering everything from mines to chips, which is likely to be an important strategic advantage as the supply of critical raw materials such as lithium and cobalt, which are essential for battery manufacture, comes under increasing pressure.
While Tesla remains firmly at the premium end of the market, with even its most economical vehicle, the Model 3, starting at about $40,000, BYD has just launched the Seagull, a four-door mini-EV at a starting price of just more than $10,000. With a claimed driving range of 405km, this is more than just an urban runaround, and it will make the EV market accessible to a far wider slice of the population, contributing to BYD’s sales target of 3.6-million vehicles this year.
First Republic: Another US bank on edge
The run on Northern Rock in 2007 was the first on a British bank in 150 years, and it seems a remarkably old-fashioned event, with large queues of actual people outside actual branches looking to extract their actual cash causing panic among savers who rushed in orderly fashion to join the back of the queue, and the inevitable ensued.
As the collapse of Silicon Valley Bank (SVB) demonstrated, the process has speeded up a bit since then, and if confidence disappears you can bring down a bank within days with hardly any queuing required at all.
Now San Francisco’s First Republic has gone over the edge, as the bank that enjoyed close relationships with many senior banking and private equity players has seen a similar evaporation of deposits to SVB’s, with $100bn in deposits fleeing for the hills as the bank’s share price dropped off a cliff this year. Eleven large banks gave First Republic $30bn in deposits in late March in an attempt to stabilise the situation, and the bank scrambled to sell assets to strengthen its balance sheet, but it was all too little, too late and the remains of the bank were snapped up by JPMorgan.
The problem with having wealthy clients is that only a fraction of their assets will be covered by the Federal Deposits Insurance Corp’s standard $250,000 deposit insurance, so when there’s any uncertainty the funds fly out of the door, largely in the direction of the biggest banks, which are generally regarded as being too big to fail. What is clear is that a combination of uninsured deposits and low-yield, long-term assets is toxic.
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