Times change. Up until a few years ago it was California, with its increasingly stringent standards on emissions, that dictated the pace of technological evolution in the American auto sector. And by dictating them to America he dictated them to the world. Entire political careers have been built in Sacramento on environmental regulations. Not anymore. Today it is China that sets the pace for the world. oil importer, China has given a strong boost to nuclear power and renewables in recent years and now has an abundance of electricity. By throwing itself massively into the electric car and imposing very fast pace for the transition, China expects to become a world leader not only in the sector (it already is, producing alone as much as America and Europe together), but in innovation in the sector.
And incidentally it offers confirmation of the thesis according to which it is development, and not degrowth, that favors the conditions for environmental protection. Geely Auto, the Chinese group that entered the heart of German industry with a straight leg by buying a tenth of Daimler, it will produce only electric from 2020. Great Wall Motors is preparing for an electric alliance with BMW. Luxury, in the car sector, is the only sector in which the Chinese still have something to learn, hence the interest in German cars. The electric car is well known. Less known is the fact that electric cars capable of lasting one and a half million kilometers and even more will be in production as early as 2025.
The market will move more and more to spare parts, batteries and traction motors, today mainly produced in Japan (which, of its own, is betting a lot on hydrogen). Shells and assembly will fade into the background. And then the flying cars are coming, the dream of those who were young in the sixties. A model has already been on sale since this year and there are prototypes from Boeing, Airbus, Google, some car manufacturers and some American billionaire dreamer. Some are crawling helicopters, others are drones with wheels, still others are models that never touch the ground.
Bob Lutz, a life in the American car, has recently raised a fuss by claiming that the cars we are used to knowing will soon become what horses are today, no longer a means of transport but a hobby for wealthy ranchers to show off at the races or to show off on the castle estate. Apart from vintage cars and sports cars, everything else will be a commodity, a myriad of taxis distributed everywhere that we will get into, we will tell an artificial intelligence verbally where we want to go and it will take us, doing everything by itself and entertaining us with a movie or chatting with us.
Autonomous driving, having overcome bureaucratic and political resistance, will in turn shift the weight of the added value of the automotive sector onto software and its manufacturers. European industry, unified long before politics, is now part of the German industrial chain. German industry, in turn, has its linchpin in the automobile. The other major sector, the chemical-pharmaceutical sector, is less active than it used to be, while the iron and steel industry has emigrated. In high technology, Germany has never really managed to break through, having almost immediately lost the war of hardware and today maintaining a presence in software of a good level but decidedly underpowered compared to America and Asia and without the emphasis on artificial intelligence that the times require.
As for energy, two decades of populist consensus-seeking and costly bungling leave German industries and consumers with bills among the highest in the world. The car, as we have seen, is not a sector without a future, as they used to say in the sad seventies. Far from it, it has far too many futures. The problem is that these futures all involve huge investments with no guarantee of success. This is always the case when there is innovation and there is not yet a shared standard. You have to throw yourself, spend, experiment and there's always someone who comes out with broken bones, like Sony in the days of Betamax.
The German auto industry has done great things. It has globalized and delocalized, has innovated processes and embraced automation, has successfully intercepted the new middle class of emerging countries, has benefited from low-priced oil which has pushed demand towards SUVs and luxury cars. These positive factors will persist and Germany will defend its primacy tooth and nail, but the storm of innovation will be long and violent and the pressure on profit margins constant. It is understandable that the markets, when they have to apply a multiple and a risk premium on the sector, stay low with the former and high with the latter.
European stock exchanges are made up of cars, banks and utilities. The banks have been restored, with loving and patient care in Germany and with amputations without anesthesia in Italy, but at the price of being transformed in turn into utilities without growth. Return on equity cannot rise if any recovery in earnings induces the regulator to demand an expansion of equity. Today, March 2018st 50, the Euro Stoxx 3400 is at 2015. Three years ago, March 3591st 5, it was at 500. In three years of great European recovery and global bull market and after a year of Macron effect we managed to lose more than 28 percent. In the same three years, the SP XNUMX gained XNUMX percent.
Effect of the euro, they say. Three years ago it was at 1.12 and today at 1.21. The 8 percent revaluation certainly weighed negatively. Even the yen, however, has revalued and even more than us. It took 119.68 yen to buy a dollar on March 2015, 106.76 and today 11 is enough, a revaluation of 11 percent. Nonetheless, the Nikkei managed to appreciate by 22 percent. An American who had invested in the Japanese stock market three years ago without hedging the exchange rate would earn 3% today, on Europe XNUMX%.
Japan made Abenomics. America has radically cut taxes. History will tell if they did well, but at least they tried. In Europe, in addition to chasing the rebel English provinces with sticks, beating up the east for not wanting immigration and making sure that Italian banks don't buy Italian government bonds, will we also be able to equip ourselves for the harsh world to come? Coming immediately, the most comforting data for the markets is that of inflation. The real trend, based on the latest data of these days, is decidedly less threatening than what was beginning to be feared, both in America and in Europe. Naturally, further confirmations will be needed, but in the meantime we note that oil has stopped rising and this too is encouraging.
Stock exchanges and bonds, which were preparing for a new wave of bad weather, can now breathe better. Inflation will come, but there will be a world of difference between a sudden rise and a smooth, controllable climb. There will still be volatility, but the inevitable periodic down-points will be less scary.
