Aurelia Butler

General Motors plans to open a fourth battery plant in the US heartland, part of its programme to chase Tesla on electric vehicle sales by following a similar playbook.Billionaire Elon Musk’s car company pursued a strategy of vertical integration over the past decade that helped make the Tesla Model 3 the best-selling EV in the country. More than three years ago GM, too, began building out its North American supply base for electric vehicles, constructing factories and striking deals to secure the raw materials to feed them.It appears the Detroit carmaker’s plan is starting to pay off. GM passed Ford in the first quarter for the number-two spot in North American EV sales. It will have six models eligible for the full $7,500 tax credit available to consumers through the landmark Inflation Reduction Act — more than Ford, Volkswagen, Rivian or Tesla.“We took that strategy because that is what we needed in order to help us grow this market,” said Sham Kunjur, executive director of GM’s EV Raw Materials’ Center of Excellence.Still, the company has a way to go to cement its lead over Ford in EVs, let alone to catch Tesla, a goal chief executive Mary Barra outlined nearly three years ago. Ford idled the factory producing its Mustang Mach-E for improvements during the first quarter and also stopped production of the electrified version of its popular F-150 truck after a battery in one of the pick-ups caught fire. Those disruptions mean the second half of the year will show more clearly whether Ford or GM is going to claim second place in North American EV sales, said Guidehouse Insights analyst Sam Abuelsamid.GM “has absolutely been more aggressive than any other automakers aside from Tesla” in vertically integrating, Abuelsamid said. But it is retiring its popular, first-generation electric vehicle, the Chevrolet Bolt, at the end of the year, and has had its own production struggles, with a slow ramp of the Cadillac Lyriq. For its strategy to succeed, GM must show it can churn out EVs en masse. Barra has said it will be producing 1mn EVs annually in 2025.“If everything comes together in the second half of this year and 2024, they will be very well positioned to take that second-place position,” Abuelsamid said. “They’ve arranged all the right pieces, and now they have to move those pieces on the chessboard in the right sequence in order to get to their destination.”GM’s vertical integration strategy grew out of two realities, Kunjur said. China had fostered its own EV supply chain over the previous decade. And while Tesla has partnered with Panasonic to build the Gigafactory, battery cells and components in North America available to GM were limited.“What was available in North America, it wasn’t much, and we didn’t see a lot of movement in this space by natural forces. We felt we needed to control our own destiny.”The company’s first battery plant owned and operated with LG Chem opened in August near Lordstown, Ohio. Their joint venture, Ultium, has two more factories planned in Tennessee and Michigan. A fourth plant, which Indiana’s governor announced on Tuesday would be located in that state, will be built with Samsung SDI. None of Ford’s announced battery plants in the US are operating yet.GM has been moving upstream, too, as it tries to secure access to the components and minerals necessary to make batteries. It struck a deal in 2021 with the company Controlled Thermal Resources to extract lithium from a geothermal brine in southern California, and five months later agreed to work with Posco Future M to process cathode active material (CAM), a critical battery material that represents 40 per cent of the cost of the cell, in Quebec. The carmaker expanded the $1bn joint venture this month to increase production capacity for CAM and add production of the precursor materials needed to make it.GM also said in January it will invest $650mn in the Thacker Pass lithium mine in Nevada to control exclusive rights to the first stage of the commodity’s production. “If you’d ask us three years ago or four years ago if we would be directly engaged with mining companies, we would have clearly said no, but sometimes necessity is the mother of invention,” Kunjur said. “We had to change our mindset.”

The strategy has allowed GM to benefit from the IRA not just through the consumer tax credits that effectively lower prices, but also through production subsidies — although not as much as Tesla. The production credits allow carmakers and their battery partners to earn up to $45 per kilowatt-hour.Creating a US supply chain for EV batteries requires significant investment, Kunjur said, and the IRA “definitely helped”.Tesla and battery partner Panasonic will be eligible for an estimated $1.8bn in production subsidies this year, according to research from analyst Manish Dua at Benchmark Mineral Intelligence. GM and LG Chem are eligible for the second-highest amount in production subsidies this year, at an estimated $480mn. Ford is not eligible for any until 2025.Over the decade GM and Ford will both earn more production subsidies as additional plants open, Dua said. The three battery plants that GM either is operating or building have a combined capacity of roughly 125 gigawatt hours per year, Abuelsamid said. That is about three and a half times what Tesla has in North America.If GM can carry out its plans, “they can probably catch up and surpass Tesla’s North American volumes”, Abuelsamid said. “But it all comes down to doing it.” More

BUENOS AIRES/NEW YORK (Reuters) – Argentina and the International Monetary Fund (IMF) have a $44 billion dilemma, with the two sides set to meet for crunch talks to revamp the country’s huge, wobbling debt deal, key to avoiding default on billions in looming debt payments.The South American country, a serial defaulter that has struggled for years with inflation and currency crises, struck a $57 billion loan deal with the IMF in 2018, which failed and was replaced last year with a new $44 billion program.But with net foreign currency reserves estimated to be in negative territory, hit by a major drought that sunk the key soy and corn harvests, Argentina is at risk again of missing debt repayments, with $2.7 billion due to the fund this month alone.Economy Minister Sergio Massa is expected in Washington as early as this week to try to unlock talks to accelerate IMF disbursements and ease economic targets attached to the deal, with investors and traders watching closely.”The fund knows that Argentina is a problem, it is its main debtor, but it seems to me that the negotiation has stagnated. One does not see significant progress,” said Ricardo Delgado of Argentine financial services firm Analytica.In a sign of potential holds-ups, an economy ministry source said on Friday that Massa’s trip, previously briefed to happen in the next few days, could be delayed depending on how virtual talks progressed.”Until everything is sealed, no one travels. When everything is ready, they’ll travel to put things on paper. And when everything is written, Massa will travel,” the source said.On the streets of Buenos Aires pressure is rising. Inflation has hit 114%, hurting salaries and spending power, reserves have tumbled and one-in-four people is in poverty, with many blaming – not for the first time – austerity linked to the IMF.”We must change these economic policies, we must break with the dependence on the IMF,” said Hugo Godoy, a union leader marching on Friday in Buenos Aires as part of protests against the government’s handling of the economy and austerity.”Some 43% of Argentines live below the poverty line and 4.5 million, 10% of the population, suffer from hunger,” he said.’DAMAGE CONTROL’The government is hoping to bring forward over $10 billion in IMF disbursements scheduled for this year, though is reluctant to agree to tough austerity measures with an eye on October general elections where it faces likely defeat.”Investors are paying real attention to signs from the IMF negotiations,” said economist Gustavo Ber.”Receiving fresh funds – or at least rescheduling disbursements and payments – would be crucial to reduce exchange and financial tensions at this stage.”Meanwhile Argentina has been rolling over local debt to push back peso-denominated repayments, has extended a currency swap line with China, and faces a wall of obligations with private foreign creditors next year.The local debt exchanges and hopes of progress with the IMF have nudged up Argentina’s dollar-denominated bonds from high-20 cents on the dollar in May to mid-30 cents now, though they remain mired in distressed territory.And many worry that even sped-up IMF payouts won’t solve Argentina’s problems for long.”Frontloading disbursements could be a ‘damage control’ solution until the end of the current government’s term in December,” the Institute of International Finance, a Washington-based banking trade group, said in a report.Argentina got a hint of good news this week with monthly inflation cooling in May for the first time in half a year and coming in below analyst expectations, though it was still an eye-watering 7.8% for the month.”Inflation continues to be very high and affects the entire economic scenario, but the fact that it has eased somewhat with respect to April helps to remove some pressure,” an Argentine banker said, asking not to be named.”It is like the sick patient with a fever that has gone down slightly. But the patient is still sick and still has a fever.” More

Recent data out of Germany paints a bleak near-term picture for Europe’s economic powerhouse. Its economy entered a recession this year, and investor sentiment in the country recently fell at the fastest pace since the pandemic. The OECD now expects its growth to be the lowest among major economies in 2023. Its trajectory beyond this year is, however, a greater concern. Prevailing geopolitical headwinds — from Russia’s invasion of Ukraine to rising US-China tensions — have highlighted vulnerabilities in Germany’s international economic model and underscored its longer-term challenges.German chancellor Olaf Scholz has been ambitious in trying to reorient the economy — including by reducing Germany’s dependence on Russian energy and in securing new supply chains for industry. The government has been moving quickly. An aim to have renewables account for 80 per cent of its power mix has raised Germany’s attractiveness as a destination for green investment. Billions are being spent to boost its semiconductor industry. The economy has also shown resilience by confounding dire forecasts for a deep recession this year. But the scale of the task ahead remains enormous.Germany has quickly cut its reliance on Russian gas. The rapid building of LNG terminals has helped to boost energy security. But the decision to phase out its last nuclear reactors in April and the slow rollout of renewables means Germany is still reliant on imports and fossil fuels for its energy needs and remains exposed to volatile global prices.Diversifying the economy is challenging too. Manufacturing accounts for about a quarter of its output. Automotive production, its prized industry, has been declining since 2018. Germany’s specialism in combustion technologies is being challenged by the shift to electric vehicles, where China is a dominant player. De-risking ties with China — its largest trading partner for goods — will not be straightforward either, as many companies consider it a vital market and supplier of intermediate products. Scholz has called for a new “German speed” to achieve its transformation. But he will need to remove a number of speed bumps that have long held back the German economy first. Renewable infrastructure projects, such as wind farms, have been delayed by lengthy planning procedures. Reforms are in motion. Business leaders complain that hefty bureaucracy, high energy costs and limited digitalisation also hinder dynamism; since SAP was founded more than 50 years ago, no world-class German tech company has emerged. Labour shortages are another impediment. Germany is expected to be short of up to 7mn workers by 2035, partly due to an ageing population. There is a lack of skilled workers in the building trade, electrical engineering and professional services, which are important for the country’s economic ambitions. Changes to immigration rules are in the works. Reforming the economy will also need further public investment and incentives, but demands on finances will be strained by older demographics and a commitment to raise defence spending. Spats among the coalition government have not helped either.In some senses, Germany is a victim of its own success. Its economic model thrived in the era of rapid globalisation that took place in the two decades following the fall of the Berlin Wall. But times are changing, and the basis of its past competitiveness and resilience is being challenged. Long-term economic sores around regulation, digitalisation and labour supply that seemed less pressing when times were good are now restricting its agility. Only by dealing with these underlying barriers to growth can Germany renew itself once again. More

Paradigm shifts happen slowly, and then all at once. This was the case during the last economic shift, in the Reagan-Thatcher era. Ronald Reagan wasn’t elected US president until 1980, but many of the speeches he gave during his 1976 Republican primary run set the stage for a new post-Keynesian era. In this, he argued, the power of private enterprise and animal spirits would be unleashed.So it is with the Biden administration now. One can identify several markers of their heralding of a new age — from Joe Biden’s address to Congress announcing the end of trickle-down economics, through to National Security Council director Jake Sullivan’s April speech on building back better abroad, to last week’s talk by US trade representative Katherine Tai in Washington, during which she declared that she wanted to “put the US back in USTR”.All of this represents a sea change in America’s political economy. If the White House has its way, this will be driven much more by domestic economic concerns in the future, particularly those of workers.Like the Reagan revolution, this shift will take years to play out (details are a work in progress). But in terms of trade policy ambitions, there are three conclusions to draw from the Tai speech. And both America’s allies and its adversaries should pay close attention to them.First, while Tai had some strong words about Chinese economic coercion, this wasn’t an “America First” speech, but rather a tirade against concentrated power of all kinds. She spoke about “chokepoints” that needed to be addressed and broken, regardless of whether they were the result of Chinese mercantilism (in the case of rare earth minerals), Russian aggression (food crops and fertiliser) or multinational corporate power in areas such as digital trade.That should be welcome news for Europeans, who have fretted that their efforts to take on, say, the big US tech companies would trigger a defence of Silicon Valley from the Biden administration.“In the past, when we tried to regulate Google, we got blasted by the White House,” said Renaud Lassus, formerly minister counsellor for economic affairs at the French embassy in the US and now executive director of the Jacques Delors Institute, whom I interviewed at the event. “That’s no longer the case,” he added.The blast from the White House may yet occur, of course. There are some in national security circles and at the US Department of Commerce who seem to believe that Big Tech should actually get bigger if it is to compete with the Chinese surveillance state, particularly Beijing’s efforts in artificial intelligence.At a recent AI conference in Washington, Senator Mark Warner, chair of the Senate intelligence committee, wondered aloud whether “it would be in the national security interest of our country to [merge] Open AI, Microsoft, Anthropic, Google, maybe throw in Amazon.” He noted that the US didn’t have “three Manhattan Projects, we had one”.Tai made it clear she didn’t agree. Indeed, she bemoaned the growth of concentrated power over the past 20 years, driven in part by a trading system that “placed a traditional priority on promoting the interests of the ‘bigs’”. To counter this, she said she was spending more time on the ground, not abroad, but in the US, “speaking to small businesses and entrepreneurs” to assess their particular trading needs. This is takeaway number two: the Biden administration believes trade policy has to work for middle America to work at all. That means moving away from traditional free trade agreements which, as Tai put it, “reinforce existing supply chains that are fragile and make us vulnerable. This does not make sense at a moment in history when we are trying to diversify and make them more resilient.” It also means pushing for more worker protections along the lines of provisions in the United States-Mexico-Canada Agreement, which allow for penalties to be imposed on companies that don’t honour collective bargaining agreements.That’s a tough sell in some parts of the global south, where labour standards tend to be lax. US critics of the negotiations over the Indo-Pacific Economic Framework for Prosperity, for example, worry they may lock America into new digital trade deals with countries that jail or even kill people who try to organise service workers. The quid pro quo for coming along with higher standards is to offer developing countries a share in the more secure supply chains that the Biden administration wants to develop in strategic areas such as rare earths, semiconductors, pharma and clean energy. Tai put a provocative gloss on this new approach, saying that “we are turning the colonial mindset on its head” — by partnering with emerging markets to put a floor, rather than a ceiling, on labour and environmental standards. “The key is to offer economies a spot in vertical integration so that developing countries are not perpetually trapped in an exploitative cycle,” she said.Of course, the devil will be in the detail, and Tai’s speech was short on those. Still, paradigm shifts begin with narrative shifts. And the USTR’s intervention was the latest proof that the story being told around free trade in America is changing profoundly, even if the effects will take years to be fully [email protected] More