Philippa Kaur

Barely a day goes by without excitement about artificial intelligence (AI) sending another company’s market value through the roof. Earlier this month the share price of Dell, a hardware manufacturer, jumped by over 30% in a day because of hopes that the technology will boost sales. Days later Together AI, a cloud-computing startup, raised new funding at a valuation of $1.3bn, up from $500m in November. One of its investors is Nvidia, a maker of AI chips that is itself on an extended bull run. Before the launch of ChatGPT, a “generative” AI that responds to queries in uncannily humanlike ways, in November 2022 its market capitalisation was about $300bn, similar to that of Home Depot, a home-improvement chain. Today it sits at $2.3trn, $300bn or so short of Apple’s.The relentless stream of AI headlines makes it hard to get a sense of which businesses are real winners in the AI boom—and which will win in the longer run. To help answer this question The Economist has looked where value has accrued so far and how this tallies with the expected sales of products and services in the AI “stack”, as technologists call the various layers of hardware and software on which AI relies to work its magic. On March 18th many companies up and down the stack will descend on San Jose for a four-day jamboree hosted by Nvidia. With talks on everything from robotics to drug discovery, the shindig will show off the latest AI innovations. It will also highlight furious competition between firms within layers of the stack and, increasingly, between them.image: The EconomistOur analysis examined four of these layers and the companies that inhabit them: AI-powered applications sold to businesses outside the stack; the AI models themselves, such as GPT-4, the brain behind ChatGPT, and repositories of them (for example, Hugging Face); the cloud-computing platforms which host many of these models and some of the applications (Amazon Web Services, Google Cloud Platform, Microsoft Azure); and the hardware, such as semiconductors (made by firms such as AMD, Intel and Nvidia), servers (Dell) and networking gear (Arista), responsible for the clouds’ computing oomph (see chart 1).Technological breakthroughs tend to elevate new tech giants. The PC boom in the 1980s and 1990s propelled Microsoft, which made the Windows operating system, and Intel, which manufactured the chips needed to run it, to the top of the corporate pecking order. By the 2000s “Wintel” was capturing four-fifths of the operating profits from the PC industry, according to Jefferies, an investment bank. The smartphone era did the same to Apple. Only a few years after it launched the iPhone in 2007, it was capturing more than half of handset-makers’ global operating profits.image: The EconomistThe world is still in the early days of the generative-AI epoch. Even so, it has already been immensely lucrative. All told, the 100 or so companies that we examined have together created $8trn in value for their owners since its start—which, for the purposes of this article, we define as October 2022, just before the launch of ChatGPT (see chart 2). Not all of these gains are the result of the AI frenzy—stockmarkets have been on a broader tear of late—but many are.At every layer of the stack, value is becoming more concentrated in a handful of leading firms. In hardware, model-making and applications, the biggest three companies have increased their share of overall value created by a median of 14 percentage points in the past year and a half. In the cloud layer Microsoft, which has a partnership with ChatGPT’s maker, OpenAI, has pulled ahead of Amazon and Alphabet (Google’s parent company). Its market capitalisation now accounts for 46% of the cloud trio’s total, up from 41% before the release of ChatGPT.Skimming the creamThe spread of value is uneven between layers, too. In absolute terms the most riches have accrued to the hardware-makers. This bucket includes chip firms (such as Nvidia), companies that build servers (Dell) and those that make networking equipment (Arista). In October 2022 the 27 public hardware companies in our sample were worth around $1.5trn. Today that figure is $5trn. This is what you would expect in a technology boom: the underlying physical infrastructure needs to be built first in order for software to be offered. In the late 1990s, as the internet boom was getting going, providers of things like modems and other telecoms gubbins, such as Cisco and WorldCom, were the early winners.So far the host of the San Jose gabfest is by far the biggest victor. Nvidia accounts for some 57% of the increase in the market capitalisation of our hardware firms. The company makes more than 80% of all AI chips, according to IDC, a research firm. It also enjoys a near-monopoly in the networking equipment used to yoke the chips together inside the AI servers in data centres. Revenues from Nvidia’s data-centre business more than tripled in the 12 months to the end of January, compared with the year before. Its gross margins grew from 59% to 74%.Nivdia’ chipmaking rivals want a piece of these riches. Established ones, such as AMD and Intel, are launching rival products. So are startups like Groq, which makes super-fast AI chips, and Cerebras, which makes super-sized ones. Nvidia’s biggest customers, the three cloud giants, are all designing their own chips, too—as a way both to reduce reliance on one provider and to steal some of Nvidia’s juicy margins for themselves. Lisa Su, chief executive of AMD, has forecast that revenues from the sale of AI chips could balloon to $400bn by 2027, from $45bn in 2023. That would be far too much for Nvidia alone to digest.As AI applications become more widespread, a growing share of that demand will also shift from chips required for training models, which consists in analysing mountains of data in order to teach algorithms to predict the next word or pixel in a sequence, to those needed actually to use them to respond to queries, (“inference”, in tech-speak). In the past year about two-fifths of Nvidia’s AI revenues came from customers using its chips for inference. Experts expect some inference to start moving from specialist graphics-processing units (GPUs), which are Nvidia’s forte, to general-purpose central processing units (CPUs) like those used in laptops and smartphones, which are dominated by AMD and Intel. Before long even some training may be done on CPUs rather than GPUs.Still, Nvidia’s grip on the hardware market seems secure for the next few years. Startups with no track record will struggle to convince big clients to reconfigure corporate hardware systems for their novel technology. The cloud giants’ deployment of their own chips is still limited. And Nvidia has CUDA, a software platform which allows customers to tailor chips to their needs. It is popular with programmers and makes it hard for customers to switch to rival semiconductors, which CUDA does not support.Whereas hardware wins the value-accrual race hands down in absolute terms, it is the independent model-makers that have enjoyed the biggest proportional gains. The collective value of 11 such firms we have looked at has jumped from $29bn to about $138bn in the past 16 months. OpenAI is thought to be worth some $100bn, up from $20bn in October 2022. Anthropic’s valuation surged from $3.4bn in April 2022 to $18bn. Mistral, a French startup founded less than a year ago, is now worth around $2bn.Some of that value is tied up in hardware. The startups buy piles of chips, mostly from Nvidia, in order to train their models. Imbue, which like OpenAI and Anthropic is based in San Francisco, has 10,000 such chips. Cohere, a Canadian rival, has 16,000. These semiconductors can sell for tens of thousands of dollars apiece. As the models get ever more sophisticated, they need ever more. GPT-4 reportedly cost about $100m to train. Some suspect that training its successor could cost OpenAI ten times as much.Yet the model-makers’ true worth lies in their intellectual property, and the profits that it may generate. The true extent of those profits will depend on just how fierce competition among model providers will get—and how long it will last. Right now the rivalry is white hot, which may explain why the layer has not gained as much value in absolute terms.Although OpenAI seized an early lead, challengers have been catching up fast. They have been able to tap the same data as the maker of ChatGPT (which is to say text and images on the internet) and, also like it, free of charge. Anthropic’s Claude 3 is snapping at GPT-4’s heels. Four months after the release of GPT-4, Meta, Facebook’s parent company, released Llama 2, a powerful rival that, in contrast to OpenAI’s and Anthropic’s proprietary models, is open and can be tinkered with at will by others. In February Mistral, which has fewer than 40 employees, wowed the industry by releasing an open model whose performance almost rivals that of GPT-4, despite requiring much less computational power to train and run.Even smaller models increasingly offer good performance at a low price, points out Stephanie Zhan of Sequoia, a venture-capital firm. Some are designed for specific tasks. A startup called Nixtla developed TimeGPT, a model for financial forecasting. Another, Hippocratic AI, has trained its model on data from exams to enter medical school, to give accurate medical advice.The abundance of models has also enabled the growth of the application layer. The value of the 19 publicly traded software companies in our application group has jumped by $1.1trn, or 35%, since October 2022. This includes big software providers that are adding generative AI to their services. Zoom uses the technology to let users summarise video calls. ServiceNow, which provides tech, human-resources and other support to companies, has introduced chatbots to help resolve customers’ IT queries. Adobe, maker of Photoshop, has an app called Firefly, which uses AI to edit pictures.Newcomers are adding more variety. “There’s An AI For That”, a website, counts over 12,000 applications, up from fewer than 1,000 in 2022. DeepScribe helps transcribe doctors’ notes. Harvey AI assists lawyers. More idiosyncratically, 32 chatbots promise “sarcastic conversation” and 20 generate tattoo designs. Fierce competition and low barriers to entry mean that some, if not many, applications could struggle to capture value.Then there is the cloud layer. The combined market capitialsation of Alphabet, Amazon and Microsoft has jumped by $2.5trn since the start of the AI boom. Counted in dollars that is less than three-quarters of the growth of the hardware layer, and barely a quarter in percentage terms. Yet compared with actual revenues that AI is expected to generate for the big-tech trio in the near term, this value creation far exceeds that in all the other layers. It is 120 times the $20bn in revenue that generative AI is forecast to add to the cloud giants’ sales in 2024. The comparable ratio is about 40 for the hardware firms and around 30 for the model-makers.image: The EconomistThis implies that investors believe that the cloud giants will be the biggest winners in the long run. The companies’ ratio of share price to earnings, another gauge of expected future profits, tells a similar story. The big three cloud firms average 29. That is above 50% higher than for the typical non-tech firm in the S&P 500 index of large American companies—and up from 21 in early 2023 (see chart 3).image: The EconomistInvestors’ cloud bullishness can be explained by three factors. First, the tech titans possess all the ingredients to develop world-beating AI systems: troves of data, armies of researchers, huge data centres and plenty of spare cash. Second, the buyers of AI services, such as big corporations, prefer to do business with established commercial parters than with untested upstarts (see chart 4). Third, and most important, big tech has the greatest potential to control every layer of the stack, from chips to applications. Besides designing some of their own chips, Amazon, Google and Microsoft are investing in both models and applications. Of the 11 model-makers in our sample, nine have the support of at least one of the three giants. That includes the Microsoft-backed OpenAI, Anthropic (Google and Amazon) and Mistral (Microsoft again).Have the layer cake and eat it The potential profits that come from controlling more of the layers are also leading hitherto layer-specific firms to branch out. OpenAI’s in-house venture-capital arm has invested in 14 companies since its launch in January 2021, including Harvey AI and Ambience Healthcare, another medical startup. Sam Altman, boss of OpenAI, is reportedly seeking investors to bankroll a pharaonic $7trn chipmaking venture.Nvidia is becoming more ambitious, too. It has taken stakes in seven of the model-makers, and now offers its own AI models. It has also invested in startups such as Together AI and CoreWeave, which compete with its big cloud customers. At its San Jose event it is expected to unveil a snazzy new GPU and, just maybe, AI tools from other layers of the stack. The AI boom’s biggest single value-creator is in no mood to cede its crown. ■ More

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LISTEN CLOSELY and you can hear the influencers wail. On March 13th America’s House of Representatives passed a bill barring app stores and internet providers from distributing “foreign-adversary-controlled applications”. The target is clear: TikTok, a hit short-video app to which 170m Americans are glued for an average of 56 minutes a day.TikTok’s position in America has long been precarious. Although the firm is based in Los Angeles and Singapore, it is a subsidiary of ByteDance, a Chinese tech outfit. That has fed bipartisan fears that the Chinese government could use it to spy on American citizens or shape public opinion. TikTok has denied that the Chinese government wields any influence over it, and has sought to assuage concerns by enlisting Oracle, an American software giant, to fence off the data of American users into local servers and inspect its source code. It points out that American investors, such as Carlyle and General Atlantic, are among ByteDance’s biggest shareholders.If it becomes law, the bill would compel ByteDance either to sell TikTok’s American operations within six months or to shut them down. Pressure for such a move has been building since TikTok’s boss, Shou Zi Chew, was hauled before Congress last March. The firm was nevertheless caught off guard by the speed with which America’s typically sleepy lawmakers have acted.The proposal gained momentum partly as a result of disquiet over the app’s handling of misinformation and antisemitic content following Hamas’s attack on Israel in October. TikTok’s efforts to stall the bill failed spectacularly. On March 6th it sent a notification encouraging users to lobby Congress against the legislation. That seems to have backfired: some undecided lawmakers were persuaded that TikTok does indeed hold sway over voters. In the event 352 of them backed the bill; only 65 were opposed.But before President Joe Biden can sign the bill into law, which he says he will do, it must first pass the Senate. Given its bipartisan popularity you might think this was a formality. Not so. Donald Trump, who as president almost forced TikTok into a sale in 2020, has changed his tune. On March 8th he complained that banning TikTok would benefit Meta, the social-media colossus which owns Facebook and Instagram—and which, unforgivably, exiled Mr Trump from its platforms after his supporters stormed Congress in January 2021. The motivation for his intervention may not be entirely public-spirited. A week earlier Mr Trump met Jeff Yass, a hedge-fund billionaire and prospective donor whose investment firm, Susquehanna, happens to own a stake in ByteDance.Republicans in the Senate may follow Mr Trump’s cue—he has, after all, just sealed their party’s nomination for the presidential election this November. Lindsey Graham, who is both vociferous in his criticisms of TikTok and sycophantic in his adulation for Mr Trump, said on March 10th that he was unsure how he would vote.If the bill does become law it is likely to face a challenge in the courts, probably on free-speech grounds. Still, there is a reasonable chance that TikTok would have to shut up shop in America. A year ago the Chinese government said it would oppose a sale. Hours before the House vote it denounced America for “resorting to hegemonic moves when one could not succeed in fair competition”. ByteDance, which reportedly generated $110bn of revenue last year, is believed to make around four-fifths of that in China, where it operates TikTok’s sister app, Douyin, and Toutiao, a news aggregator. Although its investors would lobby to allow a sale, China’s government could prove intransigent, dooming the American business. It could also feel the need to retaliate against American firms operating on the mainland.Were advertisers forced to shift their spending from TikTok, America’s homegrown social-media companies would be in for a windfall. Not all will benefit equally. According to Kepios, a research firm, 82% of global TikTokers use Facebook, 80% scroll Instagram and 78% watch YouTube, which is owned by Google’s corporate parent, Alphabet (see chart). Only 53% use X, the debating forum formerly known as Twitter, and a mere 35% are on Snapchat, a messaging app. If Americans redirect the roughly 3trn minutes of attention they lavished on TikTok last year to other apps already on their phones, Meta and Alphabet, the dominant duo in online advertising, will be the winners.image: The EconomistHis grudge against Meta notwithstanding, Mr Trump may have a point when he grumbles that the firm will be the biggest beneficiary. Reels, a TikTok-like offering embedded into Instagram, has gained more traction than similar ones from YouTube and Snapchat. Many TikTok influencers already repost their content on Meta’s app. After India banned TikTok (and dozens of other Chinese apps) in 2020 following a skirmish on its border with China, Instagram surged in the country. In 2019 it was the sixth-most downloaded app in India. By 2021 it was top of the charts.Meta will not be so lucky if ByteDance’s investors succeed in persuading China’s government to allow a divestiture. The American firm would doubtless be barred from snapping up TikTok on antitrust grounds, as would Alphabet. The list of other potential suitors is limited by TikTok’s price tag, which could run to 12 figures if ByteDance, fearing knock-on crackdowns elsewhere, throws in TikTok’s operations in other countries.Amazon, America’s e-commerce champion, may take a look, given TikTok’s growing focus on incorporating shopping into its app (though it, too, would face pushback from trustbusters). Apple and Netflix, which both passed when TikTok was sounding out a sale in 2020, could reconsider, given slowing growth in iPhone sales and streaming subscriptions, respectively. Back then Oracle teamed up with Walmart, a retail behemoth, to buy minority stakes in TikTok. But that deal fell through after Mr Trump left office. After its $28bn acquisition in 2022 of Cerner, a health-records business, Oracle is probably now too indebted to mount a bid.Microsoft, another American tech titan, could weigh in. Its own bid four years ago to acquire TikTok’s business in America, Australia, Canada and New Zealand ended after ByteDance balked at giving it full control of the app’s data and source code. But the company has long coveted a greater presence in consumers’ lives, which may bring it back to TikTok—if ByteDance were to loosen its terms. Other mashups have also been suggested. Bobby Kotick, former boss of Activision Blizzard, a video-game studio which Microsoft acquired last year, has reportedly pitched the idea of a bid for TikTok to various partners, including Sam Altman of OpenAI, maker of ChatGPT.However, as the artificial-intelligence race heats up, it seems doubtful that China would want to hand TikTok’s data or clever algorithm to any American interests. An alternative would be to sell off TikTok as a standalone business rather than merge it with an existing one. This would dodge antitrust concerns. But the deal’s size could be a problem. The largest amount ever raised in an initial public offering was for a $26bn stake in Saudi Aramco, a state oil leviathan, in 2019. The largest leveraged buy-out in history was that of TXU, a utility, for $45bn in 2007. The value of TikTok would exceed even that, though it helps that ByteDance’s American investors could swap their stakes for a slice of the new company.Assuming it can be untangled from Bytedance, an independent TikTok would need to hire plenty of techies to replace the ones in Beijing. Still, a separation could pay off. Mark Shmulik of Bernstein, a broker, reckons that the firm became less aggressive in expanding its business than it could have been, as it sought to keep a low profile. It could do more to link its servers with those of advertisers—the better to track the efficacy of their spending, as Meta has done—and to speed up the roll-out of TikTok Shop, its e-commerce platform. In less than a decade a Chinese-linked TikTok has managed to upend the social-media business in America and beyond. An untethered one would keep being disruptive—if it is allowed to exist. ■ More

YOU MAY think that if you splashed out $100,000 for a vehicle you would usually take delivery of something pretty flash—a Porsche, say. In fact, many buyers of wheels at that price care less about the badge on the bonnet and more about how much the thing costs to drive and how much weight it can carry. For this is also the price of a large lorry. These commercial vehicles, together with smaller trucks and vans, keep supply chains humming and deliveries moving.They also make lots of money for their makers. In 2023 vans accounted for a third of revenues of €190bn ($207bn) at Stellantis (whose largest shareholder, Exor, part-owns The Economist’s parent company). Ford Pro, the American car giant’s commercial-vehicle arm, made a net profit of $7.2bn on sales of 1.4m units, compared with $7.5bn at Ford Blue, its car division, which sold twice as many vehicles. Daimler Truck, the world’s biggest manufacturer of medium-sized and large lorries, earned revenues of €56bn last year. Lorries made by Volvo and Daimler rake in margins typical of an upmarket carmaker.Given both the already high upfront cost and the attention buyers pay to operating expenses, you might expect commercial vehicles to be ripe for electrification—not least because they are also disproportionately heavy emitters, with lorries and buses contributing over a quarter of the carbon spewed by road transport in the EU. Business buyers value this total cost of ownership more than individual motorists, who may be willing to pay a premium to salve their green conscience. The problem is that for many commercial vehicles, the calculation continues to favour petrol and diesel. Can that change?China, where volts have made the biggest impact, accounted for 85% of global sales of electric heavy-duty lorries (the largest sort) in 2023. Yet that corresponds to just one in 25 such vehicles sold in China; by comparison, one in three new passenger cars there is electric. In Europe the figure is one in 70, and one in seven for passenger cars. When an eu ban on sale of cars with internal combustion engines comes into force in 2035 only three-quarters of lorries could be electric, according to bcg, a consultancy. idTechEx, another consultancy, forecasts that zero-emission lorries will make up 13% of sales in America by 2030, far short of President Joe Biden’s goal for 50% of car sales.Over the next six years electrification is likeliest for smaller vehicles operating over shorter distances, such as last-mile delivery services, reckons Alexander Krug of Arthur D. Little, one more consulting firm. The economics of running smaller electric vans can be compelling. Uwe Hochgeschurtz of Stellantis notes that going electric can both save money and comply with increasingly strict emissions rules in cities. Electric vans that travel relatively short distances over the course of a day but cover lots of miles over a year could have a 10% cost advantage over conventional ones, calculate consultants at McKinsey. Lars Stenqvist, technology chief at Volvo, sees no reason why all cities in Europe should not run electric bin lorries.Batteries can be smaller and vehicles can be recharged overnight at depots. Even where they are not yet cheaper, going electric allows large delivery companies such as FedEx and DHL to help merchants they cater to meet carbon-cutting commitments which many shoppers demand. FedEx has set a target for half its parcel-delivery vehicles to be electric by 2025. dhl wants the same for 60% of its last-mile vehicles by 2030. Amazon has 10,000 electric vans on American roads and hopes to have 100,000 by 2030.The economics are a heavier lift for lorries. Optimists point out that plenty of routes are well within current vehicles’ range. America’s Department of Transportation reckons that the distance travelled by three-quarters of all goods ferried by road in the country in 2023 was less than 250 miles (400km). Volvo calculates that 45% of goods in Europe today travel less than 300km. Marco Liccardo, Mr Stenqvist’s opposite number at Iveco, an Italian commercial-vehicle firm (also part-owned by Exor), expects electric cars to reach total-cost parity with conventional lorries in 200km runs between logistics hubs.Regulators are trying to speed things along. In America, the Environmental Protection Agency has proposed requiring that half of sales of new buses and a quarter of new heavy-duty lorries be all-electric by 2032. Buyers of such clean vehicles can also count on tax credits. The eu is requiring cuts of 15% to the average carbon-dioxide emissions of carmakers’ fleets by 2025 from 2019 levels, and of 43% by 2030.So far this is having little effect. Only a few electric models are on sale. The large and bulky batteries they require drive up the purchase cost. Electric trucks set businesses back between two and three times as much as a diesel one does, and offer limited range. The largest trucks, of which 2m or so were sold worldwide in 2023, are also the most likely to stick with internal combustion. Volvo shifted 6,000 electric ones last year, just 2% of its total.And even if the cost disadvantage can be overcome, that leaves the problem of infrastructure. Van fleets can recharge overnight at depots. Bigger lorries on shorter-haul routes can be charged at either end, while they are loaded or unloaded or drivers rest. Longer-haul routes will require public charging stations. But dedicated fast chargers for lorries require far more power than for cars, plus lots of parking space. The fastest chargers that can top up cars in a few minutes would take around 90 minutes for a lorry. A handful of “megawatt chargers”, which are ten times faster, are already in operation in Germany and the Netherlands.But a Europe-wide charging network would require investments of as much as €36bn, estimates PwC, a consultancy. One to refuel lorries with hydrogen—a zero-emissions alternative to batteries—would not come cheap either. Cash-strapped governments are unlikely to want to foot the bill. On March 12th the Biden administration unveiled a strategy to speed up the building of public infrastructure for freight lorries. But even if it is successful, it will not be built overnight.Another problem stems from the carmakers themselves. Moving more swiftly to an all-electric world would “write off seven or eight years of profit”, says Robert Falck, boss of Einride, a Swedish commercial-vehicle startup. Whereas legacy carmakers were forced into electrification first by Tesla and more recently by cheap but decent Chinese models, the lorry business has so far faced less disruption.Tesla itself has moved more slowly. It unveiled the Semi, its electric lorry, in 2017 but started shipping it only in late 2022. Tesla says it has a fleet of around 100 on the road, many of which are operated by PepsiCo. The carmaker’s plans to produce 50,000 a year by the end of 2024 look wildly optimistic. Nikola, which launched in 2014 and to great fanfare struck a joint venture with Iveco in 2019 to develop zero-emission lorries, has also struggled. Its founder was jailed in 2023 for misleading investors. Since then its market value has crashed from nearly $29bn in 2020 to around $900m today. Last year it sold just 35 hydrogen-fuel-cell vehicles. It has also paused production of its battery lorries. Its joint venture with Iveco was disbanded in 2023.Startups eyeing last-mile delivery vans have had similarly mixed fortunes. As for the upstart EV-makers taking on Tesla, ramping up production and raising capital is proving tough. Lordstown, an American firm, and Volta Trucks of Sweden, have gone bust. Arrival, a British one, is teetering on the brink, despite an order of 10,000 vans from ups, another parcel-delivery giant. Rivian, an American firm which in 2019 signed a deal for 100,000 vans with Amazon, and Canoo, a rival which counts Walmart among its customers, are struggling to make vehicles at scale and are burning cash. Other manufacturers, such as REE and Tevva, which make battery-powered vans and lorries in Britain, or Harbinger and Workhorse, both of which make medium-sized trucks in America, are hopeful but have even further to go.The threat to legacy lorrymakers from China is also far less acute than in the market for passenger cars. As with electric cars, China has stolen a march on everyone else in commercial EVs, thanks to its world-beating battery industry (and strong government incentives). Maxus, a British brand acquired by saic, a Chinese carmaker, is selling vans across Europe; one model was Britain’s best-selling electric van in December. byd, China’s biggest electric-car maker, has exported a handful of large battery-powered lorries to America.But Chinese lorrymakers will find it harder to conquer foreign markets even than Chinese carmakers, which are viewed with suspicion by many Western governments. Europe is more protected against Chinese lorries. One car executive calls its strict regulations for lorries “the equivalent of tariffs”, adding that this makes Chinese commercial EVs uncompetitive on the continent.Mr Falck hopes to shake up the market with a new business model, which he calls “Uber for freight”. Volvo and Iveco are trying to increase the appeal of their electric lorries with a financing deal that sidesteps high upfront costs in favour of customers paying by use. Einride goes a step further, owning its own fleet of vehicles (built by partners and financed by investors) and providing the lugging of goods as a service. The company already operates fleets for Maersk, a shipping giant, ab InBev, a brewer, and Lidl, a supermarket chain. That is an interesting path to electric freight. But it, too, looks long and winding. ■ More

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HAS SAUDI ARABIA stopped believing in a bright future for petroleum? That is the question that in recent weeks has hung over Saudi Aramco. The desert kingdom’s national oil goliath has a central position in the world’s oil markets. Its market value of $2trn, five times that of the second-biggest oil firm, ExxonMobil, and its rich valuation relative to profits are predicated in large part on its bountiful reserves of crude and its peerless ability to tap them cheaply and, as oil goes, cleanly (see chart 1). So Saudi Arabia’s energy ministry stunned many industry-watchers in January by suspending the firm’s long-trumpeted and costly plans for expanding oil-production capacity from 12m to 13m barrels per day (b/d). Was it proof that even the kingpin of oil had finally accepted that oil demand would soon peak and then begin to decline?image: The EconomistTo get a hint of Aramco’s answer, all eyes turned to its financial results for 2023, reported on March 10th. No one expected a repeat of the year before, when high oil prices and surging demand propelled Aramco’s annual net profit to $161bn, the highest ever for any listed firm anywhere. But analysts and investors were still keenly interested in the extent of the decline in the company’s revenue and profit, in any changes to its capital-spending plans and, possibly, in the unveiling of an all-new strategy.In the event, profits did fall sharply, from $161bn in 2022 to $121bn last year, though that was still the second-best performance in the company’s history. Thanks to a recently introduced special dividend, Aramco paid nearly $100bn to shareholders last year, 30% more than amid the bonanza of 2022. It also promised to hand over even more in 2024.Shovelling a larger chunk of a smaller haul to owners could, on its own, imply that the company is indeed less gung-ho about its oily future. Except that the rich dividend was accompanied by two developments that point in the opposite direction. First, Aramco is rumoured to be preparing a secondary share offering that could raise perhaps $20bn in the coming months—a move typically associated with expansion rather than contraction. Second, even more tangibly, Aramco is already ramping up capital spending.Its annual results reveal that investments rose from less than $40bn in 2022 to around $50bn last year. In a call with analysts on March 11th Aramco confirmed that the suspension of its planned capacity expansion will save around $40bn in capital spending between now and 2028. But, it added, that does not mean Aramco is not investing. On the contrary, the aim is to spend between $48bn and $58bn in 2025, and maybe more in the few years after that.A bit of that money will go to clean projects such as hydrogen, carbon capture, renewables and other clean-energy technologies. Some will go to cleanish ones, such as expanding Aramco’s natural-gas production by over 60% from its level of 2021 by 2030, and backing liquefied-natural-gas projects abroad. But most is aimed at ensuring that Aramco can maintain its ability to pump up to 12m b/d of crude.image: The EconomistGiven the company’s actual output of around 9m b/d (see chart 2), this does not compromise its ability to move markets. If anything, it strengthens Aramco’s position because it implies spare capacity of 3m b/d—above the company’s historic average of 2m-2.5m b/d, according to Wood Mackenzie, a consultancy. The world’s biggest oil firm is, in other words, committed both to pumping oil and to preserving Saudi Arabia’s role as the market’s swing producer.That is in part because the company is also committed to pumping money into the economic vision for Saudi Arabia championed by Muhammad bin Salman, the kingdom’s crown prince and de facto ruler. This became more evident on March 7th, when Aramco announced the transfer of 8% of its shares, worth $164bn, out of the hands of the government and into the Public Investment Fund (PIF), a vehicle for Saudi sovereign wealth which Prince Muhammad has tasked with diversifying the economy. This leaves the PIF with 16% of Aramco, compared with the 2% or so that is owned by minority shareholders and traded on the Riyadh stock exchange (the rest remains directly in the government’s hands).In light of all this, Saudi Arabia’s plans to suspend the expansion of production capacity do not reflect a U-turn away from hydrocarbons. Rather, the pause is born of a hard-headed assessment of market realities: a surge in oil production in the Americas, soft demand in China and cuts to output from the OPEC cartel (of which Saudi Arabia is the most powerful member). As Amin Nasser, Aramco’s chief executive, summed it up in the results presentation, “Oil and gas will be a key part of the global energy mix for many decades to come, alongside new energy solutions.” And so will Aramco. ■ More