News Roundup - Mega Paydays, Global Shipping, CARB, Trade Wars and EV Challenges

Is Elon Musk's jaw-dropping $56 billion pay award at Tesla bigger than a country's entire budget? Brace yourself as a mega pay deal update sets the stage for our latest episode. We also zoom in on the Port of Los Angeles, where Executive Director Gene Sirocco unveils ambitious plans to enhance cargo activity and spearhead a China-US green shipping corridor. Amidst all this, we dissect the implications of California's stringent environmental regulations for zero-carbon locomotives by 2035 and the railroad industry's legal showdown with the California Air Resources Board over the proposed retirement of diesel locomotives. Also, JD Airlines' strategic investment in Boeing 737-800 aircraft to meet China's growing e-commerce demand.
 
Shifting gears, we explore the transformative power of generative AI tools like ChatGPT, backed by insights from a global survey of over 12,000 adults. Discover how AI is revolutionizing everything from media creation to personal advice. We also tackle the escalating trade tensions between China and the European Union, sparked by the EU's EV tariff hikes. What does this mean for the competitive landscape of electric vehicles and global trade dynamics? Finally, gain insights into the competitive edge of Chinese EV manufacturers like BYD, whose affordable, high-range electric vehicles are setting new standards and challenging Western automakers. Don't miss this engaging and informative episode packed with critical updates shaping our global landscape. Tune in for a deeply engaging analysis of these pressing issues and their far-reaching economic impacts.

You can follow Chain Reaction on LinkedIn, Twitter and Facebook

Chapters

• 0:04 Global Supply Chain and AI Updates
• 10:37 Global Trade Tariff and EV Competition

Transcript

Tony Hines: 0:04

Hello, tony Hines. Here You're listening to the Chain Reaction Podcast, all about supply chain advantage. It's the news roundup All things impacting global supply chains this week. Well, all kinds of things happening this week in supply chains and you're going to catch up on them in just a moment. I see Elon Musk has got his pay rise passed by the board at Tesla and we're waiting to see if the cause is going to allow that to be paid, because there's still some doubt over that.

Tony Hines: 0:35

And then the Port of Los Angeles this week said that May cargo volume showed a consistent and strong performance with 753,000 container units. That's the TEU's 20-foot equivalent and it represents about a 3% decline over May in the previous year. Overall, the cargo volumes remain 18% ahead of the 2023 position after five months. So a strong performance. And the executive director at the Port of Los Angeles, gene Sirocco, at a media briefing on Wednesday said as we gear up for the second half of the year, our forecast indicates more robust activity on our docks throughout the summer. Sirocco is travelling to Taiwan and China next week for meetings related to increasing cargo volume and reducing the port's carbon footprint. The Port of Los Angeles and Long Beach will co-sponsor a China-US green shipping corridor in Shanghai, gathering with port leaders and stakeholders to establish a global trade route to Southern California that uses low and zero-carbon vessel fuels. More cargo, more jobs and decarbonising global trade, soroka added. So interesting, isn't it really? So, things picking up. By the looks of things, the port also processed 236,268 empty containers, which is down by 12% on the 2023 figure. The imports landed at Los Angeles in May were 396.63 TEUs 4.5% decline to the previous year, and loaded exports came in at 125.963 TEUs, an increase of 24% compared to last year. So the export gains are growing.

Tony Hines: 2:23

Elon Musk's pay deal is worth US$ US dollars that's about 44 billion pounds, depending on the share price that the firm hits. It's now been backed by shareholders 75% of the entire spending for schools in England in 2024, which was 60 billion. So it's equivalent to something like that, and it's about a quarter of the budget for the National Health Service in the UK at 192 billion. It's an enormous amount of money, isn't it To pay anybody, a single individual? Of course, his admirers might say that he's worth everything and his detractors would say he's worth nothing. So well, there we are. Does he care? Probably not. His businesses, of course, include Tesla, spacex, x, of course, that he took from Twitter, starlink, neuralink and XAI. So lots of fingers and lots of pies. So lots of money coming in. Many think it's a deal that will keep Musk's interest at Tesla. Well, I think if I got paid £56 billion, you'd be keeping my interest. So if anybody's out there and thinking of throwing that sort of money this way, I'll be sticking around.

Tony Hines: 3:34

It was agreed this pay rise prior to the 2018 company's board meeting when there was speculation about whether he'd stay at the carmaker, and so he struck a deal that seems to smooth the way for him to stay. He was said to be worth about $20 billion on the Forbes magazine rich list back in 2018. Tesla's market value, of course, has grown from about $54 billion to about $650 billion over that period, and it slipped back a bit recently to about 570 billion. So there you go. I don't think he'd be too bothered, would he, if he, uh, if he had to give, give it up, or maybe he would be, I don't know. Depends how greedy people get elon musk. Payout, of course, is about three and a half thousand times more than the average ceo package of a 16.3 million. Scandalous really, isn't it? It's obscene, I think is the figure, and the average household income in the US is about $75,000. So you'd have to live about 750,871 years to earn the sort of money that Musk has been paid.

Tony Hines: 4:51

The California Air Resources Board was set up back in 1967 by Ronald Reagan under the Mulford Carroll Act. It combined the Bureau of Air Sanitation and the Motor Vehicle Pollution Control Board. Carb is a department within the cabinet-level California Environmental Protection Agency and it's responsible for maintaining healthy air quality, protecting the public from exposure to toxic air contaminants, and it provides innovative approaches towards the control of air pollution and regulating there. Although the Environmental Protection Agency in the United States sets the standards nationwide, individual states such as California have been allowed to set their own laws, and if there's a conflict between the two, then the state law prevails. The railroad industry is filing a suit against CARB, arguing that if their current proposals are left to stand, 25,000 diesel-powered locomotives across the country would be retired prematurely, and this would happen long before any zero-emission counterparts are ready to replace them.

Tony Hines: 6:02

California has an aggressive strategy to fight climate change by removing fossil fuels, and it has some of the world's toughest environmental regulations, but there is this possibility of conflict between the state laws and the federal laws and, of course, if California passes this act, then the situation in California is that those locomotives won't be able to transfer goods through California. Locomotives more than 23 years old would have to be abandoned. Railroads would have to set aside more than a billion dollars a year to purchase zero-emission locomotives and related equipment. It would have an impact that goes far beyond California and that's where the problem is so far as the railroad is concerned. The lawsuit is claiming that the technology for zero-emission locomotives isn't fully developed and fully tested and it won't be ready to carry the loads of delivering more than 30 million carloads of freight nationwide each year. Major freight railroads this week were very concerned about the development of carb because they feel it would drive their locomotives out of California and it would place the freight with truckers who would have to have electric vehicles, of course, to keep the emissions down. Locomotives on the railroads of course, as you will know, can be carbon heavy. In California they want these locomotives that run through California after 2035 to be zero carbon. Now most of the rail fleet is 23 years old or more and those locomotives are pumping out more carbon because they were built in a different time. And if you look at rail traffic generally and you do an analysis, you'll find that 70% of the locomotives wouldn't pass the carb test, so they wouldn't be able to travel through the area, and reinvestment would mean an enormous amount of money, which would actually push costs up for freight and everybody else. Consumer costs would go through the roof. So a lot of people unhappy about the speed of change here.

Tony Hines: 8:15

Jd Airlines is part of JD Logistics and they carry shipments for JDcom, but they also carry other companies' business as well, so freight for others it spun out of JDcom, but they also carry other companies business as well, so freight for others. It spun out of JDcom in 2021 as a separate company. And this week news came that they've actually invested in leasing four additional Boeing 737-800 converted cargo aircraft, and this is to meet demand for e-commerce and express delivery in and around China. So it's a big investment and they are fairly unique in the sense of running their own airline to do this. The aircraft will be based in Nantong in China and it'll operate routes between Beijing, shenzhen, wuxi and other destinations in Asia.

Tony Hines: 9:05

Now I realize that AI is quite a hot topic at the moment and there's all kinds of conversations going on about how to use AI and what sort of applications we can have with artificial intelligence and machine learning as it develops and takes place. And, of course, one of the concerns that people have is about the ethics of the way AI will be applied to particular cases in business and so on. But there's no doubt that AI has a place and it was interesting to see that Mustafa Suleiman, who wrote a book the Coming Wave all about AI and, of course, was one of the co-founders of DeepMind, took up a new post this week. And guess where? Yeah, I think you've guessed Microsoft. So he's joined Microsoft and that's quite a big development because Microsoft are really pushing ahead in the area of AI and they really want to be first in this field. So the investment going in they're just pouring cash into this to get to the future first. And if you think about AI generally, it has all kinds of potential in health, in climate change, in more efficient food production, in more efficient production techniques, medical care, you name it. It's everywhere In engineering, in EV development and, of course, in education. It's everywhere. And in the next few weeks, chain Reaction will be looking at some of the use cases for AI and I've been talking to some of the big players in the market, so watch this space.

Tony Hines: 10:37

I saw the results of a survey in the past week that asked 12,217 adults in Argentina, denmark, france, japan, the UK and the US between March and April 2024, how they were using AI, and many have used the generative AI tool, such as ChatGPT, and they've used it for the following reasons For creating media 28% and for getting information 24%. And then, if you delve into it, for creating media that were playing around and experimenting 11%. Writing an email or letter 9%. Making an image 9%. Writing an essay or a report creative writing 8 and 7% respectively. Job applications and interview 5%. Programming or coding 5%. And making a video 4%. So that's interesting on the media side. And then for getting information it's a similar sort of picture Answering factual questions 11%. Asking for advice 10%. Generating ideas 9%. Experimentation 9%. Summarizing text 8%. Getting support 7%. Recommendations 6%. And doing translation 6%. So you can see it's got applications there too.

Tony Hines: 11:59

Now I know a lot of people either love this stuff or they hate it, because I've got a lot of colleagues and people I speak to and friends and so on who tell me they're not interested. They just want to get on with their lives and live in the real world and they're not interested about this world of artificial intelligence. But, as I keep telling them, you can't ignore it because it's going to change the world we live in immensely. It's going to change the way we live. It's going to change the way we behave. It's going to change the way we live. It's going to change the way we behave. It's going to change the whole notion of organization and what we do, how we earn our livings. It's just going to change so much and it's going to come fast and if you're not prepared, and even if you are prepared, it really is going to turn the world upside down.

Tony Hines: 12:44

Now I think the interesting response that's coming out of China to the EV tariff hikes from the European Union to 38.1% obviously reflect a dissatisfaction with what's being proposed. The European Union tax hikes are being pressured by Germany, who see Mercedes under threat and probably BMW too. But the Chinese have taken action by requesting an anti-dumping probe into pork products imported from the European Union. That's according to the state-backed media Global Times. The exact pork products being targeted are unclear at the moment, but a large value of the imports from the EU are said to be awful and they're valued at US$3 billion last year. They also intend to ask for investigations into powder cream and fresh milk, where those top items imported from the EU represent about US.8 billion US dollars last year. China's also requesting that large gasoline-powered cars are hit with import tariffs of 25%. So you can see this is all a retaliation to the proposed tax. The higher duty for cars, of course, with the larger engines, would principally affect the German car makers who export SUVs and Sedans to China. Brand D2 has been investigated from France and they are also looking at an anti-dumping probe into POM copolymers, a type of engineering plastic, imported from the EU, united States, japan and Taiwan. So this is all part of the ongoing trade war between Western economies, including the EU, the United States and China.

Tony Hines: 14:32

Back in the United States there's a wide group of pro-trade American business groups and they've asked President Biden and his administration to hold back a month to comment on plans to impose the steeper tariffs on Chinese imports of electric vehicles, batteries, solar products and other goods. That would effectively delay the tax beyond August 1st. 173 trade associations organised under the America for Free Trade umbrella sent a letter to the US Trade Representative's office. They said it was in the public interest. The group represents manufacturers, retailers, technology firms, agribusinesses and energy companies, as well as transport firms. They have also requested that the USTR holds a public inquiry into the matter, as it did back in 2017 and 2018 for prior tariffs. The Biden administration want to protect US manufacturers in these strategic sectors from China's excess industrial capacity that, they say, is flooding the markets.

Tony Hines: 15:36

Trade barriers are often seen as a way of protecting home industries, but they seldom do. The experience of many nations when they trade is that other nations that they trade with simply offer a retaliation in the form of additional tariffs targeting the country that's placing tariffs on them, and that's exactly what's happening here. And so who will win in this process? Well, there's very seldom a winner, but there are many losers in the process, and I expect that some of the companies that are involved in these tariff hikes will be the losers, which, of course, is why they're protesting and raising concerns to the USTR in the United States. So what's really behind all these tariffs being imposed on China? Well, let's look at the economics here.

Tony Hines: 16:38

When it comes to EVs, china is way ahead of most of the world. They've secured the supply chains for the component parts and for the metals that go into these vehicles. They manufacture them at a much lower cost than most other countries can make them. And when you think of European car makers and indeed US car makers, they can't compete on price. The average car in Europe and the United States is probably selling for somewhere between $40,000 at the lowest end to $55,000 on an average price. And if you think about the Chinese cars produced by companies like BYD, their retail selling price is about $10,000.

Tony Hines: 17:22

The Chinese company BYD offers a range of EVs at different price points. The BYD Seagull EV Honor Edition starts at around $9,700. That's 69,800 yuan, and it's the cheapest electric car. The BYD Dolphin sells from around $13,900. Both of these cars have an extensive range. The Seagull has a range of 252 miles for a charge. That's 405 kilometers, and the BYD Dolphin goes a little bit better. That comes out at 261 miles or 420 kilometers comes out at 261 miles or 420 kilometers. So you can see there's a big difference between the price of the Chinese EV to the European EV or any other EV on the market today. And you shouldn't think just because of the price point that they are lower quality, because far from it, they are a competitive product with high tech and in some cases, actually better spec'd than some of the competitors' offerings. So it's no surprise that Tesla have had to lower their prices under this competitive pressure and rethink the sort of strategies that they have in developing the market for the company.

Tony Hines: 18:41

China presently doesn't export a big number of cars to the United States, and that's because of the restrictions placed on the import of those vehicles to the United States. But of course it has recently opened plants in Mexico, which is sitting right on the doorstep for the United States. So technically, because they're part of the North American free trade area, nafta, once they're in Mexico they have access to US markets. Nafta was replaced by the USMCA. It's still the same three countries that are involved Mexico, canada and the United States but the agreement's been updated to have new sections to reflect trade and technology in today's environment, and it also has some tighter rules of origin for the automobile sector and other industries. It's got improved labour and environmental protections, changes to intellectual property rights and adjustments to digital trade provisions reflecting the modern economy. The new chapters on financial services and currency manipulation are also important changes, and that's probably scaring the US into these hikes in tariffs that they've placed on EV imports from China and similarly in Europe.

Tony Hines: 19:58

The hikes on the tariffs again to protect the European car industry from this competitive situation. And the accusation from the US and of course from Europe, is that China is dumping its overcapacity in the manufacture of cars on those markets. So some big protectionism taking place. The specific products affected by the US tariffs on Chinese goods include the following categories electric vehicles, evs, ev, battery and battery parts, semiconductors, solar cells, permanent magnets and certain types of steel and aluminium products. So they're the main focus for the tariff hikes. And don't forget that the US tariffs are set to increase from 25% to 100%, so they'll quadruple, so much higher than the European Union tariffs proposed on EVs at between 17.4% and 38.1%.

Tony Hines: 21:09

But it's obvious that the Western auto manufacturers, both in the United States and in Europe, are running scared of China because of its capacity and capability to develop these EVs at much lower cost. And in some cases they're technically ahead of the game as well in what's included in the EVs in the manufacturer. And when it comes to value, then they're offering better value to consumers if consumers get the chance to purchase the cars, and that would ultimately determine the outcome. Now there are many car companies and auto manufacturers throughout the world with big, established brands, who are trying to protect their own interests here, and they would support the tariffs. But does this do justice to consumers in the whole process? There's another question, and that hasn't really been addressed. So the protectionism will, of course, help keep jobs so it's argued in the countries where those established manufacturers are Mercedes, bmw and in the United States, the big auto manufacturers there and that's why governments are so keen to place barriers, trade barriers in the way of China to maintain home production capacity. Now, of course, this has long been the case. With protectionism, the question of course becomes one of speed of change and how quickly these companies can get to the future. There's a big race on to establish capacity in the production of EVs at scale, and it's the scale that's important. It's to get to that future fast, and there's going to be big winners and big losers, and so that's really what the whole thing is about.

Tony Hines: 22:52

When it comes to tariffs, so far the impact of these higher tariffs have had little effect on the exports from China to the United States, and probably they've impacted exports from the United States to China more, as fewer goods seem to be travelling from the US to China. Many fear it will slow the spread of the development of new technologies throughout the world and that it could, of course, impact consumer welfare because they're not being given an opportunity to purchase the best products. Let's look at the tariff range in a bit more detail. The EU recently imposed additional tariffs on China ranging from 17.4% to 38.1%. These tariffs are in addition to the existing 10% general tariff rate applied to all electric cars produced in China. Existing 10% general tariff rate applied to all electric cars produced in China.

Tony Hines: 24:00

The reason for the tariffs is that the EU launched the investigation into the Chinese EV subsidies due to concerns about unfair advantages from government support they receive. Chinese EVs were flooding global markets at artificially low prices due to substantial state subsidies was the premise. Low prices due to substantial state subsidies was the premise. When we look at the individual tariff rates, they vary based on the degree of cooperation given to the EU investigation teams. Byd faces 17.4%, geely 20%. Sic has the highest tariff at 38.1%. Other Chinese EV makers that cooperated in the investigation but were not sampled received 21% weighted average duty and the non-cooperating EV producers faced the full 38.1% residual duty. Tesla's in a peculiar position. It requested an individual examination to determine its duty level, based on individual subsidies received, and the final assessment for Tesla's duty level will be reflected in a definitive stage starting in November.

Tony Hines: 25:03

Despite the tariffs, chinese EV makers like BYD can still earn profits in Europe. For example, even with a 30% tariff, byd would earn a 15% profit on the BYD seal sold in the EU compared to China. From the industry's point of view, chinese automakers, including NIO, remain committed to expanding in Europe, despite protectionism. However, the tariffs have drawn criticism from China, which views them as protectionist measures. In summary, these rates reflect the EU's effort to address the unfair subsidies, while considering individual circumstances.

Tony Hines: 25:52

The one thing that's certain is that there are going to be winners and losers in the global market for EVs, and those companies that are able to establish those markets throughout the world because they either make the better product or they deliver better value for money, because they're able to be affordable to consumers, then that will be the acid test. But will these trade barriers hinder the progress of some of those companies? Well, obviously, they're designed to shift the balance in favour of the United States and European economies, but will it work? Doubtful. Well, that's a roundup of all the things impacting global supply chains in this week that we've pulled together so that you can catch up on some of the big business impacts happening around the globe. And don't forget, you can catch up on detailed episodes where we discuss particular topics of importance to anyone interested in supply chains and business. So drop by and pick those up on the Chain Reaction website and I'll be back next week with another episode of the Chain Reaction podcast. Until then, I'm Tony Hines. I'm signing off Bye for now, thank you.