Digest: You’re Getting an Electric Car… Whether You Want One or Not

Plus, Regulators Are Worried About More Banking Trouble Ahead.

Welcome to the digest… my breakdown of the things we’re thinking about and talking about in the Global Intelligence world.

First up this week… the reshaping of the U.S. auto industry.

Earlier this week, the Environmental Protection Agency proposed new vehicle-emission standards for 2027 through 2032.

The proposed standards are so strict that they would essentially force automakers to convert most of their fleets to electric vehicles.

Under the proposed rules, about 66% of new light-duty vehicles in the U.S. would have to be EVs by 2032, up from just 6% today.

The EPA has argued that the rules are in line with global standards.

According to the agency, “In February 2023 the European Union gave preliminary approval to a measure to phase out sales of ICE [internal combustion engine] passenger vehicles in its 27 member countries by 2035.”

About that…

The EPA seems to have missed the fact that the EU walked back this proposed measure in March amid concerns that it would cost vast amounts of money.

The agency is also ignoring the fact that, for most automakers, EVs aren’t yet profitable (even though they typically cost 10% to 40% more than ICE vehicles). Major manufacturers such as Ford are still using their gas-powered cars to subsidize the development of their EV divisions.

Irrespective, the EPA is eager to push ahead with its plan, arguing that the timetable is feasible because of the vast EV subsidies in the Inflation Reduction Act. (Goldman Sachs estimates that the EV tax credits in the act could cost the taxpayer $523 billion over 10 years alone.)

This to me is everything that’s wrong with Western government policymaking right now…

I have no problem with electric vehicles. I have no problem with clean air and a clean planet.

I do have a problem with a government agency telling me that we can increase the proportion of EVs in car showrooms by 60 percentage points in nine years.

That’s simply not possible. The resource challenges alone of building that many EVs are staggering. (Read more about that in the March issue of Global Intelligence on the copper mining sector.)

Moreover, the infrastructure is simply not in place. There are not nearly enough recharging stations in America, particularly in rural stretches people have to drive through on long road-trips. And the speed of recharging is one-legged turtle-ish relative to popping into a gas station to refill a tank. That’s not going to radically change over the next 10 years.

Rather than encouraging a sensible, well-thought-out transition to green tech, this plan will likely lead to massive disruption across the American auto industry… and customers will have to pay for this disruption with higher prices at showrooms.

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Next up… the AI race is heating up.

This week, Amazon announced that it was “investing heavily” in large language models and generative artificial intelligence, the same tech that Microsoft-backed OpenAI used to build the ChatGPT tool.

The company said it had been working on similar tech “for a while now” and believes “it will transform and improve virtually every customer experience.”

These remarks come after Google and Facebook also rushed to confirm their own AI programs in recent months, following the breakout success of ChatGPT.

ChatGPT is an AI program that can generate answers to just about anything you ask it to do.

The program was launched in 2019 but only gained traction earlier this year. College and high-school students have been using it to write amazingly nuanced and cogent essays on esoteric topics. Others have been creating art with it. And still others have used it to write computer code for stock and currency trading programs that have proven profitable.

In March, OpenAI announced a new and improved version of ChatGPT, called GPT-4. That version is now available with a paid subscription. (The free version on the ChatGPT website is GPT-3.5.)

At present, it seems Microsoft has opened an early lead in the multi-billion-dollar battle to own the AI future.

Time will tell whether Amazon and the others can catch up.

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Finally this week… a warning about the world’s banks.

On Wednesday, Klaas Knot—chair of the Financial Stability Board, a body of global regulators and government officials—delivered a stern warning about the state of the world’s banking system.

Knot said that the recent collapse of several U.S. banks and Swiss giant Credit Suisse are the result of problems “within the financial system.”

“So the need for financial authorities to learn lessons, and act upon them, is all the greater,” he added.

The same day, Andrew Bailey—governor of the Bank of England, the U.K.’s central bank—announced regulators could soon place stricter liquidity requirements on lenders.

That means banks would be required to hold more cash, and other assets that are easily convertible into cash, rather than lending out deposits as mortgages or making other longer-term investments.

Having cash on hand helps banks deal with runs on deposits.

Across the world, bank holdings of liquid assets have more than doubled to nearly $14 trillion since 2011, after new rules were put in place in the aftermath of the global financial crisis.

Now, it seems some of the world’s leading banking regulators are worried this may not be enough and we could see more bank runs like those that collapsed Silicon Valley Bank and Credit Suisse.

Worries about a banking crisis may appear to have died down in the mainstream media in recent weeks. But clearly, some of the world’s leading banking regulators have concerns about further trouble ahead.

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website.

Enjoy the rest of your Sunday.