This will make a great trading profit. They bought it for €800m as part of a 2014 bailout brokered by the French government. It's now worth €2.2bn. PSA is the third-best performing auto stock globally over the past 5 years.
Problem is, in other ways the alliance is a mess. Dongfeng is for the most part a sort of contract manufacturer for foreign carmakers and has JVs with PSA, Nissan and Honda.
The PSA one is really struggling and has been losing money, in contrast to the others' handsome profits:
If anything it looks worse now than in those 2018 numbers. First-half sales were down by half from a year earlier, so unless things recover in the second half they'll do well to sell many more than 150,000 cars.
That will leave factories that were losing money at ~50% urilization last year running at about ~25% utilization. Hard to make a profit in that situation.
Meanwhile Dongfeng has a lot of net debt, at about 8x Ebitda, and is making operating losses. So something has to give.
One idea would be to have PSA take control of the JV. It's clearly struggling under Dongfeng but it's hard to believe PSA wants to give up on China altogether. BMW did this with its Brilliance JV last year.
If so we're going to be seeing an increasing de-indigenization of the Chinese car industry by European carmakers.
Given what a flashpoint it's been in trade war debates, that will be an interesting development. (ends)
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You might think that, installing more than half the world’s solar panels every year, China would be brimming over with solar installations.
One thing that really struck me, visiting over the past week, is how much unexploited potential is still there. 🧵
Looking out of plane and train windows in China these days you will see a lot of scenes like the above one. And at first glance it looks like a solar farm.
But it’s actually a farm farm! Polytunnels like this — often quite cheap-looking, with open sides —are everywhere.
China has 60% of the world’s greenhouses, covering about 8,000sq km according to this study last year.
The better crop yields from this have been key to keeping the country fed.
A thing people really do not understand about US companies fretting about their per-car EV losses stories is that this is almost entirely a spurious issue about the unique way US accountants treat certain types of R&D spending. 🧵
I've long been a huge fan of @michaelxpettis and agree with him about most aspects of China's economy, but I think there's good evidence that clean tech, at least, is seeing solid, operationally-financed, productivity-enhancing growth right now. 🧵
A pretty common argument you hear these days to justify trade restrictions on Chinese EVs, solar panels, and batteries is that the industries are only prospering because of unfair subsidies. I don't think that's supported by the data:
The argument goes something like this: China is awash in easy money from state banks; its renewable manufacturers are undercutting overseas rivals; ergo, its comparative advantage isn’t scale, efficiencies or innovation, but the availability of cheap government cash.
Last September I made one of the scariest calls I've made as a columnist — a prediction that consumption of crude oil had already peaked, despite predictions that this was a decade or more in the future:
Well, much of the ocean floor is strewn with these potato-sized pebbles, which appear to form through complex processes over millions of years and are rich in manganese and other useful base metals.
From time to time, people have thought about mining these nodules. The most famous case was an extraordinary Cold War caper in the 1970s, when Howard Hughes set up a fake nodule mining company as cover for a CIA operation to salvage a sunken Soviet nuclear submarine.
I would like to suggest that the best explanation for this contradictory series of facts is that oil demand is in decline and every party is behaving rationally.
If you think oil demand is in fact rising then the entire global oil industry, with ~$3 trillion of annual revenues and ~$500 billion of annual capex, has taken a collective decision to just leave trillions of money on the table for ~reasons~