TheChek News Flow

The global auto maker plans to help Archer build its first electric aircraft at a factory in Georgia

Stellantis STLA +3.50% NV, the global auto-making company that owns Jeep, Ram and other well-known car brands, is getting into the aircraft-manufacturing business, striking a deal with Archer Aviation Inc. to help it build an electric flying taxi.

The two companies said Wednesday that Stellantis would help Archer, a publicly traded air-mobility company established in 2018, to manufacture its first production aircraft at a factory the aviation company plans to build in Georgia.

The Netherlands-based auto maker also plans to provide up to $150 million in equity capital to Archer and aims to be the firm’s exclusive contract manufacturer for the forthcoming aircraft, which can take off and land vertically like a helicopter.

The move is an unusual one for the auto industry, which has largely stuck with ventures that involve ground transportation and vehicles with wheels, rather than propellers.

Stellantis Chief Executive Carlos Tavares said its decision aligns with the auto maker’s broader strategy of providing other transit services to customers, outside its traditional business of selling them individual cars and trucks.

In recent years, Stellantis has also invested in a car-sharing rental firm, similar to Zipcar, and, like other car companies, is trying to diversify its business model, particularly in urban areas where many people don’t own a car.

Archer, a San Jose, Calif.-based firm that specializes in small, electric-powered aircraft, was among a number of flying-taxi startups that have pursued stock-market listings over the past two years through special-purpose acquisition companies, or SPACs. Archer has said its goal is to deploy 6,000 aircraft by 2030.

The aviation firm’s first model, the Midnight, is designed to carry up to five passengers, including the pilot, and take short-distance trips of about 20 miles with a 10-minute charging time in between, Archer has said.

United Airlines Holdings Inc. has backed Archer, agreeing last fall to pay a $10 million deposit on a 100-aircraft order.

Electric-flying-taxi companies have been developing and testing vehicles, but need to secure approval from regulators before they or customers that purchase the aircraft launch commercial service. In the U.S., the Federal Aviation Administration has been examining aircraft, working on pilot requirements and looking into how to integrate planned vehicles into the airspace.

Archer expects to gain certification by the end of 2024 and start commercial operations afterward, the company’s CEO has said.

Archer’s stock has struggled since going public in September 2021, with shares down roughly 80% through Tuesday’s close.

Stellantis aims to provide Archer with the personnel, manufacturing expertise and capital to spool up production at the factory in Georgia, which is scheduled to open in 2024. The two companies said the partnership would help Archer meet its plans to commercialize its aircraft and avoid spending hundreds of millions of dollars during its manufacturing ramp-up phase.

The auto maker, which became a strategic partner for Archer in 2020, said it plans to buy more shares in the firm on the open market, after first investing in the aviation firm in 2021.

Stellantis is cutting back in other areas, as it tries to restructure its business to invest in costly new technologies, such as electric vehicles.

In December, the auto maker said it would indefinitely stop operations at a 1,350-employee assembly plant in Illinois, citing the need to generate savings to fund its transition to EVs.

Stellantis, which was formed through the merger of France’s PSA Group and Fiat Chrysler Automobiles NV in January 2021, said it intends to spend $35 billion in the coming years on new battery-powered models and manufacturing capabilities.

The car company said it aims to have EVs represent half of its sales in North America by 2030. At the same time, Stellantis has scaled back manufacturing ambitions in China, having faced stiff domestic competition and complications with a local partner that built and distributed Jeep SUVs in the country.

Deal is step forward in rethink of Japanese, French automakers' ties

TOKYO -- Nissan Motor and Renault have agreed to restrict the use of the intellectual property they developed together, including one patent for hybrid vehicles, in a new company established by Renault, Nikkei has learned.

The agreement marks a major step forward for the Japanese and French automakers, which have been reviewing their capital tie-up. The treatment of jointly held IP is one of the focal points of the talks.

The new company, announced by Renault in November and tentatively named Horse, will produce hybrid vehicle drivetrains and engines, with Chinese automaker Geely taking a 50% stake in the new company. Nissan will not have an ownership interest in the venture.

Unlike Nissan and Renault, which focus on different markets -- the former in the U.S., China and Japan, while the latter concentrates on Europe -- the new company plans to supply products to about 130 countries, including the U.S. and China.

According to sources, Renault had told Nissan that it wanted to use patents and other IP jointly acquired with Nissan in the new venture.

However, Nissan said it would not allow the use of joint IP for products to be offered in the U.S. and China to forestall competition with the new company and prevent technology leaks. In Europe, the Middle East and other regions, Nissan will also seek consent if products using joint IP are supplied to automakers other than Nissan.

A Nissan official told Nikkei that Renault has agreed to the restrictions on joint IP. Renault declined to respond, saying, "We do not comment on intellectual property."

Nissan and Renault have jointly developed patents for internal combustion engine cars and hybrid vehicles since the start of their alliance in 1999. According to Renault's annual reports, the two companies have developed about 1,770 joint patents in the five years through 2021.

In principle, a joint patent can be used freely by both companies without paying royalties, but in this instance the two companies will not allow the use of the patents, even for a fee.

Nissan and Renault have been negotiating over their joint IP as "one package" in a review of their capital relationship. Nissan has requested that Renault give up a 28% stake in the Japanese carmaker, cutting its current 43% stake to 15%, which is equal to Nissan's holding of Renault shares.

Electric vehicle boom in Asia’s biggest economy helps CATL and BYD reach worldwide market share of 50%

Chinese battery manufacturers have extended their dominance over global supply, with the top two producers reaching a combined market share of 50 per cent, and leaving South Korean and Japanese rivals lagging behind.

CATL, supplier to carmakers including Tesla and Volkswagen, more than doubled battery sales to 165.7 gigawatt hours in the 11 months to the end of November, according to data from Korea’s SNE Research — enough for roughly 3.3mn average-sized electric vehicles.

That extends the company’s lead as the world’s biggest producer and takes its market share to 37.1 per cent, up from 32.2 per cent in 2021.

The SNE report also showed “frightening” growth at China’s second-largest cell producer and EV manufacturer BYD, whose battery sales almost tripled to 60GWh over the same period to give it a 13.6 per cent market share.

The tightening grip of China’s battery manufacturers comes on the back of breakneck growth in the country’s domestic EV market despite challenges to the economy from the property sector slowdown and zero-Covid policies in force until last month.

The China Passenger Car Association expects the country’s electric car sales growth to slow to 30 per cent this year as subsidies are withdrawn, after doubling to 6.4mn-6.5mn vehicles in 2022.

Many analysts have predicted that CATL and BYD’s market share will drop as competition intensifies both domestically and overseas, but the moment is yet to arrive.

Korea’s LG Energy Solution and Japan’s Panasonic recorded growth of less than 10 per cent in the first 11 months of 2022, the SNE data show, with BYD displacing LG as the world’s number two producer.

Kevin Shang, an energy storage analyst at consultancy Wood Mackenzie, said CATL’s strengths in technology development, supply chain control, economies of scale and relationships with carmakers had given it the upper hand.

“Innovation is a key weapon in the market,” he said. “In the short term, CATL will hold its dominating position with more effort but faces competition from South Korean companies and US clean energy policy in the longer run.”

The SNE figures represent the battery capacity installed in electric cars that have been sold, meaning the ranking is influenced by model launches among carmakers with which they have supply relationships.

A further factor for the Chinese groups’ growth has been the shortages and high prices of raw materials such as nickel and lithium that have encouraged adoption of cheaper Chinese batteries by European car companies such as Volkswagen and Volvo, SNE said.

CATL has ridden out some of the pressures that battery manufacturers are facing from soaring raw material prices, with net profit almost trebling in the second and third quarters following an unexpected drop in the first.

Even so, its share price has sunk 30 per cent over the course of the year as part of a broader rout among Chinese tech stocks, taking its market capitalisation to about $140bn.

The deepening of CATL’s dominance in the industry comes as it pursues international expansion across Europe and North America.

The company last month started producing cells from its German battery facility, its first outside China, which will be followed by a huge 100GWh plant in Hungary.

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Alternatives, such as infrastructure funds, have potential

The year 2022 was challenging for investors, both in the UK and internationally. Markets gyrated on news of Russia’s invasion of Ukraine, Chinese domestic policy, and Britain’s brief experiment with Trussonomics.

The dominant narrative driving markets throughout the year was central banks’ efforts to tame runaway inflation. The stagflationary environment of slowing growth and high inflation for much of the year hurt both equities and bonds. But it was bonds that suffered most, a result of the sharp rise in interest rates.

As things stand, UK government bonds — gilts — have returned one of their worst-ever years. And this is even after a recovery from the lows following Kwasi Kwarteng’s “mini” Budget.

However, we expect bonds to have a much better year in 2023. Inflation in the UK, as well as the US and Europe, looks set to fall considerably next year. Major central banks, including the Bank of England and, most importantly, the US Federal Reserve, will slow the breakneck pace of interest rate rises and will at some point stop hiking altogether.

This should allow bonds to perform much better than last year. What is more, high quality bonds should offer some protection to investors’ portfolios if equities come under pressure again next year.

The traditional 60/40 portfolio (where three-fifths of a portfolio is invested in equities with the rest into bonds) has been extremely successful in recent decades because equities and bonds have acted as diversifiers for each other through the economic cycle.

This relationship broke down in 2022. But the peak of inflation and soon interest rates means that bonds should once again provide diversification for riskier assets.

For equities, though, the outlook is not so rosy. The economic situation in the UK is extremely precarious. The UK and Europe are already in recession and we expect the US will soon follow suit. British consumers are already feeling the pinch of higher energy bills and this will only get worse, even with the announced government intervention. And with mortgage rates surging, the housing market, a key driver of sentiment in the UK, is likely to come under pressure this year.

UK equities have the benefit of being extremely cheap. However, the multitude of economic problems that the UK faces make us hesitant to recommend them though they may still outperform other regions due to cheaper valuations. On a broader level, even with more clarity on the direction of inflation and interest rates, we think a cautious approach to investing is prudent for now.

Investors should consider a lower than usual equity weighting and a higher than usual government bond weighting in their portfolios for the time being.

That said, we have a positive view of China. Strict Covid rules are being relaxed there, which should boost growth by the latter half of 2023. In addition, over the medium term, we think that US/China decoupling is here to stay. However, the extreme views surfacing as a result of Russia’s invasion of Ukraine are likely to be assessed more practically given China’s critical role in the global financial and economic system.

Goodbye, 60/40?

The resurgence of bonds could prove short lived, however. Although inflation will come down from its recent highs next year, we believe that the average level of inflation and interest rates is likely to be higher in future than in the previous decade.

Savers might welcome a 4 to 5 per cent interest rate on their cash accounts after years of virtually no interest payments at all. But the reality is that higher inflation and an end to the ever-declining interest rates of the past 40 years will lower the real returns of fixed-income assets such as cash and bonds.

The 60/40 portfolio has been a mainstay of investing for decades. While we believe it still has its place, the higher inflation world we are entering means investors should consider making alternative assets, such as real estate, infrastructure, and private equity and credit, a more significant part of their holdings given their different sensitivity to inflation.

For example, infrastructure projects often have guaranteed inflation-linked revenue streams.

Many institutional investors have already taken steps to enhance their portfolios by allocating funds to alternative assets, seeking to benefit from the uncorrelated and sometimes superior returns they can provide. Our analysis of some of the world’s largest pension funds found that some hold as much as a third of their assets in illiquid alternatives.

Many have also chosen to limit their government bond allocations to the minimum acceptable regulatory level, given the weak long-term real returns they are expected to provide.

For retail investors, access to private markets is harder. However, there are many alternative investment trusts listed on public exchange in which to park capital, including real estate and infrastructure, as well as some more niche areas such as shipping and music royalties.

Given the large range of options and the benefits alternative assets can provide, it is perhaps now appropriate to consider if a 50/30/20 of equity/fixed income/alternatives mix might be superior to a traditional 60/40 portfolio for some investors, especially those with long investment horizons.

We expect government bonds to play an important role in portfolios in 2023, both in terms of return and protection. But in the higher average inflation world which lies ahead, investors will be rewarded for thinking outside the box.

Salman Ahmed is global head of macro and strategic asset allocation at Fidelity International