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Auto alliance aims to be among first to sell 1m battery vehicles, car boss tells FT event

Renault and Nissan aim to be among the first carmakers to sell 1m electric vehicles using their joint battery system, putting them alongside Tesla and Volkswagen as industry leaders.

Luca de Meo, chief executive of the Renault, made the forecast this week at the FT’s Future of the Car Summit, adding that the partners were in talks to standardise the battery modules used in their electric cars.

It is a sign that the often-fractious alliance is finally healing under new management after the departure of the partnership’s former boss Carlos Ghosn, arrested in 2018 for financial misconduct charges.

“If we manage to come up with a very synergetic approach on battery, the alliance would probably be one of the first to cross the threshold of a million cars sold on the same battery module,” De Meo said.

Reducing complexity and cost is key for carmakers as they try to reduce the price of battery cars, while raising the profit margins they make selling them.

At present, Renault and Nissan source batteries separately, but Nissan’s chief operating officer Ashwani Gupta said the next generation of technology would be “a common battery” for the alliance, which also includes Mitsubishi.

“If we do a battery for 10m cars with the same chemistry, same structure, same sourcing, it will definitely be moving forward,” he told the virtual summit.

The alliance plan puts the groups within touching distance of VW, which plans to sell 1m electric or hybrid cars this year, although only half of those will be battery-only. 

Tesla, which only sells electric cars, is ramping up production of its electric vehicles after coming close to delivering 500,000 units last year.

Senior executives from Ford and Stellantis also warned about pricing motorists out of cars by moving too fast towards electric vehicles at the three-day FT event.

Ford’s European president Stuart Rowley said that a wider collaboration was needed with government, energy companies and charging groups in order to drive wider adoption of battery cars, as well as the need to lower the price so that current car buyers can afford the models.

“It has to be led at the ministerial level, but it needs to involve local governments as well as national, utility providers and industry participants,” he said.

“If we are not successful, people are going to keep hold of older vehicles, more polluting vehicles. We can’t leave people behind.”

There were also warnings of a squeeze of clean materials needed to make batteries, if carmakers continued to pull forward their ambitions to decarbonise the fleet.

As carmakers try to source materials in a decarbonised way, Tomas Nauclér, from McKinsey, told the FT event he expected a risk of shortages of clean-sourced parts.

He expected shortages of materials such as lithium, cobalt and nickel or iron ore for steel in the second half of this decade, as the new processes for reducing emissions from extraction or processing mean miners struggle to pump out enough to meet the demand expected from soaring sales.

“We are going to see a green materials squeeze in the second half of this decade, most likely, and possibly even into the next decade,” he said. “The next five years will be decisive whether we will see enough supply coming fast enough.” 

If institutions could predict the future, if only for nanoseconds, it would be enough to sweep up

If you had a sports almanac from the future as did Biff Tannen, the brutish bully of the time-travelling Back to the Future movie trilogy, how might you be inclined to take advantage of the foresight buried within it?

The obvious temptation would be to place sure bets in the market that make you rich. In Biff’s case, the wealth is then used to change the world into a dystopian reality in which he himself exists as “America’s greatest living hero”.

That sort of thing used to be considered fiction. But the dawn of so-called “supremacy” of quantum computing over conventional technology raises the possibility that one day soon someone might be able to effectively see into the future.

This is because quantum computers, when they become fully capable, are likely to be uniquely good at crunching probability scenarios. They are based on the mysterious world of quantum physics. Quantum bits or qubits are the basic units of information in quantum computers. Unlike the binary bits of traditional computing, which must be either zero or one, qubits can be both at the same time.

This gives quantum computers super powers that will allow them to solve probability-based tasks that would previously have been impossibly hard for conventional counterparts in realistic timeframes. If the problem at hand was a game of football, adding quantum computers to the mix is like allowing footballers to use their hands to get the ball into the net, say quantum experts.

It’s a prospect that poses an entire new set of challenges for market regulators and participants. If super quantum computers really can help institutions see into the future, the information advantage will be unprecedented.

It might also represent an entirely new type of front-running and market manipulation risk, one that regulators can’t necessarily even identify unless they too have a quantum computer at hand.

In Back to the Future, the almanac gave Biff a 60-year insight advantage over everyone else in his home 1955 timeline. With quantum computers, the edge might only be nanoseconds. But in the fast and furious world of high-frequency trading, that could be enough to sweep up.

The reassuring news — at least for now — is that we’re still at least five years away from quantum computers being powerful enough to compete with existing supercomputers on much simpler problems. Prediction might not even be their initial forte.

Goldman Sachs research recently noted, as and when quantum computers are rolled out, they are far more likely to be deployed on crunching options pricing conundrums or running Monte Carlo simulations that value existing portfolios than they are on predicting future movements of asset classes.

According to Tristan Fletcher, of artificial intelligence-forecasting start-up ChAI, that’s because prediction is ultimately about solving a very specific, deep problem by understanding the nuances of the data that matters.

“We are already at the limits of what any system that isn’t actually listening to Opec meetings and five-year plans is capable of,” he said. It’s not the complexity of the calculation that is the issue as much as the breadth of the data sample at hand. That means prediction wouldn’t necessarily get more accurate with quantum power.

The appeal to focus on “brute-force” problems such as optimising portfolio analysis or cracking cryptographic problems such as those that underpin bitcoin, the cryptocurrency, is far greater.

But this poses its own problems. If cryptographic systems can be broken, exceptionally sensitive data held across the financial system could be exposed and taken advantage of in unfair and market manipulative ways.

Rather than being able to better predict the market, the true pay off in the arms race might lie in achieving quantum-level encryption-breaking capability and using it subtly to seize the information that can get a trader ahead. Experts say the chances someone is already up to this, however, are low. If quantum supremacy had been achieved, the news of it would leak pretty quickly.

“We don’t know what we don’t know,” said Jan Goetz, chief executive of IQM, a quantum computing builder. “But generally the community is very small so everyone knows what’s going on. The status quo is clear.”

Nonetheless, the financial sector seems to be waking up to this quantum computing issue. Many banks and institutions are introducing teams to think exclusively about how quantum computing will affect their business. How far ahead they are on making their systems quantum secure is harder to say. It’s a secretive issue. For now, most agree, the threat level is low, not least because — as the hacking of the Colonial pipeline shows — system security is low enough to ensure far cheaper and simpler ways to hijack digital systems.

German auto giant Daimler has used the global slowdown during the pandemic to accelerate its restructuring plan. That includes plans to spin off its trucks and buses unit, rename itself after its Mercedes-Benz luxury brand, and make a bigger push into electric vehicles.

The stock (ticker: DAI.Germany) has lagged behind its peers—gaining 22.5% in the past five years, to 73.41 euros ($88.71)—compared with a 199% increase at Fiat and Peugeot combo Stellantis (STLA), and 74.4% at Volkswagen (VOW3.Germany).

While the shares are up 143% in the past year, investors might not have fully factored in the potential of Daimler’s transformation into an electric vehicle player to rival Tesla, and the benefit of the global semiconductor shortage that has restricted supply. The chip shortage means Mercedes-Benz has raised prices and increased margins because it has used its limited semiconductor supply in its costliest vehicles.

“These factors do not seem to be properly priced in,” says Michael Foundoukidis, an analyst at investment firm Oddo. “There is still further substantial upside, despite the stock’s excellent run in the past 12 months.”

Stephen Reitman, an analyst at Société Générale, expects the stock to rise 44%, to €106, on the back of the new electric luxury sedan, the 2022 Mercedes EQS— an upscale challenger to Tesla. The EQS is expected to be available this summer at prices starting at about $100,000, according to estimates by Reitman.

Mercedes currently sells three electric vehicles, and the EQS will be a timely reminder that the brand will be a strong presence in EVs and deserves a valuation that starts to reflect this, Reitman wrote in an April note.

Daimler, which has a market value of €78.8 billion, employs 288,000. It fetches a low multiple of seven times this year’s expected earnings, and is valued in line with its peers.

The company posted net profit of €4.4 billion for the first quarter, a big increase from the €168 million for the same period the previous year, when the pandemic first hit. “Deliveries, revenue, and profits increased significantly, particularly thanks to tailwinds in China, a strong product mix, and favorable pricing, supported by industrial performance enhancements and cost control,” finance director Harald Wilhelm said in a statement.

The company, based in Stuttgart, dates back to 1886, when Gottlieb Daimler and Carl Benz made history with the invention of the automobile. It now sells around 2.8 million vehicles annually and is among the 15 biggest car and truck makers in the world.

The Mercedes EQS’s large battery capacity, luxurious interior, and a futuristic, high-performance dashboard with a variety of screens led Tim Rokossa, an analyst at Deutsche Bank, to dub it the “Tesla fighter.” “The EQS will be the first model to have the hyperscreen included, and we believe this will also very much appeal to the more technical customers,” Rokossa says. The EQS also complements the recently launched Mercedes S-Class luxury vehicles.

The disposal of Daimler’s truck business—which contributes more than 15% of earnings—should help boost the share price and market capitalization. The move still requires the approval of investors. Because the auto maker’s limited supply of chips are currently reserved for the top models, management now expects adjusted return on sales margins at the Mercedes-Benz unit of 10% to 12%, versus 8% to 10% previously.

All indicators suggest that this old-line luxury-car maker is on the road to new growth.

The SPAC bubble has popped.

After a three-month run of immense popularity to start 2021, special purpose acquisition companies have seen investor appetite dry up. New issuance has slowed to a trickle. Those still seeking merger partners have been hit hard, while those that have completed mergers have been hit harder.

But every blowup brings opportunity, and this one is no different. Investors should use the declines to pick over the carnage and identify the quality SPAC sponsors still searching for acquisitions, or those with just- or still-to-be-completed deals.

Make no mistake, the damage is real. The Defiance Next Gen SPAC Derived exchange-traded fund (SPAK), which holds more than 230 SPACs and SPAC-merged companies, is down more than 32% from its 52-week high, while about a quarter of the stocks it holds have been cut in half from recent peaks. More than half the companies are trading below $10, the price where nearly all SPACs get priced, which has caused issuance to dry up. Why would investors pay $10 for a new SPAC when they can buy an existing one for less than that?

Not every SPAC is being shunned, however. Bill Ackman’s Pershing Square Tontine Holdings (PSTH) is still looking for a merger partner. Ackman has hinted that a deal with an “iconic” company could be announced in a matter of weeks. The SPAC has dropped just 27% from its 52-week high and, at almost $25 a share, is still trading well above its $20 IPO price.

Investors should also check out Fisker (FSR), which completed its merger with Spartan Acquisition in October. Stocks in electric-vehicle startups have been among the worst SPAC performers, and Fisker, whose first product is an electric SUV, is no exception—its stock, at Friday’s close of $10.50, is down about 67% from its 52-week high of $31.96. The future of Fisker isn’t a slam dunk. It has no sales and its SUV isn’t due until late 2022. But it has cash and quality partners, including auto-parts supplier Magna International (MGA). Fisker reports earnings on May 17, and any more good news could propel shares higher.

Then there’s home-industry software provider Porch Group (PRCH). At $14.98, its stock is down about 39% from its February 52-week high. Porch has something many SPACs don’t—actual sales. It last reported revenue of $19.5 million for the fourth quarter of 2020, and investors will get an update when it reports earnings on May 17.