Finimize - 🤔 What if Elon is... wrong?

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Today's big stories

Reports suggest China is about to give its carmakers a boost
Elon Musk said he thinks there's a recession coming, but here's why he might be wrong – Read Now
Major mergers and acquisitions across Europe are suddenly at risk

Hot Wheels

What’s Going On Here?

The Chinese government is reportedly set to roll out measures to boost spending on the country’s car industry by $30 billion this year.

What Does This Mean?

Car sales in China – the world’s biggest auto market – have tailed off in the last few months, given that it’s both difficult and irrelevant to buy a car when you’re trapped in lockdown. In fact, there wasn’t a single person among Shanghai’s 25 million-strong population who bought one in April. And with the government now withdrawing subsidies designed to encourage drivers to buy EVs, demand could slide even more. But while the authorities taketh with one hand, they giveth with the other: state TV reported this week that the government is thinking about extending tax exemptions for EV buyers. That bodes well for the likes of Li Auto, Xpeng, Nio, and BYD, all of which saw their shares rise after the news.

Why Should I Care?

Zooming in: It’s BMW’s time to shine.
BMW will be pleased to hear it: the German carmaker – whose Chinese sales fell in the first quarter from the same time in 2021 – announced on Thursday that production is now underway at its new $2.2 billion plant, which it’s hoping will increase its annual EV output in China by nearly 20% (tweet this). The plant is BMW’s third assembly facility in the country, and it’s been designed to produce only enough EVs to meet demand, rather than the mass production lines of old.

The bigger picture: Self-inflicted wounds.
China’s lockdowns might’ve done a number on its economy, but there could be an even bigger risk to the country in the form of its languishing property market. The sector represents around 20% of the country’s output, and it’s been left in tatters by the government’s tough stance on the sector. In fact, Goldman Sachs is expecting the sector to drag economic growth down by 1.4 percentage points this year.

You might also like: How to profit from the Chinese property market’s next steps.

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Analyst Take

What If Elon And Goldman Sachs Are Wrong?

Carl Hazeley, Analyst

Elon Musk has been saying things out loud again.

But this time it’s not about Twitter or his employees’ remote working habits: he said this week that he thinks a US recession is probably on the cards in the near term.

He’s not alone, with Goldman Sachs having just updated its forecast to show that a recession is more likely to happen in the next two years. Plenty of economists share that view, in fact.

But here’s the thing: there are three compelling reasons they might all be wrong.

That’s today’s Insight: why a recession might not happen at all.

Read or listen to the Insight here

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