Finimize - 🚗 The electric car crash

What’s going on here?

Lithium prices dropped 80% to hit $13,200 per tonne, unfortunate collateral damage after the electric vehicle (EV) market drove off track.

What does this mean?

The transition to green energy hinges on a few factors: world leaders prioritizing the planet over corporate profit, international nations’ ability to work together, and lithium. The precious metal is, after all, a key ingredient in an array of rechargeable batteries, including the types that fuel solar power systems and EVs. For the last couple of years, that’s kept lithium prices fairly high. But with China – the world’s biggest EV market – suffering an economic slowdown, shoppers are keeping cash in the bank. The result: demand for EVs in China inched up just 25% in 2023, a tumble from 83% the year before. So with more lithium in the market than carmakers know what to do with, the metal’s price fell 80% in the last year to reach its lowest point since 2020.

Why should I care?

For markets: The outlook’s musky.

Even OG EV maker Tesla has been feeling the pinch, continually slashing prices to coax drivers through the showroom doors. That tactic might put more of Musk’s models on the road, but it also chips away at the firm’s bottom line. And while Tesla is designing a more affordable model to attract a cost-conscious market, it won’t be ready until late 2025. So with a less-than-optimistic sales outlook and no immediate plans to drum up business, investors have sent Tesla’s shares down 27% this year already.

Zooming out: China needs the green.

Clean energy endeavors made up 40% of China’s economic growth last year, with major companies and governments investing their cash into solar power, panel manufacturing, EVs, and rechargeable batteries. That was enough to roughly offset the real estate sector’s woes, but with lithium prices and EV sales on the slide, China may have less to hide behind this year.

What’s going on here?

The European Central Bank (ECB) erred on the side of caution, keeping interest rates steady on Thursday.

What does this mean?

The ECB is confident that inflation is on a steady decline, with high interest rates making it harder for shoppers to spend and, in turn, forcing retailers to keep prices manageable. But the central bank seems to know that pride comes before a fall, too. So wary of adjusting rates too soon, which could give inflation the breathing room to pick up again, the central bank held them at their heady level. In theory, that should put enough pressure on inflation to push it toward the 2% target.

Why should I care?

For markets: Pick a date, any date.

Just how long the ECB will stick to its strategy is up for debate. On Thursday morning, markets said there was a 62% chance of rate cuts as soon as April. That’s probably because investors know that central banks’ decisions can flip on the mere whiff of changing stats. Remember, the Federal Reserve spent a year insisting that rates would stay lofty for the foreseeable, before suddenly predicting a series of cuts this year.

Zooming out: Friends outgrow each other.

Europe and the US have both avoided a recession so far, and their central banks are each waiting for inflation data to give the green light to cut economy-stifling interest rates. Those similarities explain why the euro and US dollar have been hip-to-hip over for the last year or so. But look at the bigger picture: the European economy has barely budged since the early 2010s, while the US has picked up by more than 50%. And with fresh data showing that the US economy grew a better-than-expected 3.3% last quarter from the same time the year before, it’s no wonder that the dollar has strongly been gaining dominance over the euro for the past decade.