Rochus Appert’s Post

Transcript

EVs���we talk about them a lot, but they actually only represented about 7.5% of new vehicles sold in the U.S. in 2023. President Biden in March of 2024 introduced, some new emissions regulations for new vehicles. Those regulations were designed���the EPA regulations���designed to actually, speed up the process of electrification. And they called for about 70% of new vehicles sold in the U.S. by 2032 to be either fully electric or hybrid. We believe that that regulatory environment is going to be the first thing that Donald Trump actually goes after as president. We believe that he will pretty instantaneously eliminate those EPA regulations. We also think he's going to go after some key aspects of President Biden's Inflation Reduction Act, namely, the $7,500 tax credit that consumers get for purchasing electric vehicles in the United States. Outside of the regulatory framework, it's really all about tariffs. What we've seen in the auto supply chain is a move towards offshoring���moving expensive manufacturing and parts operations out of the U.S. into Mexico. To the extent Trump actually goes after those imported products from Mexico with high tariffs, that changes that calculus and could really cause a reimagining of the supply chain once again. But when you kind of put it all together, what does it mean? I think it means that, you know, the current environment is going to favor ICE manufacturers over EV manufacturers in the near term. What does that mean for capital allocation, I think is another really interesting situation that we find ourselves in. We don't think the electric transition is a matter of if we think it's a matter of when. So, legacy OEMs���guys like General Motors, Ford���they're going to have to make the decision as to how do they allocate dollars and spend money on very expensive EV programs that are likely to be unprofitable in the near term? Or do they decide to keep that money and do something else with it? Right now, in the U.S., there's only Tesla, and we have some companies in China that are actually profitable EV manufacturers. Do the legacy OEMs allow those guys to build more of a moat and to make more money in that product? And do they drop further and further behind? Or do they spend the money today to create a more defensible business model down the road? If legacy OEMs came into the election thinking that the time that they had to sell profitable ICE vehicles was short, they probably think that it's a bit longer now.