Posts Tagged ‘bmw’

bmwi3

The problem with electric cars is that while they might save petrol, the cost of buying the car in the first place is so high that it is very hard to come up with an equation which shows that buying such a car makes economic sense for the individual purchaser. As far as the environment is concerned, the jury is out on whether electric cars really make a difference. They still need energy; it is just that the energy is generated centrally at power stations, rather than in the car’s engine as it burns fuel.

Then there are renewables. The problem with them is that they only work under certain conditions; wind turbines are not very effective when the wind is becalmed. Solar power isn’t very effective at night time, and is less effective on a dark and miserable day. As for domestic users, renewable energy comes with a high start-up cost, and it takes years to get your money back via savings on energy. But add it all up, electric cars and renewables and throw in a third ingredient, – more about that in a moment – and suddenly the story changes. And since the car seems so very impressive, the new BMW i3 is a good place to start.

The new BMW i3 has a number of very interesting unique selling points. For one thing it has slightly longer range than most electric cars – 80 to 100 miles as opposed to 75 to 80 miles. For a second thing the car also comes with an option to include a 34-horsepower rear engine, which doubles the range. For a third thing the car is less expensive relative to comparable BMWs than other electric cars compared to their comparable petrol models. Fourthly, the car can be fully recharged in three hours.

But supposing the electric car of the future is recharged primarily by renewables.

The problem with wind power is that it only works when it is windy, but when it comes to charging a car-up overnight, who cares if it’s windy for just a few hours, as long as the car is fully charged in the morning. Providing energy is distributed intelligently, with intermittent energy sources used to provide energy for products that don’t need recharging at specific times, such as cars being recharged overnight, or storage heaters, and so the intermittent nature of renewables matters less – it still matters, but a lot less than before.

The start-up costs of renewables are such that it can take years before households get their money’s worth. But if all of a sudden electric cars are thrown into the mix, then suddenly the time it takes to cover the start-up costs is brought forward by a long margin. Many households spend far more on petrol for their cars than they do on domestic energy.

And now we turn to the third ingredient. If you are a regular reader here you may have guessed at that already. It is called Moore’s Law. Not Moore’s Law in its literal sense relating to the number of transistors on intergraded chips doubling every 18 months or so, but rather as a metaphor for certain types of technology changing rapidly.

The point that critics of both electric cars and renewables forget, is that their cost is falling rapidly, and their cost effectiveness is improving all the time. And just as was the case with silicon chips, the more we make use of this type of technology, the faster this technological progress occurs.

At the moment, electric cars are still primarily the domain of early adopters. Renewables need subsidies to give them a kick-start. Critics say such subsidies distort the market. But they are wrong. The market is lousy at pricing-in technological progress; it is lousy at allowing for deeper forces at play, such as peak oil and climate change.

© Investment & Business News 2013

New car registrations across the EU dipped by 5.9 per cent in May, falling to their lowest level recorded in the month of May since 1993. Intriguingly, the UK was one of the few countries in the region to see a rise in new car registrations. Meanwhile, the UK car export sector is one of the new sectors to see genuinely rapid growth. When you consider how awful the state of our main export market is, that is quite impressive.

According to the ONS: “In 2002, there was a deficit in trade in cars of around £7.5 billion. However, the value of exports of cars from the UK more than doubled over the 10 years to 2012, while the value of imports grew much more modestly so in 2012 this trade was close to break-even (that is, the levels of exports and imports were virtually the same).”

Tim Abbott, managing director of BMW UK operations, has forecast that the UK will be producing more cars than France by 2018, moving it into second place for car production in Europe.

Yet, look at car sales. According to the European Automobile Manufacturers Association, in May demand for new passenger cars declined by 5.9 per cent in the EU, reaching 1,042,742 units. In absolute figures, this is the lowest level recorded for a month of May since 1993 when new registrations stood below one million. Five months into the year, a total of 5,070,840 new cars were registered in the region, or 6.8 per cent less than in the first five months of 2012.

Sales were down 2.6 per cent in Spain and by 8.0 per cent in Italy. They fell 9.9 per cent in Germany and 10.4 per cent in France. The UK saw growth of 11.0 per cent.

So what can we read into this? Firstly, the fact that UK car registrations rose may be a sign of the UK economy picking up.

But it is genuinely impressive that the UK trade deficit in the car industry has shrunk and is possibly on the verge of going positive, at a time when our main market is stuck in depression, and at a time when UK domestic car sales are rising.

The UK car industry may actually do very well indeed once conditions return to normal. Indeed, even if they don’t return to normal, the UK only really needs to see the growth trajectory of its car exports to stay where it is, and by 2018 the UK car industry will once again be an important net contributor to UK GDP.

© Investment & Business News 2013

According to the OECD, US household gross debt to gross disposable income had fallen from 130.7 per cent in 2007, to just 107.9 per cent at the end of 2012.

According to the Fed’s latest US Financial Accounts, debt as a share of disposable income has fallen to 110 per cent, from 112 per cent at the end of last year.

At the same time US house prices have at last begun to rise, and both the Dow Jones and S&P 500 have recently hit all-time highs, which has pushed up the value of US assets. Paul Dales, Senior US Economist at Capital Economics, put it this way. He said: “The ratios of debt to net wealth and debt to assets have fallen to rates more in line with long-term trends.” He explained further: “Every $1.00 of debt is now backed by $6.30 of assets, whereas before the recession it was backed by $4.80 of assets.”

Okay, returning to OECD figures, US household gross debt to gross disposable income was just 96.4 per cent in 2000. So in comparison to that year, debt is still quite high. But the trend is clear. US households have seen their own balance sheets improve markedly.

When you think about it, the above data illustrates why the economy has struggled so much in recent years. Despite interest rates being at record lows, US households have engaged in some pretty drastic deleveraging. Economists who failed to spot the crisis in the making during the mid noughties, failed to grasp that US households had simply run out of puff, and that the combination of falling house prices and over indebtedness meant an extended period of readjustment was inevitable.

This adjustment may have a couple more years to run yet. But it is not unreasonable to assume that by the midpoint of this decade, the US consumer will be able to lead the US economy into a new growth period. In combination there are signs of companies moving their manufacturing back to the US, which is a trend that was predicted by the Boston Group some two years ago. Both Apple and Google, for example, have recently announced new products which, just like Bruce Springsteen, will be made in the USA.

In the UK we are seeing something similar, but on a smaller scale. UK household debt to income has fallen too. In fact it has fallen even more sharply than in the US, but then again it was much higher to begin with. OECD figures indicate that UK household gross debt to gross disposable income was 146 per cent at the end of 2012, around 25 percentage points down on the 2007 high, but still among the highest levels in the OECD. Maybe the OECD data is simply telling us the UK deleveraging process has longer to run. If the US will enjoy growth like it used to in 2015, maybe in the UK we will have to wait until, say, 2017.

But it is interesting to note that Tim Abbott, managing director of BMW UK operations, has forecast that the UK will be producing more cars than France by 2018, moving it into second place for car production in Europe.

So this is good news, albeit that the time frame is more stretched that we might prefer.

But good news can create bad news, and that is what the markets are worrying about. To find out why, read the next piece.

© Investment & Business News 2013