We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.
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But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.
Here are the articles for the week ending 24 December 2023:
1. Google DeepMind used a large language model to solve an unsolved math problem – Will Douglas Heaven
Google DeepMind has used a large language model to crack a famous unsolved problem in pure mathematics. In a paper published in Nature today, the researchers say it is the first time a large language model has been used to discover a solution to a long-standing scientific puzzle—producing verifiable and valuable new information that did not previously exist. “It’s not in the training data—it wasn’t even known,” says coauthor Pushmeet Kohli, vice president of research at Google DeepMind…
…Google DeepMind’s new tool, called FunSearch, could change that. It shows that they can indeed make discoveries—if they are coaxed just so, and if you throw out the majority of what they come up with.
FunSearch (so called because it searches for mathematical functions, not because it’s fun) continues a streak of discoveries in fundamental math and computer science that DeepMind has made using AI. First AlphaTensor found a way to speed up a calculation at the heart of many different kinds of code, beating a 50-year record. Then AlphaDev found ways to make key algorithms used trillions of times a day run faster.
Yet those tools did not use large language models. Built on top of DeepMind’s game-playing AI AlphaZero, both solved math problems by treating them as if they were puzzles in Go or chess. The trouble is that they are stuck in their lanes, says Bernardino Romera-Paredes, a researcher at the company who worked on both AlphaTensor and FunSearch: “AlphaTensor is great at matrix multiplication, but basically nothing else.”
FunSearch takes a different tack. It combines a large language model called Codey, a version of Google’s PaLM 2 that is fine-tuned on computer code, with other systems that reject incorrect or nonsensical answers and plug good ones back in.
“To be very honest with you, we have hypotheses, but we don’t know exactly why this works,” says Alhussein Fawzi, a research scientist at Google DeepMind. “In the beginning of the project, we didn’t know whether this would work at all.”
The researchers started by sketching out the problem they wanted to solve in Python, a popular programming language. But they left out the lines in the program that would specify how to solve it. That is where FunSearch comes in. It gets Codey to fill in the blanks—in effect, to suggest code that will solve the problem.
A second algorithm then checks and scores what Codey comes up with. The best suggestions—even if not yet correct—are saved and given back to Codey, which tries to complete the program again. “Many will be nonsensical, some will be sensible, and a few will be truly inspired,” says Kohli. “You take those truly inspired ones and you say, ‘Okay, take these ones and repeat.’”
2. How Energy Traders Left A Country In The Cold – Stephen Stapczynski and Faseeh Mangi
Within a few weeks, Alleyne’s colleagues identified a candidate: Gunvor’s deal with Pakistan, which depends heavily on LNG but is a far smaller customer than major importers such as China and Japan. After some internal debate, the traders ran the idea of scrapping it past the firm’s legal team and decided to proceed. When the Russian army invaded Ukraine on Feb. 24, 2022, gas prices soared more than 150% in 11 days. Around the same time, according to people familiar with the events, Gunvor stopped responding to communications from the Pakistani government. Then it terminated Pakistan’s deal, saying the country had underpaid for one of its LNG shipments. (Pakistan disputes this.)
Under the terms of the contract, Gunvor was supposed to supply Pakistan with five tankers’ worth of LNG over the next several months. Instead, ship-tracking data show, Gunvor sent the cargoes to countries including the UK and Italy, where buyers paid the “spot,” or market, price. If the gas had been delivered to Pakistan as originally planned, the value of the sales would have been about $200 million, according to calculations by Businessweek. By the same arithmetic, Gunvor’s traders unloaded it for more than $600 million. Some would receive seven-figure bonuses for the year, the highest of their careers.
Gunvor’s decision to redirect its supplies—and other canceled gas deliveries by Eni SpA, a state-controlled Italian energy group—helped prompt an energy crisis in Pakistan that continues today. The nation of 240 million people, which has a per capita gross domestic product of just over $1,500, uses natural gas to heat homes, power industry and even run cars and buses. When it ran short, factories were forced to shut or dramatically cut their output, throwing workers into poverty; so were fertilizer plants, threatening food production. As it scrambled to procure replacement LNG, Pakistan paid record spot-market prices, draining its modest foreign currency reserves and pushing it to the brink of default. Now its government is trying to implement economic reforms after receiving a bailout from the International Monetary Fund before elections scheduled in early 2024…
…There’s no suggestion that Gunvor or Eni acted illegally. Both appear to have operated within the bounds of their contracts—albeit in a way that’s all but unique in an industry where suppliers have traditionally done whatever they can to meet customers’ need for gas. Moreover, Pakistan’s woes are the result of much more than a fuel shortage. Successive governments—some installed through military coups—have mismanaged its economy for decades. Notably, politicians have long subsidized power and gas rates, providing little incentive for energy efficiency and forcing the government to pick up the difference between the true cost and what consumers pay.
The situation nonetheless provides a stark example of how traders in the cutthroat world of commodities can profit at the expense of some of the world’s least developed nations. When they agreed to long-term gas deals, Pakistani officials thought they were protecting their economy and citizens from the vagaries of commodity markets. Instead they learned just how quickly, and brutally, those markets could turn against them…
…For countries that can’t meet their energy needs domestically, LNG provides major benefits. Until it was commercialized in the 1960s, the most common way to ship large quantities of gas was through pipelines, which have obvious disadvantages for places that are isolated, far from reserves or both. By contrast, a tanker full of LNG can be sent to any port with a so-called regasification terminal, where the fuel is heated up into usable form. To ensure reliable supplies, governments and utilities try to make long-term LNG deals to guarantee deliveries at a relatively stable price, rather than take their chances on the spot market. Even a single shipment that arrives late—or, worse, not at all—can have a significant impact on local energy supply.
Pakistan’s entry into the LNG market was engineered by former Minister of Petroleum and Natural Resources Shahid Khaqan Abbasi, who’d worked in the Saudi energy industry before shifting to politics. (He later served as prime minister.) In 2016, Abbasi made a $15 billion, government-to-government deal for LNG imports from Qatar. The shipments made up for dwindling production from domestic gas fields and eased conditions for Pakistani companies almost overnight. GDP grew more than 5% in 2016, the biggest rise in more than a decade, in part because of stronger output from large manufacturers.
Abbasi wanted to do more, and he opened two additional requests for LNG contracts: one for a five-year supply deal, the other for as long as 15 years. Roughly two dozen companies expressed interest, including Gunvor and Eni. Some had concerns about dealing with such a poor country. According to a person who participated in the tenders, gas traders applied an unusually high degree of scrutiny to the proposed contracts, seeking terms that ensured Pakistan would pay in full and on time. Pakistani officials, who were focused on securing the best possible price, didn’t insist on strict penalties for failing to deliver gas; at the time, cancellations were rare. (The Gunvor spokesperson says the company was “required to sign up to terms stipulated” by Pakistan, without amendment. The Eni spokesperson says that the relevant agreements “were not the results of a bilateral negotiation,” and that Pakistan set out their contents.)…
…In December 2020, Pakistani officials received a curious email from Eni. The Italian company said it would deliver only part of its LNG shipment for the following month, explaining that an unnamed supplier had failed to make its own delivery. Eni’s head of LNG portfolio, Ilaria Azzimonti, apologized and said her team would try to send replacement gas later…
…Under the terms of Eni’s contract, it didn’t have to provide details about the supplier default. But even after telling Pakistan it lacked sufficient gas to meet its commitments, according to a person with direct knowledge of the transaction, Eni sold an LNG shipment elsewhere at the spot price of roughly $100 million.
Although it was just part of the expected cargo, representing less than 10% of the country’s monthly supply from long-term contracts, losing the Eni gas put Pakistan in a difficult position. Cold weather was coming, increasing the need for fuel, and domestic production had declined significantly, the result of years of underinvestment. The government tried to find a spot-market shipment to make up the shortfall, but it deemed all the options too expensive. It had no choice but to temporarily curtail supplies to some households and factories.
There are occasional cancellations in the LNG business, often when problems at an export terminal affect supplies, and at first the undersize Eni delivery looked like a one-off. Regular shipments resumed in February 2021, coinciding with a collapse in spot prices. But later that year, with the recovery from the Covid‑19 pandemic driving energy demand, more of the gas expected by Pakistan failed to arrive. In August, Eni blamed reduced output at an Egyptian LNG plant for a missed shipment…
…Then, in November 2021, both companies canceled their deliveries, documents reviewed by Businessweek show. Gunvor cited a “force majeure,” a legal term for an unavoidable event that makes it impossible to fulfill a contract. Specifically it blamed an outage at a plant in Equatorial Guinea, a tiny, hydrocarbon-rich Central African dictatorship. (Although Gunvor didn’t offer details, there had been technical problems at a facility at the country’s Alba gas field that September.)
That justification from Gunvor, as well as the earlier statement by Eni about production in Egypt, took advantage of another part of Pakistan’s contracts. Unlike other LNG deals, which stipulate where a supplier will obtain the gas it’s selling, the Pakistani agreements said shipments could come from anywhere within Gunvor’s and Eni’s global portfolios. Pakistani officials have said they believed this would insulate them from disruptions, by allowing the companies to provide any gas they could source.
In their communications with Pakistan, people with knowledge of the discussions say, Gunvor and Eni turned that logic on its head, arguing that because no source was specified, a disruption anywhere gave them the right to cancel delivery. Problems in Equatorial Guinea therefore qualified as a force majeure, even though Gunvor rarely shipped gas from the plant to Pakistan. Over the next several months, Gunvor declared force majeure on two additional shipments and only partially delivered one more. At the same time, it was continuing to sell large quantities of gas to wealthier countries at spot prices, according to traders who participated in the deals…
…The events of early 2022 provided Alleyne and her team with an opportunity for a once-in-a-lifetime payday. At the average price of LNG from 2010 through 2020, a single tanker cargo could be sold on the spot market for about $30 million. Suddenly the potential number was north of $150 million. Alleyne and her colleagues, people with knowledge of the matter say, were under significant pressure from Gunvor’s billionaire chief executive officer and controlling shareholder, Torbjörn Törnqvist, to find ways to capitalize. (Gunvor denies this.)
Poor and politically isolated, Pakistan was an easy target. Gunvor traders were also conscious of an incident that had occurred in 2020, when the pandemic caused gas prices to crash globally. At the time, Pakistan had threatened to pull out of its LNG contract, since it was cheaper to pay the cancellation penalty and source gas on the spot market. Now it was the traders who had the advantage…
…Decision-makers in Pakistan’s energy industry say they’ve learned a painful lesson about international commodity markets. “As a supplier, if you have the option to sell it to Germany over Pakistan, 99 times out of a hundred you sell it to Germany,” Maniar, the Sui Southern Gas executive, says in an interview at the company’s offices in Karachi. To conserve electricity, the hallways of the building are dark. “You cannot stop people from making money.”
3. Xi Jinping repeats imperial China’s mistakes – The Economist
The rigours of imperial China’s civil-service examination system—the keju, used to select scholar-officials for over 1,300 years—are described in a new book by Yasheng Huang called “The Rise and Fall of the east: How Exams, Autocracy, Stability, and Technology Brought China Success, and Why They Might Lead to Its Decline”. Arguing that the exams stifled innovation in ancient times, Professor Huang sees lessons for Xi Jinping’s China.
The keju became more doctrinaire over time. First instituted in 587, the exams progressively shed such subjects as mathematics and astronomy. Soon, they only tested candidates’ mastery of dense Confucian texts filled with injunctions to revere fathers, officials and monarchs. The curriculum narrowed again in the 14th century, requiring candidates to memorise ultra-conservative commentaries on Confucian classics. The commentaries advocated unquestioning obedience towards rulers. A final refinement was added during the Ming dynasty: answers had to follow a rigidly scripted format, the “eight-legged essay”, described as “the greatest destroyer of human talent” by Ch’ien Mu, a historian…
…But a dataset of 11,706 Ming-era keju candidates shows that exam-takers who reached the third and final stage of the keju got there in middle age, on average. Millions sat the exams and never passed. This focus on bureaucratic glory crowded out other paths to social mobility. It was handy for autocrats, as test preparation left scholars “no time for rebellious ideas or deeds”, the book argues. The keju’s Confucian values promoted conformity of thought and disdain for commerce. Over time, the exams smothered the scientific curiosity that saw ancient China develop many technologies before the West, including the compass, gunpowder, movable-type printing and paper, known in China as the country’s “four great inventions”.
The keju was scrapped in 1905, but its legacy lives on today, in civil-service tests and in the fearsome gaokao, the college-entrance examination which rewards relentless toil. In the book’s telling, the curse of the keju spirit was broken once in China’s history, when Communist Party leaders embraced market-based reforms after the disasters of Maoism and central planning (and revived the gaokao, abandoned during the Cultural Revolution). During that reform era, lasting for 40 years after 1978, the book credits the party with successfully balancing stability, economic growth and technological progress. As in imperial times, a strong state overshadowed a weak society. But the reform-era party also praised private entrepreneurs and allowed policy experiments by regional governments. To harness the world’s dynamism, officials sought out foreign capital and international academic exchanges.
Then, in 2018, Mr Xi abolished the only term limits that constrained him as leader. His China is increasingly autocratic, statist and inward-looking. Private businesses endure more meddling by party cadres, and youth unemployment is high. In a flight to safety, almost 2.6m people applied to sit civil-service exams this year, chasing 37,100 posts. Too often, in public institutions that once boasted of being meritocratic, “merit” means fealty to one man. Officials and university students must devote ever more hours to studying Xi Jinping Thought and other dogma.
4. The Revenge Of The Ottoman Empire – Louis-Vincent Gave
In recent years, we have seen:
1. The Western world attempt to trigger a collapse in the Russian economy by blocking access to the US dollar, euro, British pound and Swiss franc. Unsurprisingly, Russia immediately shifted to selling its commodities for renminbi, Indian rupees, Brazilian real or Thai baht, and trade between Russia and the world’s major emerging markets went parabolic…
…2.The United States encourage domestic producers to repatriate production from China which is a non-democratic Communist country. Or, alternatively, to move production to countries that happen to not be non-democratic and nominally communist—for example, Vietnam.
The end result? China’s trade surplus has essentially tripled over the past few years…
…China’s trade surplus did not triple due to North American or European consumers deciding to buy three times as many plastic toys for their kids. Necessity is the mother of invention, as the saying goes, and the surge in China’s surplus is linked to it opening up new markets for its products. Back in 2017, the value of Chinese exports to Asean economies amounted to 60% of China’s exports to the US. Today, China’s exports to Southeast Asia stand at roughly 120% of China’s exports to the US.
China did this by moving up the value chain and exporting decent quality, aggressively-priced capital goods and other higher value-added products. The most visible example of this is how China came from nowhere five years ago to become the world’s largest car exporter. These cars are typically not sold in the US or Europe, but have been snapped up by drivers in Southeast Asia, the Middle East and Latin America. Just as importantly, while the cars have captured the general public’s imagination (hard not to notice Chinese cars when every shopping mall, or airport, one enters in an emerging economy now has very attractive Chinese cars on display), one can draw parallel stories for power plants, earth-moving equipment, tractors, telecom switches, turbines, and machine tools—basically, all the capital goods that are heavily in demand across India, Indonesia, Brazil and Saudi Arabia…
…How could China withstand both a frontal attack from the US (a country that controls the pipes of global financial flows to an even greater degree than the Ottoman Empire controlled the Eastern Mediterranean), and a real estate slowdown? The answer, as with Columbus and Vasco da Gama, is that necessity is the mother of all discoveries and inventions. Trade will tend to flow, either where it is the most profitable; or alternatively, if walls and barriers are put up, then trade will flow around these walls and find new destinations.
All of which brings us back to the Gavekal foundational concepts of Ricardian growth and Schumpeterian growth.
From its infancy as a firm, Gavekal has identified economic development as deriving from one of two sources:
- Ricardian growth that stems from falling trade barriers, new roads, and improvements to modes of transport and communication. Such developments pave the way for a more efficient use of existing resources, whether land, labor or capital.
- Schumpeterian growth, when new inventions trigger sharp productivity improvements…
…In fact, in recent years, global trade has continued to grind higher, thanks mostly to a sudden acceleration of trade within emerging economies…
…hardly a month goes by without the announcement of some new road, railway, canal or free trade deal linking the economies of the Istanbul-to-Jakarta axis described in the above reports (draw a line from Istanbul to Jakarta and one finds a population of roughly 3.5bn people—excluding China—that is growing by 1% a year, and with some of the highest income growth in the world).
Construction of new roads, railways and canals are appearing all across emerging economies because countries across the “Global South” can now:
- Purchase commodities in their local currencies, from Russia.
- Purchase capital goods from China, either in their local currency (if they have good relations with China), or, alternatively, in renminbi.
The combination of these two factors is a game changer for emerging economies like Indonesia, India and Brazil, which can now break free from the tyranny of the US dollar funding constraint. This explains why, for the first time in living memory, we have just seen a significant Federal Reserve monetary tightening cycle without a single emerging market going bust. On the contrary, in recent years the US dollar returns offered by most emerging market bonds have trounced those of US treasuries, along with German bunds or Japanese government bonds.
Indeed, for the first time ever, the yield on investment-grade sovereign emerging market debt is now lower in aggregate than that on US treasuries…
…If an economy contains two cities, it requires one link (say a railway line) to connect them. If an economy contains three cities, it needs three links to connect each city with the other two. If an economy contains four cities, the number of required connections rises to six.
For any number of cities, N, the number of links needed to connect each city to the others, is stated by the formula N*(N-1)/2. As more cities/countries join the system, the number of links therefore rises at an accelerating rate. For example, from the early 2000s, global economic activity was massively boosted, not just by connecting China to the rest of the world, but also by connecting Chinese cities to each other, with all the associated construction of rail, air, road, telecommunications and power links this involved.
And what occurred in China is now occurring across the broader Eurasian continent. Obviously not at the same pace (no country will ever be able to match China in mobilizing land, labor capital and natural resources towards the delivery of infrastructure) but it is happening nonetheless. Take India as an example. Over the past few years, India has opened 70 new airports and currently has plans to start the construction of another 70. And as more cities start talking directly with each other, this should mean more growth, more productivity and lower prices. Such dynamics bring me back to another staple of Gavekal analytics, namely, the acceleration phenomenon.
The concept of “acceleration” was developed by Albert Aftalion, a French economist active in the inter-war years. It is most useful in abrupt adjustments but is not easily explained mathematically, which may explain why it has not secured the following it deserves. Here goes the CliffsNotes version:
- Most socioeconomic variables are distributed according to the “normal” law, the famous Gaussian bell-shaped curve.
- This is especially true of incomes: in a “normal” country, where a large share of people have an income close to the average, a few people have very low incomes and few very high incomes. At both ends of the curve (the tails), one finds a very small population in percentage terms.
- As incomes grow over a period of a few years, the right side of the tail will grow much faster (the acceleration phenomenon) than the growth of income. This is where it gets complicated since our minds are accustomed to thinking in linear patterns, yet the number of people earning a certain amount actually grows exponentially.
This matters because when it comes to the purchase of certain goods and services, history points to the existence of key income “thresholds’’. For example, if the average income in a country is below US$1,000, nobody owns a television; when incomes move above US$1,000, almost everybody buys one. For smartphones, the level seems to be around US$2,500. For the automobile industry, the critical level seems to be US$10,000 a year. For university education, the level is US$15,000 and above. For financial products like life insurance, brokerage accounts and mutual funds, the level seems to be US$30,000…
…Now let us further imagine a few things, namely that:
- Just as incomes grow, the prices of goods delivered to consumers—whether cars, or smartphones, or personal computers—actually go down
- As incomes grow, interest rates charged to consumers actually go down (“on ne prête qu’aux riches” and all that)
Then all of a sudden, one could face a double-, or triple-charged acceleration phenomenon.
Unsurprisingly, as cars replaced bicycles on the streets of Beijing, Shanghai and Chengdu, China’s energy demand also accelerated, as shown in the chart below. Could similar events now unfold across Southeast Asia, India and the broader Middle East? Given the growth in incomes, the fact that China is now offering high-quality sub-US$10,000 cars, and the funding for such purchases, is this not the path of least resistance?
The fall of Constantinople did not trigger “the end of globalization”. Instead, it unleashed a sharp move higher in global trade. Could the same thing happen as a result of the sanctions against Russia and the US’s attempts to take China out of global supply chains? Actually, this is precisely what seems to be unfolding. Both of these events mean that the likes of Indonesia, Brazil, Saudi Arabia and India can now use their own currencies to pay for the commodities they need to power their growth and the machine tools they need to industrialize. At the very least, they no longer need US dollars. Last year, for the first time, China made more loans to EM economies in renminbi than in US dollars.
And this is before the recent announcement of Saudi Arabia signing a RMB50bn swap line equivalent with the People’s Bank of China and the possible sale by China of nuclear power plants to the kingdom.
Today, the notion that the world is deglobalizing would seem laughable to anyone living in Dubai, Singapore, São Paulo or Mumbai. Rather, the world is going through a new wave of globalization, which is different from its predecessors.
5. Car wars – Noah Smith
Over the past two years, China has gone from an also-ran in the auto industry to the world’s biggest car exporter. EVs are a huge chunk of those exports, and most of China’s EV sales go to Europe.
Some forecasts say that by 2025, about 15% of EVs bought in Europe will be made in China — some by Western automakers like Tesla and Volkswagen, some by Chinese companies like BYD.
It’s very easy to understand why this is happening. China massively subsidizes the production of electric vehicles, and Europe massively subsidizes the consumption of electric vehicles. When that happens, any Econ 101 model can easily predict the outcome — China will produce a lot of EVs that are sold in Europe…
…But China’s EV export surge is more recent, so let’s go over some of the reasons it’s happening.
First, here’s a good Bloomberg article about the EV subsidy regime in China. China pays manufacturers a subsidy worth more than $1400 per EV they produce, provides EV companies with cheap land and financing, and heavily subsidizes R&D in the sector. Both China and Europe pay people to buy EVs, and their governments buy EVs directly. But China subsidizes local production a lot more than Europe.
That’s one reason for China’s export dominance, but not the only one. Another is that China controls nearly the entire supply chain for EV batteries, except for the initial mining.
An electric vehicle is a much simpler machine than an internal combustion car — it’s basically just a battery with wheels. The battery in an EV represents about 40% of the car’s purchase price. Making EVs in large numbers is a lot easier when the supplier is right nextdoor; batteries are 33% more expensive in Europe than in China.
Batteries are also about a quarter of an EV’s weight. The fact that they’re all made in China cuts down on the amount of shipping cost you can save by locating car factories close to consumers.
Yet another reason is macroeconomic. As everyone knows, China is in the middle of a big economic slowdown, which has cut local demand for new EVs despite all the consumption subsidies. Europe’s economy is in the dumps as well, but China basically planned to produce enough EVs for a much faster-growing Chinese economy than the one they ended up with. So Chinese EV producers are stuck with massive inventory that they can’t sell domestically. So they’re slashing prices and dumping the inventory on Europe.
And finally, let’s not discount the ingenuity and innovation of Chinese auto and battery engineers and entrepreneurs. The industry shift toward EVs gave upstart carmakers a once-in-a-century opportunity to do an end run around the entrenched dominance of the old-line companies that knew internal combustion engineering backwards and forwards. European startups could have challenged Volkswagen and Renault and Mercedes-Benz. They did not. Instead it was Chinese companies like BYD and SAIC, along with one American company, Tesla, who seized the day…
…Losing the car industry could thus push Europe further along the path to deindustrialization. Cheap Chinese EVs are a boon to European consumers, and they help speed the green transition and reduce carbon emissions. But the competition also threatens to put a bunch of European workers out of a job — 7% of the region’s workforce work in the automotive sector. Traditionally, Europe has been much more concerned than the U.S. about protecting its industries from foreign competition; the EV spat with China will be a test of whether this is still the case, or whether Europe has embraced more of a “neoliberal” approach to trade.
But there could also be a national security angle here too…
…A domestic auto industry gives Europe much more ability to repurpose production lines and ramp up defense production when needed. If the auto industry flees to China, Europe will be that much more vulnerable to Russia. In fact, this is one reason the auto industry is so globally distributed today; during and after World War 2, lots of countries decided they needed car industries in order to maintain strong militaries.
So if Europe does decide to protect its car industry, what might it do?…
…tariffs don’t do much to help European carmakers become more competitive in the export markets they used to dominate. The fact is that Chinese-made EVs are mostly just better than European-made ones right now, and tariffs aren’t going to change that.
In order to address these issues, Europe would need more than tariffs. It would need an equivalent of the U.S.’ Inflation Reduction Act — a major program of production subsidies, not just for EVs themselves but for the batteries and the mineral processing facilities necessary to make them. Europe would also need to simplify and slash some of the overgrowth of regulation that it has piled up around the auto industry over the last few years. And it would need to subsidize R&D in the EV sector more heavily.
And another important step would be something Europe has shied away from doing in recent times: encouraging startups. It’s no coincidence that Tesla, a startup automaker, was able to run rings around the stodgy old giants of GM and Ford, with their deep reliance on legacy markets and legacy technology. Europe has no Tesla; if it really wants to compete with China, it needs at least one.
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