May 5, 2024
Interesting stories in supply chains for the week…
1: Manufacturing in Mexico is booming thanks to the US and China
Summary: Mexico is becoming an alternative for US and Chinese suppliers as companies try to become more resilient and “decouple” from China.
Analysis: Don’t believe the hype, there is no decoupling from China. Some companies are putting more investment in other regions besides China to better meet customer needs, deal with geopolitics, and look for more subsidies for their business. China will have a dominant position in most supply chains for at least another 10-20 years.
2: China helps to fund the purchase of local GPUs
Summary: The Beijing government is subsidizing companies to buy made-in-China chips.
Analysis: China is pushing for local options for foreign technology that can be used against China, or be cut off. Expect this trend to accelerate as US-China tensions continue to grow.
3: China firms go "underground" when dealing with Russian payments
Summary: Trade between China and Russia has grown since 2022, but due to sanctions, normal banking transactions and payments cannot be made. To get around this, companies are using different ways to receive payments outside of the banking system.
Analysis: Sending and receiving payments outside of sanctions had a small impact on the overall global financial system. But now, with so many sanctions being placed, some countries and businesses are actively looking for ways to get around this for business to continue.
4: Musk goes to China and India takes offense
Summary: Elon Musk skipped a meeting in India, and a week later was in China receiving the red carpet treatment.
Analysis: It’s never good to upset a current, or potential, government partner. China is the largest and most competitive auto market in the world. When he went to China, he received a big regulatory approval on data. India is just starting in EVs and has a long way to go. I’m surprised Tesla didn’t send a number 2, or another high-profile person to India in Musk’s stead. This will become a larger problem for Tesla if there is not someone who can do Elon-type things, as he cannot be everywhere and to everyone.
5: Nuclear plant revival shows a shift in the US
Summary: The US is subsidizing one nuclear plant, and is considering turning others back on.
Analysis: Power and electricity is at a premium in the US due to growth in consumer and business demand. Turning back on and/or restoring old nuclear plants could help ease some of the pressure. The challenges are always NIMBYism, regulatory, and costs. Then the final decisions on where to put the spent fuel. But given the current electrical challenges in the US, many are reconsidering nuclear and how to make it work.