Weekly Reads - October 30, 2023
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Investor resistance toward mining projects due to ESG concerns is slowing down the global energy transition by creating a shortage of critical metals needed to support existing and new green technologies.
Investor’s hatred toward the mining sector might have severe future repercussions on the green energy transmission if capital is not allocated to key mining projects soon. Last year the mining sector set record profits as the demand for metals such as copper, iron ore, and nickel rose due to the growing adoption of green technology such as EVs. The market has not cared, assigning public companies an 8.5x forward price-to-earnings ratio versus 18.5x for the S&P. Mining companies have publicly stated that the cost of capital for them to develop new projects is too high with many investors ignoring the sector completely due to a negative reputation of being anti-ESG and previous investing cycles that delivered subpar returns during peak commodity prices. Things are different today with strong demand tailwinds coming from the transition away from fossil fuels, yet the sector continues to be overlooked with capital being allocated to renewable energy projects instead. What investors misunderstand is that renewable energy projects are tied to the fate of the mining sector with metals like lithium, nickel, and copper that are necessary to support big renewable capex projects. If the mining sector is starved from capital, there is a high probability that many of the green technology targets currently in place will be delayed due to metal shortages.
With the UAW strike over the Detroit three are now saddled with increased labor costs that are making these companies less price competitive at the wrong time when their EV businesses are struggling to gain a foothold.
The UAW strike is over and the bad news for carmakers is the union scored a devise victory. The tentative deal will increase the average salary of unionized workers into the mid-$80,000 annually with a return of cost-of-living adjustments (inflationary protection) that will increase wages further. Ford has already reported that the UAW contract could add $850 to $900 per vehicle in added costs. The UAW also secured other major wins such as the right to strike over plant closures, higher pay for temporary employees, and a shorter 3-year period in which takes a production worker to reach the maximum wage. This deal cannot be considered anything but a failure for the big three which are in the midst of intense competition in both ICE and EV against non-unionized automakers like Tesla, Toyota, and Volkswagen. This increased cost is likely to hurt most in the EV side of the business which suffers from the lack of scale and is struggling to compete on price with more scaled EV manufacturers. Recent quarterly results have painted a bleak picture with Ford and GM pulling back on their EV investment plans. On the macro front things are getting increasingly cloudy with higher interest rates and the threat of a recession looming over consumer demand. In the tough competitive auto manufacturing industry being saddled with extra costs makes it likely that Ford and GM will be on the backfoot going forward when it comes to defending their market share from lower-cost domestic and foreign automakers.
The “fastest” fast fashion brand Shein is dipping its toe in Western fashion acquiring Missguided as the company looks to expand its product offering to better appeal to existing and prospective customers.
The king of fast fashion brands, Shein, is expanding its product range by acquiring one of their struggling competitors, in recent. Missguided is a Manchester, U.K. fast fashion brand that has struggled in recent years needing a bailout from Apollo Global Management in 2021 and recently being bought by British retail group Fraser out of administration for just $20 million. Missguided has encountered criticism from environmentalists for encouraging a culture of overconsumption notoriously selling $1 bikinis as a marketing stunt to drive new users to the brand. Shein, who also has been widely criticized for promoting overconsumption, now owns the Missguided brand looking to combine the popularity of Missguided products with the strength of their supply chain. Shein is known for their on-demand manufacturing approach and supplier software that matches capacity with real-time demand allowing the company to swiftly respond to trends to keep inventory costs down. These savings are passed down to the consumer leading to extremely cheap apparel that attracts a growing demographic of consumers who are conscious of fashion trends but also price-sensitive. The acquisition of Missguided could be the start of a shift in power from Western brands that have historically dominated the fashion industry to Chinese brands like Shein that have mastered the fast fashion supply chain. Missguided is the second foray into Western brands for Shein with the company acquiring a minority stake in Forever 21 two months ago. Despite the criticism around Shein, the company has become a seemingly unstoppable fast fashion juggernaut that will continue to gobble up market share.