Three Things (10/18)

GM invests big in lithium

Battery boom … General Motors (GM) is making moves in the electric vehicle space, announcing a $625 million investment into a joint venture with Lithium Americas Corp. (LAC). The partnership focuses on developing the Thacker Pass lithium mine in Nevada, a project critical for securing raw materials essential for EV battery production. GM’s investment underscores its commitment to strengthening domestic supply chains and insulating itself from potential geopolitical risks.

This investment grants GM a 38% stake in the mine, ensuring a stable source of lithium, which is vital not only for vehicles but also for other rechargeable electronics. By securing this domestic supply, GM aims to meet tightening federal incentives that push for U.S.-sourced materials, which is crucial for cost management and long-term profitability. U.S. government programs, like those in the Inflation Reduction Act, offer tax credits and subsidies for electric vehicles if their battery components and raw materials, such as lithium, are sourced from the U.S. or allied countries, rather than from nations like China.

Lithium demand is skyrocketing as more industries transition to electric power. Currently, the U.S. relies heavily on imported lithium, with only one active mine in operation. Global supply chain issues, exacerbated by reliance on China for refined lithium, present significant challenges. Additionally, mining operations like Thacker Pass face environmental concerns and pushback from local communities, highlighting the complexity of the growing EV market.

As GM works to grow its EV output and cut production costs, the Thacker Pass investment marks a strategic step toward bolstering the EV supply chain and addressing lithium’s role in the global energy shift.

America’s productivity edge persists

Still got it … America remains the world’s productivity leader, driven by innovation and substantial investment in research and development, according to a special report from The Economist. In 2024, the average American worker generated $171,000 in economic output—far surpassing workers in the euro area ($120,000) and Japan ($96,000). U.S. labor productivity has surged 70% since 1990, largely thanks to R&D investments, which make up 3.5% of GDP, second only to Israel and South Korea.

R&D is not the only factor. Immigration has also played a role in boosting U.S. productivity. When immigrants join the labor force, they expand the economy’s productive capacity, increasing GDP.

This phenomenon, known as the “immigration surplus,” contributes between $36 and $72 billion annually, according to the George W. Bush Center. The data indicates that immigrants also fill labor gaps, especially in industries facing shortages, helping to sustain growth. Economists note that their mobility helps distribute labor efficiently across sectors, further driving economic expansion. According to Pew Research, the United States has more immigrants than any other country and the U.S. is home to 20% of the world’s international migrants.

Meanwhile, AI is poised to fuel the next wave of productivity gains, although its full impact is yet to be seen. While AI adoption is spreading across industries, from retail to agriculture, some economists remain cautious, suggesting it may take years before AI shows up in productivity data. Others, however, predict significant near-term boosts in U.S. output as businesses continue to integrate AI into operations. In the U.S., it’s estimated that 50% of U.S. companies with over 5,000 employees are using AI to boost efficiency (Source: Census Bureau).

LVMH faces sales slump in China

Wealth woes … LVMH, the world’s largest luxury goods group, reported disappointing financial results for Q3 2024, triggering concerns across the luxury sector. Sales in its flagship fashion and leather goods division, which includes brands like Louis Vuitton and Dior, dropped 5%, missing analyst expectations per WSJ. LVMH’s overall revenue for the quarter fell 3% to €19.08 billion, well below the forecasted €19.94 billion, largely due to reduced demand in China and Japan.

Despite the weak earnings, investors were not overly rattled, with LVMH’s stock declining only modestly. However, this slump reflects a broader downturn in global luxury markets, driven by economic uncertainty in China, a key growth region. As a result, Bernard Arnault, LVMH’s chairman and previously the world’s wealthiest person, has seen his personal fortune drop by around $26 billion, pushing him down to fifth place in global wealth rankings.

Perhaps as a distraction, the Arnault family has turned its attention to sports, entering into negotiations to buy a majority stake in Paris FC, a second-tier French soccer club. Teaming up with Red Bull, the Arnault's aim to elevate Paris FC to rival the city’s more famous club, PSG, with ambitious plans for growth.

One more thing: China has injected $561 billion into its struggling property sector, but some economists view the measures as insufficient to stabilize the market. Despite some financial relief, property shares fell sharply as concerns remain over the sector’s impact on the broader economy.

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