Asia Tea Time - Cup 27 ☕

September 15, 2023 • Estimated Reading Time: 8 minutes

This week, I cover news on Europe and Chinese EVs, Alibaba Group, and Byju (an Indian edtech firm).

Macro in Asia

Europe goes to battle with China over EVs

Europe decided to open an investigation into state subsidies from Beijing for its own electric vehicle (EV) carmakers.

The EU claims that China is trying to flood the European market with cheap vehicles. 

Why it’s happening

  • The EU is a big fan of regulating or outlawing “unfair practices” when it comes to trade or consumer rights. 

  • Just look at Apple and how the EU forced it to drop the lightning charger and adopt USB-C charging (to comply with a universally-accepted standard) for all its iPhones from now on. 

  • In China’s case, this EU investigation into state subsidies of Chinese EVs is usually the first step that comes before, ultimately, some mad tariffs get imposed. 

Why it matters

  • Europe is trying to “de-risk” its supply chains and trade with China so the threat of tariffs isn’t going to help with making that a smooth transition.

  • Chinese EV companies are trying to break into Europe – as well as Southeast Asia – in order to build up some serious export markets. Remember, the US isn’t exactly welcoming of Chinese brands right now.

  • But German carmakers also export large amounts to China so their stock prices took a hit, on fears China is going to retaliate by targeting German automakers.

What’s next?

  • These things usually take time to play out but watch the share prices of key Chinese EV players, like BYD and NIO. 

Tim’s Take 

  • China’s automakers have quietly become export giants. In the first six months of 2023, the country actually overtook Japan as the world’s largest exporter of cars. Many of these are EVs.

  • Europe is part of that expansion plan but actually, Chinese brands in Europe only have a 6% market share of the EV segment. However, that has almost tripled over the past two years. 

  • The justification from the EU for these potential tariffs is that they’re protecting their auto industries from unfair subsidies doled out by Beijing. However, there’s also the view that Europe is trying to give their carmakers an edge in a race in which they’re far behind

💡

The likes of Tesla (from the US), BYD, and NIO are all big EV players with scale, miles ahead of the European competition on innovation, quality and pricing. 

Investors shouldn’t get too up in arms either. Immediate impacts on the businesses of Chinese EV makers should be limited given 80% of their production is for the massive domestic market.

Company spotlights

Former Alibaba CEO leaves its cloud division

Former CEO of Alibaba Group (NYSE: BABA) (SEHK: 9988), Daniel Zhang, stepped down from his role as head of the company’s cloud computing division.

It was an unexpected move and comes amid a planned breakup of Alibaba into six separate units. 

Why’s it news?

  • Zhang was widely expected to continue heading up its fast-growing Alibaba Cloud division after the firm announced its plan to break up in March of this year.  

  • Alibaba founder Jack Ma disappeared into the wilderness after a speech in October 2020 in which he blasted Chinese banking regulators.

  • Zhang had been CEO of Alibaba since 2015 but handed over the reins to Jack Ma’s right-hand man and confidant Eddie Yongming Wu.

Why it matters?

  • Alibaba plans to spin off into various business units but this unexpected leadership change could throw a spanner in the works of listing its cloud unit.

  • Many suspect that the appointment of Eddie Wu as CEO was seen as a power play by Jack Ma to reimpose a level of control over his “baby”. 

What’s next?

  • Alibaba is looking to refocus on its core e-commerce business by shedding assets. Investors should watch for progress on that front as well as whether Chinese regulators allow its tech giants the space (and freedom) to innovate.

Tim’s Take 

  • So “Jack is Back” at Alibaba it seems. The appointment of co-founder Joseph Tsai (as Chair) and Eddie Wu (as CEO) means that Alibaba’s charismatic founder has some trusted lieutenants running things now.

💡

The general consensus was that Alibaba had lost its way from a strategic perspective and this looks to be an attempt to refocus minds. 

Earlier this week new CEO Eddie Wu laid out the company’s priorities for the year; surprise, surprise, it includes AI but also improving the user experience.

  • The company has a lot of work to do with competition fierce in the e-commerce space, as rivals Pinduoduo, Meituan Dianping, and ByteDance have take substantial market share. 

Tim's money tip of the week

I’ve said it before but I’ll say it again – You should never, ever be paying annual fees on credit cards.

Banks will whack on that annual fee in the hope that you don’t say anything and just pay it. However, if you just call them up or go to your online banking account, you can have it waived.

On the banks’ phone banking hotlines, there are even automated options that allow you to submit an “Annual fee waiver”!

Once you do, they’re usually granted. So, whether you’re using a miles card of cashback card, remember that you’re doing the bank a favour by using their credit card.

Every time you transact with that card, both the bank and either Visa/MasterCard/Amex are getting a cut of the transaction from the merchant.

The only exception to that rule would be higher-tier credit cards, which come with a lot of added perks. Usually, their annual fees are non-negotiable. Whether these cards’ perks are actually worth that fee is a whole other discussion for another time. 

So, the next time you get hit with an annual fee, just take two minutes to either call up your bank or go to your online banking. It can end up saving you a few hundred dollars.

Story of the week

It was revealed by Bloomberg earlier this week that Byju’s – a high-flying India edtech firm that attracted funding from the likes of BlackRock – allegedly hid over US$500 million in a hedge fund.

The catch was that the hedge fund said its principal place of business was an IHOP pancake restaurant in Miami. 

Byju’s had defaulted on a US$1.2 billion loan earlier this year and its creditors are chasing it for repayment. In the world of high-flying startups, there’s always a certain level of risk for lenders.