The future of electric cars ⚡

- EVs will make up about half of new car sales globally by 2035, according to Goldman Sachs Research. Enjoy some of the top intelligence from Goldman Sachs. --------------------------------------------------------------- In today's edition: - What could [China's reopening after Covid-19 restrictions]( mean for global economic growth? - Electric vehicles will make up about half of new car sales globally by 2035, [according to Goldman Sachs Research.]( - And find out why our economists [lowered their forecasts on the likelihood of a U.S. recession.]( (Was this newsletter forwarded to you? [Sign up now.]( --------------------------------------------------------------- China's reopening is poised to boost global growth Due to the [faster-than-expected pace of China's reopening after Covid-19 restrictions]( our economists now forecast China's GDP to grow by 6.5% in 2023 on a Q4/Q4 basis. On top of that, the reopening — and the recovery of Chinese domestic demand — could raise global GDP by 1% by the end of 2023, Goldman Sachs Research's Joseph Briggs and Devesh Kodnani [write in a new report.]( They expect China's reopening to impact global growth through three direct channels: - Increased domestic demand: Reopening is expected to lift core goods exports among China's trade partners. Our economists estimate that reopening should increase domestic demand by up to 5% in China. This is welcome news for China's regional neighbors, as Asia-Pacific economies export more goods to China than many Western economies do. - International travel: China's exit from its zero-Covid policy should also boost global growth by driving demand for international travel. Prior to the pandemic, China was a net importer of travel services from most economies. And while this took a hit during tight Covid restrictions, a normalization in travel patterns — which Briggs and Kodnani expect to occur mostly in the second half of 2023 — should increase China's travel trade deficit and boost foreign GDP. - Commodity demand: China's reopening will likely boost commodity demand and prices, particularly for oil. Our commodities strategists estimate that Chinese oil demand could recover by at least 1 million barrels per day, boosting Brent oil prices by $15-21 per barrel. For most economies, higher oil prices will weigh on economic growth. However, net oil exporters such as Canada and some Latin American economies could benefit from higher prices and demand. Given the expected rise in oil prices, China's reopening is also likely to increase global inflation, Briggs and Kodnani say. They think China's reopening could account for a 0.5 percentage-point boost to headline inflation for many economies. [Read the full article.]( --------------------------------------------------------------- Electric vehicles are forecast to be half of global car sales by 2035 The adoption of electric vehicles is rising sharply as the global push for net-zero carbon emissions accelerates. [EVs will make up about half of new car sales worldwide by 2035, according to Goldman Sachs Research.]( While the EV sector is beset by some major crosscurrents — rising prices for electrical power, inflation for the materials that make up battery components and government policies like the Inflation Reduction Act in the U.S. and Europe's response to the IRA — our strategists expect technology innovation to supersede these forces in the coming years. EV sales will soar to about 73 million units in 2040, up from around two million in 2020, according to forecasts by Goldman Sachs Research. The percentage of EVs in worldwide car sales, meanwhile, is expected to rise to 61% from 2% during that span. The share of EV sales is anticipated to be well over 80% in many developed countries. “We expect the automobile industry to undergo a major transformation between 2020 and 2030, driven by the increasing adoption of vehicle electrification and autonomous driving,” Goldman Sachs equity research strategist Kota Yuzawa write in the team's report. Government policy is poised to change supply chains. While the battery supply chain for four key components is focused in China, the U.S.'s [Inflation Reduction Act]( to promote domestic assembly of EVs as well as battery assembly and material production, according to Goldman Sachs Research. Under this framework, companies will not be able to use the battery supply chain that has been built up in China to export to the U.S. Even with these tailwinds, the EV sector has some challenges in the near term. EV prices are declining, which could depress margins for the industry. And the scramble for energy transformation has sparked “greenflation,” as demand for batteries pushes up prices for key materials involved in making them, according to strategists in Goldman Sachs Research. For now, EVs have a smaller advantage when it comes to energy prices. Crude oil prices have settled at around $80 per barrel recently, while electricity costs are on an uptrend. Goldman Sachs Research says tech innovation is going to be critical for the industry. Our strategists expect the EV battery market to grow substantially this decade, driven in part by the development of new materials and the introduction of new battery designs. They also think powertrain units and thermal management will become more efficient, reducing power consumption, while engineers find ways to reduce the weight of electric cars. “Technological innovations will be essential to overcome this sort of near-term noise,” they write. --------------------------------------------------------------- Could a better growth outlook reignite inflation concerns? Recession was the big fear heading into 2023, but the global growth outlook seems to be — if anything — improving. [Could this better outlook reignite inflation concerns]( While Jan Hatzius, Goldman Sachs' chief economist and head of Goldman Sachs Research, maintains the U.S. will avoid a recession, he doesn't see a resurgence in inflation. That's because many drivers of disinflation don't require large-scale economic weakness, he says. “I've called them ‘freebies'…such as a big decline in commodity price inflation, healing of supply chains and the impact of that on durable goods,” Hatzius tells host Allison Nathan [on the latest episode of Exchanges at Goldman Sachs]( which explores the topic from the recent Top of Mind report, [The Bigger Worry: Growth or Inflation?]( But inflation is still likely to remain a medium- to long-term concern, says John Cochrane, senior fellow at the Hoover Institution at Stanford University. “Clearly we have unreformed spending in the U.S.,” he says. “If interest costs on the debt rise a lot and if we haven't really solved the long-run entitlements, the long-run spending problem, then we could have very sudden inflation.” Going forward, the U.S. may have to get used to a period of higher inflation, says David Rubenstein, co-founder and co-chairman of The Carlyle Group, who served in the Carter Administration at a time of double-digit inflation. “Today, I would say, people are probably willing to accept 3%...given where we've been recently. And I suspect 3% will probably be the norm for some time,” he says. “Trying to get to 2% and getting there quickly, you're going to almost certainly get a very high unemployment rate.” --------------------------------------------------------------- Forecast change: A recession in the US is even less likely than before There's a 25% probability the U.S. will go into a recession in the next 12 months, [according to estimates by Goldman Sachs Research.]( That's down from our economists' earlier forecast of 35% and less than half the consensus estimate of 65% in the latest Wall Street Journal survey. The risk of a near-term slump has gone down as the labor market shows continued strength and because there are early signs of improvement in the business surveys, Goldman Sachs chief economist Jan Hatzius [wrote in the team's report](. While GDP growth in the first quarter of 2023 looks soft, expansion is expected to pick up in the spring as disposable incomes increase, the drag from tighter financial conditions abates and faster growth in China and Europe supports the U.S. manufacturing sector. The main risk to the U.S. economy is that the rebalancing of the tight labor market is still incomplete, according to Goldman Sachs Research. That said, the latest Job Openings and Labor Turnover Survey, which showed a jump in open positions, is far out of line with timelier indicators that our economists track. The slowdown in wage growth suggests the labor market is rebalancing: wage growth has fallen nearly two-thirds from the 5.5% peak seen in early 2022 to the 3.5% pace that Goldman Sachs Research estimates is compatible with the Fed's 2% inflation target. Price inflation has also declined rapidly in recent months. --------------------------------------------------------------- Survey: Black small business owners are optimistic about their hiring and profits outlook Black-owned small businesses are feeling optimistic in 2023, despite a challenging economic environment and continued systemic barriers to capital and financing, [according to a survey from Goldman Sachs 10,000 Small Businesses Voices.]( 81% of Black business owners are optimistic about the financial trajectory of their business and plan to create new jobs and increase profits in 2023, compared to 68% of all small business owners who are optimistic about their businesses. But there are workforce challenges. While more Black small business owners are hiring full- or part-time employees, they're also more likely to have employees who work multiple jobs. Finally, 37% of Black small business owners have found it difficult to access new capital and financing, compared with 23% for the small business community overall. The survey, which was conducted by Babson College and David Binder Research from January 23-26, 2023, polled 1,838 Goldman Sachs 10,000 Small Businesses participants, including 325 Black small business owners. --------------------------------------------------------------- Briefings brainteaser: The race to go electric Which region is forecast by Goldman Sachs Research to have the most electric car sales next year? A) EU B) China C) U.S. D) Japan [Check your answer here.]( --------------------------------------------------------------- ICYMI: In the media [Forbes]( February 7 [Goldman Sachs named on Forbes' Blockchain 50]( [CBS News]( 6 [Washington is not meeting the needs of small businesses, new survey finds]( --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. 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