The economics of the combustion engine prevail

May 25, 2024 Leave a comment

My note dated, November 17, 2020 was titled; “A bet that the Internal Combustion Engine still has 30 years of life“

Investment Thesis: Long Platinum

An extract from my late 2020 note included,

“It’s unlikely that automobile manufacturers will walk away from the capital expenditure spent on engine development and assembly, while synthetic fuels are making ICE’s even more cleaner.

Commensurate to introducing electric vehicles into their stable, auto companies have also made statements that they still expect the ICE to be part of their business for the next 30 years.

The note also observed Palladium’s premium above the price of Platinum (implying that the gap is narrowed as Palladium declines and Platinum rises) along with my expectation of mean reversion/convergence in the Gold price.

Gold did mean revert, Platinum rose and Palladium’s premium collapsed.

Since that note was published, both Platinum and Gold have risen 11%.

And Palladium is now cheaper than Platinum.

Now, Mercedes Benz has said it will continue to make combustion-engine and hybrid vehicles “well into the 2030s,” if demand is there.

https://www.bloomberg.com/news/articles/2024-05-08/mercedes-retreats-to-gas-guzzlers-as-evs-fail-to-boost-profit?utm_source=website&utm_medium=share&utm_campaign=copy

The article continued to say, “And with China not phasing out sales of new combustion-engines until 2060,”

May 25, 2024

by Rob Zdravevski

rob@karriasset.com.au

Filed under Finance & Investment Tagged with , , , , , , , , , , ,

Auto Loans inversely correlated with interest rates

November 22, 2022 Leave a comment

I think that interest rates moderate in the coming months back to a ‘normalised’ level from which to work from, into the next cycle.

To position for this thesis, I could buy bonds, a bond ETF, treasury futures……

I’m thinking of expressing this (investment) view by looking at companies who provide automobile loans.

Perhaps those who are focused on sub or near prime credit risks?

Auto loans become more expensive as rates rise. Cars (new and used) are more expensive. Vehicle ownership is still desired.

But getting exposure to this idea through bank and credit unions is lost amongst their other business lines.

I’ll dig through a company such as Open Lending (LPRO.US). They help lenders in assessing risk to car loan applicants.

My interest was piqued when I overlaid the price chart of LPRO against the U.S. 2 year bond yield. High interest rates is bad for Open Lending’s business. What if the opposite occurred?

November 22, 2022

by Rob Zdravevski

rob@karriasset.com.au

Filed under Finance & Investment Tagged with , , ,