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Biden wants to build a national EV charging system under $2 trillion infrastructure plan, but it won’t be easy

An estimated $300 billion is needed to build out a global charging network to meet the expected growth of EVs by 2030, including $50 billion in the U.S. alone

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President Joe Biden speaks as he meets with Senators from both parties in the White House on Feb. 11, 2021.

Doug Mills-Pool/Getty Images

President Joe Biden is prioritizing a national EV charging network under his $2 trillion dollar infrastructure bill, promising to have at least 500,000 of the devices installed across the U.S. by 2030.

The Biden administration is rolling out Wednesday a $174 billion plan to spur the development and adoption of EVs that includes money to retool factories and boost domestic supply of materials, tax incentives for EV buyers and grant and incentive programs for charging infrastructure.

But it’s going to take more than government support to successfully expand EV infrastructure. There aren’t enough EV drivers to make it a viable business yet, and building a network of chargers is far more complex than it sounds. It takes a mix of private-public partnerships that can involve local municipalities, businesses and utility companies as well as automakers and an emerging group of EV charging companies. It’s not as simple as having a gas station at every corner.

“As electric vehicles become more primary vehicles for people, certainly it’s not like we’re going to replace the gas station with the charging station and that’s it,” said Mark Wakefield, a managing director and global co-leader of the automotive and industrial practice at AlixPartners.

$300 billion

AlixPartners estimates $300 billion will be needed to build out a global charging network to accommodate the expected growth of EVs by 2030, including $50 billion in the U.S. alone. Costs for EV chargers vary based on the “level” of charger. The higher the level, the quicker the charge and the more expensive it is to install.

Charge Point EV stations

Source: Charge Point

“It is a big pill to swallow for anybody,” Wakefield said. “These are really, really expensive, especially these fast chargers” that some automakers are promising will take as little as 10 minutes to charge upcoming EVs about 80%. That compares to lower level chargers, including home outlets, that take several hours. Level three chargers cost $120,00 to $260,000 installed on average, according to AlixPartners. “These are not cheap.”

But demand for the networks isn’t quite there yet. Plug-in vehicles, which include EVs and hybrid electric vehicles with traditional engines, only accounted for about 2% of the more than 17 million new vehicles sold domestically in 2019, according to the Energy Department. But many believe now is the beginning of the end of gasoline vehicles.

“It’s no longer a matter of if, and it’s no longer a matter of when, it’s now the question is how fast? Because we know that the automakers have clipped the money in the retooling,” said Jonathan Levy, chief commercial officer of EV charging company EVgo.

While automakers like General Motors and Volkswagen are heavily investing in improving performance and lowering prices of EVs to catch up to Tesla, they’re far less interested in building, owning and operating their own charging networks. The profit margins and amount of effort involved to maintain them just doesn’t make sense. Tesla, an early leader in the industry, built its own charging network out of necessity and, in part, to help sell its cars.

Mainstream adoption

Most automakers are partnering with third-party companies to provide charging stations. Their strategy, combined with enthusiasm from Wall Street about EVs, has driven investor demand for charging companies such as ChargePoint and EVgo. Chargepoint went public through reverse mergers with a special purpose acquisition company, or SPAC, in March. EVGo plans to do the same in the second quarter.

There are about 41,400 EV charging stations in the U.S., according to the Department of Energy. Less than 5,000 are fast chargers. That compares with more than 136,400 gas stations, according to GasBuddy.

“The answer is not one size fits all,” ChargePoint CEO Pasquale Romano told CNBC. “You’re going to need an entire universe of charging infrastructure that is easy to use and accessible for the different scenarios to kind of play out.”

Charging suppliers and operators have largely focused infrastructure at destination points in urban and suburban areas such as grocery stores and other places where people regularly shop. Businesses consider it a draw for EV owners. There’s also a growing call for additional fast chargers between major cities to enable faster and longer trips for EVs. Tesla has been building out such a network for its owners for nearly a decade.

‘Peanut butter and jelly’

GM has committed to releasing 30 or more EVs through 2025 under a $27 billion investment in electric and autonomous vehicles. It also is one of many companies as well as Volkswagen and Volvo to announce plans to become an all-EV company.

“We’re moving into this year at a tipping point for EVs and really an inflection point on sustainability, inclusion, and growth,” GM CEO Mary Barra said Thursday during a JPMorgan Securities conference.

Public chargers are needed to power those vehicles, but companies such as EVgo need the demand for charging to be there to justify their business. Many have described it as a “chicken and egg” scenario regarding which is needed first. Levy, who served as deputy chief of staff at the Department of Energy under the Obama administration, characterizes it as “peanut butter and jelly” instead.

“It’s not ‘chicken and egg’ because we’re not starting from scratch,” he said. “We have charging, we have EVs. It’s not what comes first. It’s peanut butter and jelly, in that we need to build these things out in a complimentary way.”

About 30% of Americans don’t have access to home or workplace charging that are going to need a way to charge future EVs, according to Levy.

As for 2020, IHS Markit reports EVs were only 1.8% of new light-duty vehicle registrations in the U.S. AlixPartners expects there to be 18 million EVs on U.S. roadways by the end of 2030.

Business models

EVgo, which plans to go public in the second quarter through a $2.6 billion SPAC deal, owns and operates more than 800 charging locations in 67 major markets across 34 states. The company’s business model is different than ChargePoint, which sells stations to businesses and other establishments and then charges them subscription fees to be a part of their network.

“We’re essentially crowdfunding for the driver one business at a time, the largest network of EV chargers in the area for them and they see it all as one network through our mobile application,” ChargePoint’s Romano said. “It all says ChargePoint we don’t own any of it. It’s just all looks like we own it to the driver and that’s what we want is to create a model where each business does their part.”

A Tesla Inc. vehicle charges at a charging station in San Mateo, California, U.S., on Tuesday, Sept. 22, 2020.

David Paul Morris | Bloomberg | Getty Images

ChargePoint is Cowen’s “top pick” for the recharging market, which the investment firm believes will be a total addressable market of about $27 billion by 2040. The company went public March 1 through a SPAC deal with Switchback Energy Acquisition Corp.

While largely new to public investors, Cowen believes ” the sector is poised for tremendous growth and value creation, underpinned by a large, strong unit economics, and recurring revenue,” according to a report on EV charging earlier this month.

But that growth needs to come with EV sales as well as incentives and investments from several sources, including the federal government, according to officials.

“Right now you absolutely need government funding at some level,” Wakefield said. “The reality of it is that the automakers don’t have the money. Utilities have some of the money, but the business case isn’t there. It’s so expensive.”

Source: https://www.cnbc.com/2021/03/31/us-ev-charging-system-a-priority-under-bidens-2-trillion-infrastructure-plan.html

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Explaining the volatile stock and bond market moves this week following the Fed’s update

The Fed unleashed a huge repositioning in markets, as investor reacted to a world where the central bank no longer guarantees its policies will remain easy.

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The Federal Reserve unleashed a huge repositioning in global financial markets, as investors reacted to a world where the U.S. central bank is no longer guaranteeing its policies will be dovish — or easy.

The dollar surged the most in a year over a two-day period against a basket of currencies.

Stocks were mixed around the world on Thursday, as were bond markets. Many commodities sold off. The Nasdaq Composite was higher, while the S&P 500 and Dow Jones Industrial Average slid. Tech gained, and cyclical stocks fell.

The central bank delivered a strong message Wednesday when Fed Chairman Jerome Powell said officials have discussed tapering bond buying and would at some point decide to begin the process of slowing the purchases. At the same time, Fed officials added two rate hikes to their 2023 forecast, where there were none before.

“It’s the end of peak dovishness,” Bleakley Global Advisors chief investment officer Peter Boockvar said. “It’s not going hawkish. It’s just we’re past peak dovishness. This market response is as if they were already tapering.”

Not an immediate shock, but volatility ahead

Strategists say the Fed’s slight step toward tightening policy didn’t shock markets Wednesday, but it will likely make them volatile going forward. The Fed, in essence, is acknowledging the door is now open to future rate hikes.

It is expected to make a fuller declaration about the bond program later this year, and then within several months start the slow process of bringing $120 billion a month in purchases down to zero.

The yields of shorter-duration Treasurys, like the 2-year note, rose. Longer duration yields, such as the benchmark 10-year, fell. That so-called “flattening” is a go-to trade when interest rates rise. The logic is that longer yields fall since the economy may not do as well in the future with higher interest rates, and short-end yields rise to reflect expectations of the Fed raising rates.

U.S. longer-dated Treasurys, like the 10-year, have been lower than many strategists had expected lately. That’s in part because they are highly attractive to foreign buyers due to negative rates in other parts of the world and liquidity in the U.S. markets. The 10-year yield shot to 1.59% after the Fed news, but was back down at 1.5% Thursday afternoon. Yields move opposite price.

Commodities-related stocks, like energy names and materials shares, were down sharply Thursday afternoon. Energy was the worst-performing S&P 500 sector, falling 3.5%. Materials lost 2.2%.

“It’s a massive flattening of the yield curve. It’s an interest rate trade, and it’s the belief the Fed is going to slow growth,” Boockvar said. “So sell commodities, sell cyclicals… and in a slow growing economy people want to buy growth. It’s all happening in two days. It’s just a lot of rewinds.”

Boockvar said the curve flattening has been happening swiftly, too. For instance, the spread between the 5-year yield and 30-year bond yield quickly compressed, moving from 140 basis points to 118 basis points within two days.

“You’re watching an incredible unwind of positioning in the bond market. I don’t think people thought the Fed would do it,” BlackRock CIO of global fixed income Rick Rieder said.

“We thought the flattening trade was the right move when we saw some of the news out of the Fed. That was something we jumped on pretty quickly. I have to say we’re letting some Treasurys go into this rally,” Rieder told CNBC.

For stock investors, the shift in cyclical stocks goes against a trade that has been popular as the economy reopened. Financial stocks fell on the flatter yield curve, but REITs were slightly higher. Technology stocks rose 1.2%, and health care gained 0.8%.

“The implication is higher stock market volatility, which I think we’re going to have and going to continue to have,” BTIG head of equity and derivatives strategy Julian Emanuel said. “Yesterday changed things. This whole idea of data dependency — the market is going to trade it like crazy, particularly given the fact that the public participation remains very elevated and the stocks the public is most interested in are high multiple growth stocks that have been leading the last several weeks as the bond market remained range bound.”

Even as Powell acknowledged inflation was higher than the Fed expected, the central bank also pressed its message that inflationary pressures could be temporary. The Fed’s boosted its forecast for core inflation to 3% for this year but was at just 2.1% for next year, in its latest projections. Powell used the example of the rise and fall of lumber prices to illustrate his view that inflation will not be long lasting.

But Emanuel said it will be difficult to tell whether inflation is fleeting , and the economy’s emergence from the pandemic has been difficult to predict. “Whether it’s the Fed or paid economists on the sell side, or paid economists on the buy side, the ability to measure what’s going on in the economy is really nothing more than … educated guess work at this point because the statistics are just all over the place,” Emanuel said, adding inflation readings have all been hotter than expected.

He expects the market will trade in a range for now, with the bottom at 4,050 on the S&P 500 and the top at 4,250. The S&P 500 closed at 4,221 on Thursday, down just 1 point. The Dow was of by 0.6% at 33,823, and the Nasdaq rose by 0.9% at 14,161.

The late-July Fed meeting now looms large. That could add even more volatility as investors wait to see if the Fed will provide more details on tapering after that meeting. Many economists expect the Fed to use its annual Jackson Hole symposium in late August as a forum to lay out its plan for the bond program.

The bond purchases, or quantitative easing, were launched last year as a way to provide liquidity to markets during the economic downturn that started last year. The Fed purchases $80 billion in Treasurys and $40 billion in mortgage securities each month. Rieder expects the Fed could slow purchases by $20 billion a month once it starts the tapering. Once the Fed gets to zero, it could then consider when to raise interest rates.

The market expectations for rate hikes have moved forward, and the euro-dollar futures market now sees four rate hikes by the end of 2023, according to Marc Chandler of Bannockburn Global Forex. Prior to the Fed’s announcement Wednesday, futures showed expectations for about 2.5 rate hikes.

Strategist expect some of the Fed reaction is just temporary, and reflects investors who were too far offsides in some positions. “I’m still a commodities bull,” Boockvar said. Commodities had already begun falling ahead of the Fed announcement, after China announced plans to release metals reserves.

“The Fed needed to reign in the inflation story. They did it only very very slightly, but at least they accomplished it, and they’ve squeezed out inflation expectations and they’ve seen a pullback,” he said. “The question is can they through. To raise rates in two years or baby step tapering is not going to do it, but at least for two days they’ve succeeded in calming things down.”

The dollar index jumped 0.8% on Thursday afternoon, about the same as Wednesday’s move.

Chandler said the dollar move could also be a temporary adjustment and not part of a much bigger move. The dollar index’s gain largely reflect the dollar’s move against the euro, weaker as the European Central Bank continues to sound dovish.

“Norway signaled [Thursday] that they are going to hike rates in September and yet the dollar rallied against Norway. I think what happened yesterday set off a new wave of positioning in the currencies. … If it’s not done it’s nearly done,” he said.

The biggest component of the dollar index basket is the euro. “The correction is long in the tooth. It began in late May. That’s when the euro put in its last high,” said Chandler.

Source: https://www.cnbc.com/2021/06/18/explaining-the-volatile-stock-and-bond-market-moves-this-week-following-the-feds-update.html

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The Fed moves up its timeline for rate hikes as inflation rises

However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying program.

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The Federal Reserve on Wednesday considerably raised its expectations for inflation this year and brought forward the time frame on when it will next raise interest rates.

However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying program, though Fed Chairman Jerome Powell acknowledged that officials discussed the issue at the meeting.

“You can think of this meeting that we had as the ‘talking about talking about’ meeting,” Powell said in a phrase that recalled a statement he made a year ago that the Fed wasn’t “thinking about thinking about raising rates.”

As expected, the policymaking Federal Open Market Committee unanimously left its benchmark short-term borrowing rate anchored near zero. But officials indicated that rate hikes could come as soon as 2023, after saying in March that it saw no increases until at least 2024. The so-called dot plot of individual member expectations pointed to two hikes in 2023.

Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection, the post-meeting statement continued to say that inflation pressures are “transitory.” The raised expectations come amid the biggest rise in consumer prices in about 13 years.

“This is not what the market expected,” said James McCann, deputy chief economist at Aberdeen Standard Investments. “The Fed is now signaling that rates will need to rise sooner and faster, with their forecast suggesting two hikes in 2023. This change in stance jars a little with the Fed’s recent claims that the recent spike in inflation is temporary.”

Markets reacted to the Fed news, with stocks falling and government bond yields higher as investors anticipated tighter Fed policy ahead, including the likelihood that the bond purchases will slow as soon as this year.

“If you’re going to get two rate hikes in 2023, you have to start tapering fairly soon to reach that goal,” said Kathy Jones, head of fixed income at Charles Schwab. “It takes maybe 10 months to a year to taper at a moderate pace. Then you’re looking at we need to start tapering maybe later this year, and if the economy continues to run a little bit hot, rate hikes sooner rather than later.”

Even with the raised forecast for this year, the committee still sees inflation trending to its 2% goal over the long run.

“Our expectation is these high inflation readings now will abate,” Powell said at his post-meeting news conference.

Powell also cautioned about reading too much into the dot-plot, saying it is “not a great forecaster of future rate moves. “Lift-off is well into the future,” he said.

Powell did note that some of the dynamics associated with the reopening are “raising the possibility that inflation could turn out to be higher and more persistent than we anticipate.”

Powell said progress toward the Fed’s dual employment and inflation goals was happening somewhat faster than anticipated. He particularly noted the sharp rebound in growth that now has the Fed seeing GDP 7% in 2021.

“Much of this rapid growth reflect the continued bounceback in activity from depressed levels, and the factors more affected by the pandemic remain weak but have shown improvement,” he said.

Officials raised their GDP expectations for this year to 7% from 6.5% previously. The unemployment estimate remained unchanged at 4.5%.

The statement tempered some of the language of previous statements since the Covid-19 crisis. Since last year, the FOMC had said the pandemic was “causing tremendous human and economic hardship across the United States and around the world.”

Wednesday’s statement instead noted the progress vaccinations had made against the disease, noting that “indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement.”

Investors were watching the meeting closely for statements about how Fed officials see an economy undergoing rapid expansion since the depths of the pandemic crisis in 2020.

Recent indicators show that in some respects the U.S. is expanding at the fastest rate since World War II. But that growth also has come with inflation, and the central bank has faced pressure from various sources to at least start curtailing the at least $120 billion in bond purchases it is making each month.

At his post-meeting news conference Chairman Jerome Powell noted that Fed officials “had discussions” on the progress made toward the inflation and employment goals relative to the asset purchases, and will continue do do so in the months ahead.

Markets had been looking for the possibility that the committee would address its open-market operations where it provides short-term funding for financial institutions. The so-called overnight repo operations, where banks exchange high-end collateral for reserves, have been seeing record demand lately as institutions look for any yield above the negative rates they are seeing in some markets.

The committee did raise the interest it pays on excess reserves by 5 basis points to 0.15%.

In a separate matter, the FOMC announced that it would extend dollar-swap lines with global central banks through the end of the year. The currency program is one of the last remaining Covid-era initiatives the Fed took to keep global markets flowing.

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“This is not what the market expected,” said James McCann, deputy chief economist at Aberdeen Standard Investments. “The Fed is now signaling that rates will need to rise sooner and faster, with their forecast suggesting two hikes in 2023. This change in stance jars a little with the Fed’s recent claims that the recent spike in inflation is temporary.”

Source: https://www.cnbc.com/2021/06/16/fed-holds-rates-steady-but-raises-inflation-expectations-sharply-and-makes-no-mention-of-taper.html

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Oracle guidance misses expectations, stock drops

Oracle reported better-than-expected results and showed accelerating growth compared with the immediate impact of the coronavirus last year.

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Safra Catz, co-chief executive officer of Oracle Corp.

David Paul Morris | Bloomberg | Getty Images

Oracle shares fell 5% in extended trading on Tuesday after the company offered lower quarterly revenue guidance than expected as it plans to increase capital expenditures to support cloud computing workloads. The guidance came on Oracle’s earnings call after the enterprise software maker issued better-than-expected earnings and faster revenue growth than last quarter.

Here’s how the company did:

  • Earnings: $1.54 per share, adjusted, vs. $1.31 per share as expected by analysts, according to Refinitiv.
  • Revenue: $11.23 billion, vs. $11.04 billion as expected by analysts, according to Refinitiv.

With respect to guidance, Oracle CEO Safra Catz called for 94 cents to 98 cents in adjusted earnings per share and 3% to 5% revenue growth in the fiscal first quarter. Analysts polled by Refinitiv are expecting fiscal first-quarter adjusted earnings of $1.03 per share and the equivalent of 3% revenue growth.

“We expect to roughly double our cloud capex spend in FY 2022 to nearly $4 billion,” Catz said. “We are confident that the increased return in the cloud business more than justifies this increased investment, and our margins will expand over time.”

Revenue rose 8% year over year in Oracle’s fiscal fourth quarter, which ended on May 31, according to a statement. In the prior quarter revenue grew 3%. The accelerating growth benefited from a comparison against the quarter last year when the coronavirus arrived in the U.S. and Oracle’s revenue fell some 6%.

Oracle’s top segment by revenue, cloud services and license support, generated $7.39 billion, which was up 8% and above the FactSet consensus estimate of $7.32 billion in revenue. The company said revenue from its second-generation cloud infrastructure doubled in the quarter, but it did not provide the figure in dollars.

The cloud license and on-premises license segment contributed $2.14 billion in revenue, up 9% and more than the $2.05 billion consensus.

The company’s hardware revenue, at $882 million, was exactly in line with analysts’ estimates, declining 2%.

During the quarter Oracle announced new public-cloud computing options that draw on Arm-based chips, and the U.S. Supreme Court ruled on a longstanding case between Oracle and Google, declaring that Google’s copying of Java code was fair use.

Notwithstanding the after-hours move, Oracle stock is up 26% since the start of the year, while the S&P 500 index is up 13% over the same period.

In May, Barclays analysts lowered their rating on the stock to the equivalent of hold from the equivalent of buy after the price had moved upward as investors rotated out of growth and into value. “To see further relative outperformance a growth acceleration at Oracle is needed, and we don’t have enough tangible data points for this yet,” the analysts wrote.

WATCH: The great tech tug-o-war

Here’s how the company did:

Source: https://www.cnbc.com/2021/06/15/oracle-orcl-earnings-q4-2021.html

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The Fed moves up its timeline for rate hikes as inflation rises

However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying program.

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