Gavekal Technologies: New Energy

Europe fears that subsidized and efficient Chinese high-tech companies will de-industrialize the continent. But the “second China shock” is arguably even more of a threat to northeast Asia, where China’s lead in batteries, electric vehicles and solar has Tokyo and Seoul incumbents worried that machine tools, robots and displays could be next. But Japan and South Korea should be able to hang on to large and profitable chunks of their industrial bases, thanks to both technological factors and geopolitics.

Nuclear power is back in business, thanks to the AI datacenter boom and renewed worries about fossil-fuel security following the closure of the Strait of Hormuz. Despite brave talk in the US, China is at the forefront of that revival and will remain so for another decade.

As Washington discovered with semiconductors, export controls that aim to maintain a technological lead are double-edged. They may slow a rival’s catch-up, but they also incentivize the rival’s innovation and harm domestic interests. And they are hard to enforce. China is rapidly expanding its export controls to include not just rare earths but many other technologies where it has a lead. But the more controls it imposes, the more it risks choking off revenues and paths to innovation for its leading tech companies.

Battery makers are working hard to escape commodity hell by designing cells that integrate directly into electric cars’ bodies, boosting performance while making it harder for EV makers to switch battery suppliers. EV manufacturing is becoming a tug-of-war between battery makers, which like the pricing power that integrated design gives them, and carmakers, who need to decide how much flexibility they will sacrifice for better efficiency.

Donald Trump came to Beijing for his summit with Xi Jinping determined to secure a lot of business for American companies. Despite the positive vibes, the US and China are locked in an intense technology competition, with each side working to build up its own tech ecosystem while using export controls and investment restrictions to hold back the other's progress. In the first edition of a monthly webinar series by Gavekal Technologies, semiconductor/AI analyst Laila Khawaja and new energy analyst AJ Cortese join Arthur Kroeber to discuss the risks that lie ahead for tech companies trying to navigate the US-China rivalry.

The Trump-Xi summit in Beijing produced few specifics but did confirm that both leaders want to keep the relationship stable for the next few years. Whether this new equilibrium can last depends a lot on whether Trump can tame the hawkish sentiment on China that continues to percolate in Washington