Stock Trading - Entry 22

I am sure many North Americans, particularly Canadians, have heard about the mega automotive deal that was announced on April 25, 2024. In a nutshell, several big-name car manufacturers have received very hefty tax breaks, loans, or both to set up shop in Ontario and Quebec to make batteries for electric cars as well as other parts for them. By hefty, I mean take a look at how they range from over $300 million to over $10 billion according to this article. What's my take on that from my simple investor's point-of-view?

First up, I am not overly surprised that any company making electric vehicles would want to setup shop in those provinces given the vast lithium mines in Quebec (like this one) and other necessary minerals that are mined in Canada. Buckling down your supply chain in the same neighbourhood as your buyers is a decent strategy, especially given many locals will be working there, resulting in a ton of free word-of-mouth advertising. Lower costs and more customers, what's not to like?

As a Canadian, I look at this and see that provincial and federal tax breaks will take two decades to recoup for just two plants according to this article. But that's only corporate taxes. Income taxes from all those people with jobs, well, tax break for the industrialists, taxation for the workers. I will leave tax implications at that so you can call it how you see it since anything in response is pure opinion or political philosophy.

Looking at it from a small investor's point-of-view, I see two things. First, it will take a lot of money for me to invest in any of those big companies who will be gaining a sizeable foothold in the Canadian EV market, which means direct opportunities will be few and far between, if any, given current stock prices of those companies. Second, I expect increased competition in neighbouring industries - and such waves are ones I want to avoid in my stock portfolio.

For example, I was actually skimming through stocks that pay dividends (which I will get into in another article) and found two interesting ones. They don't make electric cars like those big deals were all about. The two companies I found were Lion Electric and then there is GreenPower Motor. Both make electric buses and large electric trucks (big EVs). A week before those mega electric car deals came through, I would have done a deeper dive to decide whether or not to buy into either of those companies.

I am fully aware it will take a couple of years for all those new and refurbished plants to come online and start producing en masse. That said, I got to thinking about what options are available for those two companies that make big EVs. From my perspective, they have two primary options from what I see at the moment.

For one, eventually, their supply chain will be in competition against that of the car companies. I am guessing those recent big deals grant a certain amount of exclusivity over minerals mined in Canada to the car companies, not the big EV companies I found. This article shows how Ford Motors got such a deal. Given fewer buses are made than cars in North America, I don't expect the big EV companies to win if they compete for minerals against the electric car companies. As a result, I do not see myself as a small-time investor benefiting in the medium-to-long term, only short term at best and I do not know how to predict the result of the big car deal shock.

Second, since Lion Electric and GreenPower Motor strike me as fairly decent companies, they may just become ripe to be bought out by any of the car companies. (I mean, this article shows other markets Honda has gotten into.) This would provide the parent companies with even more economies of scale (bulk manufacturing and mineral deals in this case) plus a greater share (and greater say) of what happens in the North American EV market. Can you say political leverage? Anyway, if they are bought out, I doubt that competition law (AKA antitrust law), would apply given you would be talking about very different products with very different markets, although it seems it would be up to the Canadian Competition Tribunal. Those laws are designed to promote competition and prevent monopolies from forming - except for the the boardgame, of course. From a small investor's point-of-view, I have my doubts on being able to make money off of such acquisitions by buying the little guy.

Regarding my current holdings in Braille Energy Systems (BES), that company has some unique intellectual property for the time being that will likely continue to outperform when it comes to electric cars since the big car companies make sedans, not high-end race cars. That said, BES has diversified into the markets for big batteries for home and business. I don't know if they can weather the impact of this storm in the long-term, but in the short-to-medium-term, I am confident they will. Plus, the stock price is currently sitting at double what I bought it, so the chances of me selling in the black are still high. That's kind of the whole point when investing relatively small amounts in certain markets and that's generally why I pick the ones I do - make it easy for me to cash out in the black.

All that said, I did find a new side hustle. It was officially launched on Earth Day, April 22, 2024. It's a print-on-demand shop on Etsy called Garden University that has lots of swag for gardeners, people with a green thumb, and those of us who simply enjoy being in any kind of garden. Check it out here.