Electric cars, Unions and Real Estate

Content;

Newsletter

  1. Electric Cars and batteries
  2. The impact on powering houses.
  3. The future rise of the Unions. CEO wages versus General wages. Lessons from the USA
  4. House prices now and tomorrow
  5. New Zealand Population Growth

 

Electric Cars are the Future Electric car

One of my sons works as an Operator at the Marsden Point refinery and he will considered this article blasphemy. Sorry lad, but I think the writing is on the wall.

I have recently read the Elon Musk book by Ashlee Vance. It’s a great read in itself but more importantly shows the age of electric cars is upon us now. All that’s holding it back is the amount of cars that can be produced.

In the news you often hear how his company “Tesla” is in trouble with slow production levels and two fatal car crashes. This is typical media hype.

The only trouble Tesla is in in, is that they haven’t streamlined their factory production levels to meet the 2500 cars per week targets. (they will then raise this to 5,000 cars per week and then 20,000). Around 450,000 of these cars are presold with deposits paid on them, so at 5,000 cars per week they have 7.5 years’ worth of orders already. Most of the cars are sold by word of mouth without any major advertising. This is not a company in trouble, far from it, it is a company that is leading the way in new electric car production. A lot of the old-style combustion motor car manufacturers are seeing the same writing on the wall. BMW and Toyota both have shareholdings in Teslas’ battery factories and these manufacturers are starting to get into electric car production in a big way.

Think of electric cars as more like computers with a few extra moving parts. The latest car upgrades get emailed to you and you simply download them into your vehicles computer to have all the improvements.  You don’t have most of the heavy stuff  that’s in a traditional  car such as a motor, differential, drive train, brakes, cooling fluid and radiator. You have more storage where the heavy stuff used to go.

Teslas’ winning advantage is that the cars are not hybrids with all the weight disadvantages of a traditional motor along with  the extra costs of an electric motor and batteries. They are dedicated electric cars and as such, building them will get cheaper, just like building your Television did. We are in a new era of transport. It’s no co-incidence Tesla is based in the Silicon Valley area with other electronic technological companies rather than in the traditional steel towns of old.

The secret to electric cars is batteries. Tesla has now branched out into massive battery production factories which they call Gigafactory’s. (Panasonic is their partner). These factories dwarf anything we know in New Zealand with one such factory in the process of expanding from 180,000 square meters to 1.2 million square meters. That’s about 120 hectares or over 120 rugby fields, and this is just one of the battery production centres.

The secret to batteries has been the development of Lithium-ion batteries. Any home handyman who changed from their nickel-cadmium electric drill to a Li-ion one knows the huge leap in performance this created. These batteries are restricted in size as if they get too big they can catch fire. Samsung knows all about that with their phone batteries catching fire. Tesla has pioneered building huge battery packs from these small 18.6 mm x 65 mm batteries. The individual batteries are the AA size you would put in your torch but by putting many hundreds of these small batteries together along  with a cooling system, Tesla have created big battery packs of around 540 kg. These packs are safe and can power a car for up to 550 kilometers on one charge.

But wait there’s more!!! The giga factories have just developed a slightly larger battery. Its 21 x 70 mm so that’s only slightly longer and fatter than its’ predecessor. Its about the size of a 12 Gauge shotgun shell. Although a commercial secret, Tesla says these batteries are 35% cheaper to produce and have about twice the power of the 186 x 65 batteries.

We all know that electronic technology goes ahead in leaps and bounds and that electronic products just keep getting cheaper. This will be the case with the electric car. Within 1-2 years there will be the next big break through in batteries that will see vehicles with 700- 1000 km ranges. There are strong rumours that the next battery technology has been found and uses a different and more common product than Lithium.

And the two fatalities! Both were people incorrectly using the self driving technology when they shouldn’t have.  Nothing to do with the cars safety but a lot to do with the self drive technology that still has some teething troubles.

Prediction. Electric vehicles will be the top selling car in NZ within 5 years and combustion vehicles will be all but obsolete with 15-20 years.

 

question mark So what will be the  impact on housing?

Travel will be cheaper and therefore people will be prepared to live further from their work. Combine this with the portability of work with the advances in internet and data speed.  Peace, privacy and quality of life will become more important than they are even today. Driver-less technology is a partial reality today and as this gets  developed to much higher safely standard the drive to work or school may become a time for a nap or to read your emails.

Good schools will still dominate the choices of young families, but the provinces and country districts will benefit from people moving out of the cities for lifestyle reasons.

The technology of these new batteries will transform power supply for domestic housing. At the moment solar powered homes are the rarity and only marginally economic, but with the new technology solar power capture will improve and the all-important storage of that power will be more efficient. It’s probably not worth rushing out and buying solar power now as the collection and systems will improve over the next 5 years and today’s systems will be obsolete and expensive by then. For example, Tesla’s Home Power-wall 1 storage battery held 6.4 KWh while the Tesla Power wall 2 which came out 18 months later has 13.5 KWh. Its still shy of the average NZ homes daily consumption of 46 Kw but with the speed of technology advances, standard new build homes will have the option of being entirely self-contained for power in 3-5 years. Its only going to take one more advance in battery power or one more advance in solar power recovery, for the dream of being self contained in power to be a common reality.

With technology improvements daily power consumption will go down. Take for example your hot water heating  which typically accounts for 40% of your power bill. The latest technology, (which is being used in NZ homes today)  uses the latent heat in the atmosphere to  help heat your water. Its the same technology as your heat pump. It sits outside the house and can link into your existing hot water cylinder so you can take it with you if you want. The manufacturers claim it can reduce your hot water bill by up to 70%.

The rise of the union movement. CEO salaries and the revolutionUnion

The New Zealand Union movement has had some of its saddest years. The once powerful unions lost touch with the people they represented and over a number of years paid the price for a high level of arrogance. New Zealanders turned off the union in droves and are still doing so in huge numbers as the Union movement continues to stick stubbornly to the old-fashioned ways. However, this will start to change, and a new breed of union is on its way. The wages to boss’s gap is getting bigger and it is only a matter of time before the actual producers start to say we want a bigger slice of the cake.

New Zealand is developing one of the highest average wage to CEO salary disparities in the world. Basically, the bosses who are paid to return more money to the shareholders, are squeezing the workers who produce the products by one of the higher ratios in the world. According to the Herald the average CEO of the larger organisations receives $1,732,000 remuneration per year. Statistics NZ has the average wage in NZ as just under $60,000. That means the CEO’s get 29 times the workers income.

The USA demonstrates the growing trend to reward sections of the community disproportionately with the CEO ratio moving from 33 times in 1978 to 276 times in 2015. The average worker pay over this period moved around 10% while the average CEO’s salary moved around 950%.

These types of increases are not sustainable and are a bit like a pyramid scheme. They will reach a level that the general population find intolerable. We note that the NZ Reserve Bank has alluded to this issue on several occasions mentioning surprise at the lack of wage rises and the contribution to continued low inflation.

Research by Jonathon Tepper in the article “Why American Workers Aren’t Getting a Raise” suggests some key reasons that all seem to have parallels in NZ.

  • The weakening power of the Unions. The ratio of union members in the USA has dropped from 20% to 11%. In the past the unions drove up workers wages while checking CEO wages. Weak Unions mean there is no check on either. The few unions that are still strong have better average wages for their members. (In NZ Take the operators at the Refinery for example.)
  • Company owners are taking a bigger slice of the pie. Corporate profits as a percentage of GDP are at record highs while wages are at a record low as a percentage of GDP.
  • Too many industries have become monopolies either in the country or the locality
  • There is not enough divergent competition for workers. The trend towards monopolies means the company does not have to compete for workers. (some examples given in the article are:- Two companies control 90% of the beer Americans drink, 75% of Americans only have one internet provider, 5 Banks control half of the nations Banking assets, 4 companies control all the US beef market, 4 Airlines control almost all air travel.
  • Over half of all public firms have disappeared in the last 20 years.
  • Average mark-ups have increased from 18% in the early 1980’s to 70% in 2014.
  • There is a growing disparity between wages in the big cities and wages in the provinces.

It hasn’t happened yet, but this growing inequality suggests that rather than a French style revolution where all the boss’s get guillotined , we will see a surge back to unions. The wage earners are not going to continue to see themselves on a diet while the big boss continues to get fatter and fatter consuming a bigger and bigger slice of the cake. Unions will have to shift their thinking from the old school testosterone fuel behemoths of the past to something modern and sophisticated, but it is inevitable that something is going to change. The corporations and CEO’s will only have themselves to blame as we enter a new age of strikes and industrial action. Days lost to industrial action always rises during a labour Government and we are seeing the early signs of this with a looming nurses’ strike just around the corner.

House prices now and tomorrow  

stats

The just released Core logic figures for Whangarei show our city and region still rocking ahead with an average $510,409 price for the city and still rising, although slowing a bit. The fundamental shortage of properties remains the main driving force and until this is met prices will continue to head up. Our own figures show that it’s the bottom half of the market that’s gaining impetus. In a recent sales meeting we saw that 94% of our sales were under $600,000. In the last newsletter I predicted that we would see a price growth phase in the early part of the year with a slower period in the winter and then rising again in the spring. More like the traditional markets of the past.

The current level of sales is backing this up with offers and multiple offers on most under $500,000 properties and busy open homes. The small drop in the deposit ratio to 35% has seen a flood of first home buyers come on the market and this is further driving the bottom end. Investors are back, and the current price rises have a lot of buying pressure behind them.

New Zealand Population Growth Still Rising

The latest net migration figures are out, and we have hit our highest net gain ever of 72,300. This is the figure left after all the people leaving the country is deducted from all the people coming into the country. Hopefully this isn’t the result of the Aussie’s populationcontinuing to be bad sports and sending back all those good Kiwis that they turned bad and they now consider too rough for their country. Seems hard to believe that someone’s bad character can be a reason to send them home to New Zealand when usually bad character is a pre-requisite for a leadership role in an Aussie sports team or politics. Think of how many future leaders they are deporting.

For us this migration trend continues to put underlying pressure on the housing supply. This upward correction cycle has lasted longer than most and seems to be drifting on, pushed from behind by the migration figures back into our country. Most of these people are not in a position to buy so we are seeing increased pressure on the limited rental stock, with our company reporting record levels of inquiry for houses.

This underlying population pressure will continue to push property and rental pricing in New Zealand. We are at a time when we should be moving into a slow market growth position as prices have caught up with where they should . But with the current population growth continuing upwards we have a conundrum with cooling price pressure meeting rising population pressure.

Next issue we will look at the local population growth versus the housing supply.

empowering people through property banner -2

Email me if you have anyone that wants to be on my database and who will be interesting in receiving this newsletter on a monthly basis.

barry.joblin@harcourts.co.nz

 

 

 

 

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