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To bring inflation below 2%, ECB interest rates are expected to remain high until at least mid-2024. Continued monetary tightening is slowing the economy and also affecting electric cars.

The prolonged tight monetary policy of the ECB and the U.S. Fed is beginning to have increasingly negative effects on the economy and citizens. Despite the pause announced this week by the ECB, interest rates are not expected to fall before at least the second half of 2024.

In news: LG Energy Solution (LGES), the manufacturer of batteries for electric cars, is concerned.

  • LGES announced that third-quarter operating profit rose 40% to 731 billion won ($543.5 million). Sales rose 7.5% to 8.2 billion won.
  • Due to a decline in demand in Europe for both batteries and electric cars, sales fell 6% from the previous quarter.
  • According to the South Korean company, sales of electric cars will continue to decline globally next year.
  • As a result, shares of LG Energy Solution fell 8.7% Wednesday to its lowest level in a year.

A domino effect for electric cars

Explained :'Next year, growth in electric car sales will not be as strong as this year. This is due to deteriorating macroeconomic conditions and high interest rates discouraging consumer spending, while growth in Europe is slowing down.' said Lee Hang-koo, a consultant at the Korea Automotive Technology Institute.

  • Speaking to the Financial Times , he said : 'Investors were too optimistic about growth in demand for electric vehicles. That slowing growth is coming sooner than expected, especially in the luxury electric vehicle market.'"
  • So the cause of this overall economic downturn is the monetary policy actions of the ECB and the Fed.
  • However, the worst of the interest rate crisis should be behind us. The ECB announced for the first time a pause after 10 consecutive increases, which is a first in 16 months.
  • According to 98% of analysts, the Federal Reserve also appears to be planning a rate break on Nov. 1.
  • It will be some time before interest rates fall. This prevents households from applying for credit, whether to purchase real estate or cars.
  • Since most electric cars are more expensive to purchase than conventional vehicles, consumers are less willing to make such an investment in these economic conditions.
  • These high tariffs also depress global economic growth. According to the IMF's latest estimate, growth is expected to slow to 2.9% in 2024 (compared with 3% in 2023 and 3.5% in 2022).

Tesla, Ford, GM, all delaying their plans

There'smore: Elon Musk, owner of the world's best-selling electric car brand, is also pessimistic.

  • The billionaire expressed "concern about the current high interest rates," he said at Tesla's - disappointing - results. He added, "I'm just saying that things could go in the wrong direction."
  • In addition to Tesla, Ford and General Motors are also delaying the expansion of their electric car plants. They are doing so in anticipation of lower demand, again because of high interest rates. (ddw)

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