The last few years have been one heck of roller coaster ride. The pandemic and the recent war between Ukraine and Russia bracket the events for now, but suddenly a lot of companies are rethinking aggressively global resourcing and divesting manufacturing as bad ideas.
The result is some interesting dynamics which should lead to higher prices than before but lower than we have now, coupled with a far stronger supply chain.
Let’s talk about some of the changes going on in the background, and we will close with my product of the week, which is a huge improvement to one of my favorite products, ChiliPAD.
Gasoline Is Toast
The move away from internal combustion engines (ICE) was progressing slowly with an expectation we would cross over into most electric cars sometime between 2030 and 2035. But the volume increases post-pandemic, coupled with the Russian war with Ukraine, has pushed up gas prices significantly.
Owners of electric cars now are all over social media talking about how smart they were to have made the change (and, before you ask, yes, I am one of those folks because it is fun to drive by an expensive gas station honking, waving, and smiling).
High gas prices on an existing product often drive people to make changes earlier than otherwise anticipated and, it appears that, thanks to these extremely high gas prices which are only likely to increase, far more people are thinking about going electric.
Sadly, electric cars are increasingly backordered, with companies like Rivian and GM talking long wait times before you can buy or even put a deposit down on some of these vehicles. If electric car companies can improve their manufacturing capacity, they are likely to make a large profit. However, running against this are the supply chain problems that are getting worse for some.
One of the big problems Ukraine and other countries that have bought Russian weapons is getting help and parts when Russia is engaged in conflict. Not only would they have to overcome sanctions, if Russia attacks them, there is no doubt that they will be at a disadvantage — even if those weapons do not have some secret vulnerability that only Russia can exploit.
As a result, I expect the demand for Russian weapons will drop off a cliff going forward, particularly with the old parts of the USSR that are now concerned they may have to protect their independence from Russia.
Russia produces titanium, which is critical for aircraft, and has a near monopoly on production of this very hard, light metal. Ukraine builds a lot of ASICs used in things like printers and IoT devices. Both items have suddenly become very hard to acquire.
This is forcing buyers to look at alternative suppliers for the things they typically get from both Russia and Ukraine and, even if the war ended tomorrow, it is unlikely that Russia’s sanctions will be lifted, or that Ukraine would be able to rebuild its infrastructure quickly enough to hold the market.
Companies like Intel are looking at bringing manufacturing capacity back into the U.S. at scale and shifting sources from countries that are, or are likely to become, embroiled in conflict or bad government decisions, or are just physically remote, to more localized and reliable sources.
A lot of countries are suddenly at risk of being embroiled in conflict and that is forcing increasing investment considerations and partnerships to avoid existing and potential future supply chain issues. The U.S. and EU should be the biggest beneficiaries of these changes.
Taiwan and China
Taiwan, which has been on the back burner about logistics issues, recently suddenly jumped to the front burner thanks to the Ukraine/Russia war as companies and governments start thinking what happened to Ukraine could happen there.
Every aspect of Taiwan’s protection is being revisited because so many are dependent on the manufacturing there that it has suddenly become far more critical to assure China leaves Taiwan alone than it was. South Korea could also be impacted by that conflict or difficulties with North Korea, raising concerns about that country as well.
While the only thing that is certain is that many of the existing relationships will change, both Taiwan and South Korea should enjoy a significant increase in support for their independence and protection going forward.
Drone-Based Weapons Systems
One of the surprises of Ukraine/Russia conflict is how well drones and man-carried weapons are doing to combat Russia’s air and ground superiority. There appears to be a lot more interest in weapons systems that are easy to deploy, easy to learn and easy to fire.
Billion-dollar aircraft are useless if you cannot get them to the battlefield, and much of the United States’ advanced and very expensive weaponry is sitting this war out. Unused or unusable weapons systems are just a wasted expense.
I anticipate some major advancements to highly portable, man-carried weapons systems as we veer away from expensive platforms that are difficult to learn and deploy as a result. Much like battleships became obsolete after WWII, I expect there is a good chance that tanks, and several military aircraft types will be retired after this war in favor of far more portable, high-powered systems.
Satellite and Mesh Communications
If there was ever a time when we needed the old BlackBerry communications network, this would be it. But sadly, it is gone and, again, its loss is being deeply felt.
Starlink has stepped up to provide coverage, but it is not very portable and cannot really address the needs of either the Ukraine military or its volunteer forces, and Elon Musk has warned it may not be secure enough for the task.