June, 2023
Some thoughts on industrial policy, China’s EV boom and AI.
Critics of industrial policy will say - “well it never works for technically advanced sectors”. I have lived through a time where one EV manufacturer was trading at 1,120 P/E. Now it trades at 71. That’s not not point however.
The point is that at the time, I too wholeheartedly would agree with the market that, yes, EV’s are part of a technically advanced sector, and the leader in it should trade at a premium multiple (definitely not 1,120 but that’s a different story).
Fast forward to today, it trades at 71 and China is the world’s largest EV producer and also has a global EV leader in the form of BYD. How on Earth did that happen. The answer in industrial policy - the CCP government has been providing subsidies for EV manufacturing since 2009.
If industrial policy can be used in a somewhat artificial way to develop a sector domestically, then why will the sector of LLM’s be any different. If governments weren’t thinking about it, sure, it could be different. But governments are thinking about AI, rather actively.
The reason I’ve to make this point is because @sama thinks no one can compete with Open AI, even in the face of AI specific industrial policy designed by governments with deep pockets. Whether these new companies can grow larger than Open AI is an open question but they will split the market for sure.
