Blind Squirrel Macro: China Will Unleash “Bloodbath” On Global Automobile Market | Rupert Mitchell on Electric Vehicles, Tires, Refiners, And Gold

Episode Summary

Executive Summary: Rupert of Blind Squirrel Macro argues that China remains deeply investable despite structural problems, sees major opportunity in Chinese EVs, offshore drillers, tires, refiners, and gold, and remains broadly inflationary/commodities bullish. He favors thematic, basket-based investing, often using liquid options to gain cheap leverage, and emphasizes capital allocation, buybacks, and real-world industry analysis over headline macro alone.

Main Topics: Rupert’s background and China capital markets experience (Priority: 5/5): He described a 25-year career as an investment banker in London and Asia, focused on Chinese companies, IPOs, derivatives, and offshore listings in Hong Kong, NASDAQ, and NYSE. China equity market, structures, and valuation opportunity (Priority: 5/5): The conversation covered A shares, H shares, red chips, VIEs, ADRs, and why he believes China’s market is in a severe bear phase but still contains attractive value if conditions improve. Chinese EV industry and auto disruption (Priority: 5/5): Rupert explained why China’s EV ecosystem is strategically advantaged, why mass-market global autos face a bloodbath, and why hybrids and Chinese OEMs could dominate future markets. Sector ideas: tires, refiners, offshore drillers, and UK mid caps (Priority: 4/5): He highlighted structural supply-demand and capital allocation advantages in tires, US oil refiners, offshore services, and discounted UK investment trusts as examples of his thematic approach. Inflationary macro view and options as leverage (Priority: 4/5): He argued the world is inflationary, is bullish commodities, skeptical of deflation narratives, and uses long-dated options as a form of non-recourse institutional leverage. Gold and miners (Priority: 4/5): Rupert is bullish on gold as an asset but skeptical that miners will fully catch up because buying is increasingly driven by central banks rather than classic retail/ETF FOMO.

Key Arguments: China is not dead as an investment case; writing off roughly 30% of global GDP is a poor starting point. Chinese equity valuations have been crushed by a real estate slump, tech crackdown, and weak foreign participation, creating asymmetric upside if the market improves from dire to less dire. China’s EV industry has industrial, geopolitical, environmental, and supply-chain advantages that make it difficult for Western mass-market OEMs to compete without tariffs. Toyota’s hybrid-first strategy may ultimately look smarter than a pure BEV strategy, especially when full-life-cycle battery and mining costs are considered. Tires are attractive because they are non-discretionary, margin-stable, and could benefit from EV-driven changes in vehicle economics and synthetic rubber pricing. US refiners and offshore drillers are compelling because supply is constrained, managements are improving capital allocation, and activist pressure is forcing shareholder returns. He prefers value/macro themes expressed through baskets of liquid names rather than single-stock bets because it reduces idiosyncratic risk. He believes the market is structurally inflationary, not deflationary, and that real assets should outperform paper currencies over time. Long-dated options are an efficient way to obtain cheaper leverage than retail margin, especially in liquid ETF/index products. Gold is breaking out, but miners may lag because the current buying wave is driven more by central banks than by retail ETF flows or classic mining-stock FOMO.

Data Points: Years in sell-side finance: 25 years - Rupert’s career in London and Hong Kong investment banking. Timing of move into EV startup: Late 2018 to 2020 - He worked at Shanghai-based WM Motor during the China EV startup boom. Number of Chinese EV startups: Something like 400 - He described the crowded EV startup landscape in China during 2018-2020. China equity market drawdown: Peak-to-trough declines of around 70% - Jack referenced the bear market in Chinese equities. China GDP share mentioned: 30% of global GDP - Rupert argued it is premature to dismiss China given its global weight. Japanese wage increase: 5.3% - He cited the latest spring wage negotiation as evidence of inflation creeping into Japan. US oil refinery buildout: Since 1977 - He noted the US has not built a new oil refinery since 1977. Goodyear market cap: $4 billion - Discussed as a turnaround candidate in the tire sector. Goodyear stock return example: $12.70 in 1984 to $13.42 now - Jack illustrated the long-term stagnation of Goodyear’s share price. Toyota valuation reference: P/E around 11 - Jack asked if Toyota’s valuation looked expensive; Rupert preferred EV/sales for autos. Synthetic rubber content in tires: 60% - Rupert said roughly 60% of tire content is synthetic rubber from refining byproducts. Chinese EV pricing example: $10,000 EV - Rupert used BYD as an example of extremely low-cost Chinese EV production. Australian hybrid SUV example: $45,000 AUD (~$30,000 USD) - He cited a Great Wall/Haval vehicle he rode in as evidence of Chinese value and quality. Initial gold bull run: 1971/73 to 1981 - He referenced the historic gold bull market as context for current moves.

Pivotal Quotes: "Writing off 30% of global GDP doesn't seem like a smart starting point." — Rupert: On why he remains open-minded and somewhat constructive on China despite structural issues. "If it goes, even if it half goes, it's going to be a phenomenal money making opportunity." — Rupert: On cheap Chinese equities and the potential upside if sentiment improves. "It's a classic sort of arsonist firefighter approach." — Rupert: On CEOs who set low expectations and then create apparent improvement in later periods, especially in turnaround stories.

Implications: Listeners should take away a contrarian, theme-driven framework: China and related industries remain investable if approached selectively; inflation and real assets may stay dominant; and capital allocation, not just cheap valuation, will determine winners.