China built enough EV factories to supply three planets and is now discovering Earth only has one · Daily Briefing

In 30 seconds: China is on track for 30-40 million units of EV capacity against only 12 million in domestic sales and 5-6 million in exports, with analysts warning of severe overcapacity, falling domestic demand, and global political resistance to Chinese EV dominance mirroring the earlier manufacturing displacement shock. Semiconductor stocks are under pressure with the SOX index breaking below May highs, even as TSMC reported a fourth straight triple play and announced a further $100bn US investment, while AMD struck chip deals with OpenAI and Meta featuring unusual pricing structures tied to AMD's stock price. The Strait of Hormuz crisis, combined with Ukraine's bombing of Russian refineries, has pushed WTI 3-2-1 refining margins toward $70/barrel all-time highs, disrupted LNG flows, and driven European gas fund managers to turn bullish, while bypass pipelines and US Henry Hub gas remain below $3. A wave of US economic data showed resilient labor markets and manufacturing (Philly Fed surging to highest since 2021, jobless claims falling to 208,000) alongside mixed retail sales boosted by Prime Day, soft PPI, and a Dallas Fed president signaling openness to rate hikes.

China currently has 25 million vehicles of EV capacity against domestic sales of 12 million vehicles — and it is still adding 3-4 million vehicles of new capacity per year. But the industry is still adding 3-4 million units of new capacity per year, with entrants like Xiaomi expanding aggressively. For context, in 2020, China had just 2-3 million units of capacity and 1 million in sales. The buildout since then has been extraordinary. The demand side, meanwhile, is doing the opposite. EV/NEV demand in China has stalled out at levels well below 17-18m cars a year. Sales are actually falling this year, which is not what you want to see when current capacity stands at 25m units. The country exports 12 million vehicles while importing just 0.4 million. That is not a trade relationship; it is a one-way conveyor belt. The quality trajectory makes this harder to dismiss. The industry is moving from the 'Yes, China's cheaper but the quality is worse' to the 'Uh-oh, China's cheaper AND better' tipping point many Rust Belt manufacturing execs became all-too-familiar with 2002-2020, seemingly much faster than it happened in manufacturing. The political support for migrating all world EV production to China is, by at least one account, far from assured. The most intense spare capacity, interestingly, is now in the ICE sector, meaning the overcapacity problem is not confined to the segment everyone is watching. The efficient outcome and the politically tolerable outcome are, as usual, different outcomes.

The same pandemic-era dynamics driving China's EV overcapacity are also a factor in the semiconductor sector's current divergence.

The semiconductor sector is doing something unusual: splitting in half while the broader market watches politely. Yesterday was a rare session in which Nasdaq gained more than 0.5% while the semis (SOX) fell 2%. Over the last 50 days, Nasdaq has closed higher 23 of those sessions, netting only 3% despite an 8% range. All bark, no bite. The divergence within semis is just as stark. $ASML and $NVDA have been rallying, while quite a few of the biggest semis have moved well below their 50-DMAs recently. That is notable context for a group that is still up 53% over the last six months. None of this has stopped the deal machine. Taiwan Semi $TSM just reported its fourth straight triple play, its seventh in the last two years. The reward for flawless execution: $TSM stock was trading lower this morning. TSMC plans further investment. Then there is the $AMD situation. Both OpenAI and $Meta struck chip deals with AMD, structured so that if AMD stock crosses a threshold, the buyers essentially get the chips for zero. If AMD stock goes over 600, they essentially get the chips for zero. This is the kind of financial engineering that makes you wonder whether the chip business is now a derivatives desk that happens to fabricate silicon. The sector remains caught in a technical correction that is grinding through the biggest names. The question is whether the deal frenzy is a sign of strength or a sign that buyers have gotten creative enough to stop paying cash.

The WTI 3-2-1 refining indicator has hit $70 a barrel, at an all-time high due to the twin crisis of the Strait of Hormuz and Ukraine's bombing campaign against Russian refineries. US diesel futures up 85% above late-Dec. retail diesel prices in Beijing up 36% at their peak in early April. Bypass infrastructure does exist: Saudi Arabia's East-to-West pipeline carries up to 7 million barrels per day, and other Hormuz bypass pipelines add roughly 5 million barrels per day of capacity. Iran's own officials have, on the record, argued that they will lose leverage if everyone avoids Hormuz. On the strategic side, one geopolitical read is that it's not clear the Trump admin has an Iran strategy right now, and that Trump is acting more out of anger. The Iranians, however, do have a strategy. They are risk acceptant, emboldened, and feel that time is on their side. Investment managers are turning more bullish about the outlook for Europe's gas prices, following the end of the ceasefire between Iran and the United States, which interrupted LNG exports through the Strait of Hormuz again.

The labor market decided to remind everyone it is not, in fact, rolling over. Initial jobless claims for the week ending July 11, 2026 fell to 208,000, down from 216,000 the prior week, a decline of 8,000. That is a clean print, and it lands at a level that makes it difficult to argue the economy is deteriorating in any meaningful way. If you are building a recession case, the claims data is not cooperating. Initial jobless claims: 208,000.