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The French luxury group celebrated the 10th anniversary of its Institut des Métiers d’Excellence vocational training program.

PARIS – Excellence in craftsmanship will be key to riding out the current turbulence roiling the luxury market, LVMH Moët Hennessy Louis Vuitton chairman and chief executive officer Bernard Arnault said on Thursday.

Speaking at an event marking the 10th anniversary of the luxury group’s Institut des Métiers d’Excellence, the vocational training program aimed at promoting, enhancing and ensuring the transmission of know-how, Arnault began his speech by quoting French philosopher Denis Diderot, who lauded artisans for their wisdom, patience and mental resilience.

“At this stage of the company’s development, you have to be patient,” Arnault said. “It’s an absolutely essential quality to get through a troubled economic period and to continue feeling passionate about what makes the group successful, that is to say, the quality of the products.”

Speaking to the crowd gathered at the Grand Rex cinema in Paris for the evening event, which featured personalities including Belgian singer Pierre de Maere, retired basketball player Tony Parker, and Maria Grazia Chiuri, artistic director of womenswear at Dior, the luxury magnate argued that marketing should take a backseat to product.

“We must keep in mind that the long-term success of a group like LVMH is based mainly on what the artisans contribute in terms of quality of detail, and that’s where patience is key,” he said.

“People talk a lot about marketing, but ultimately, marketing is completely secondary,” Arnault continued. “Our future customers should feel drawn to our products because of their perception of the excellence of our craftspeople, and not because we’re trying to reel them in with some classic marketing tactic based on a study of what they want.”

The pep talk came as LVMH unveiled the first renderings of its future Maison des Métiers d’Excellence in Paris and announced that Ramy Fischler has been commissioned to design the dedicated space for craftsmanship, which it plans to open in 2026 in a move designed to give the group a competitive edge amid a shortage of skilled workers.

The house located in the French capital’s eighth arrondissement, a stone’s throw from the Dior ateliers and Avenue Montaigne, will allow visitors to touch and feel the breadth of the 280 skilled trades represented across its 75 brands, which range from Louis Vuitton to Dom Pérignon, Tiffany & Co. and Sephora.

The location will be open to the public as well as provide a physical home for the Institut des Métiers d’Excellence, or IME, which has trained more than 3,300 apprentices in its first decade, of which 70 percent went on to work for LVMH, according to Chantal Gaemperle, group executive vice president of human resources and synergies.

The program is active in eight countries, including France, and is being extended to China, she said at a press conference before the Show Me event.

Looking to the future, Gaemperle said LVMH is considering creating craftsmanship hubs in other parts of the world. “That’s my dream. We’ve even scouted potential locations,” she said.

The executive has also been working to preserve the knowledge of artisans who are ready to retire. “I’ve been working for a year on a library of know-how by reaching out to everyone from perfumers to managers so that before they retire, before they leave, they share a little bit of what they’ve learned,” she explained.

Fischler, the designer behind the recent revamp of the terraces on the Avenue des Champs-Elysées, said it was important to ensure LVMH’s craftsmanship center in Paris is not intimidating for young people. He has conceived the six workshops inside the building like boxes housing a microcosm of each profession’s working environment.

“We have to find a balance between a very sophisticated, beautiful setting, but one that doesn’t overwhelm young people and makes them want to discover all these professions and to come and learn them,” he said.

The lobby of the building will feature a tapestry titled “The Wisdom of the Hands” designed by Chiuri and created by the Chanakya School of Craft embroidery workshop in India. Students at the IME are taking part in a design competition for the house’s stained glass windows.

Alexandre Boquel, head of development for LVMH’s Métiers d’Excellence division, said the group has created formal training programs for jobs that were previously taught orally, for example, prototype maker. “That’s how we create a chain of transmission,” he noted.

“Thanks to the variety of professions and the diversity of programs that have been created by LVMH and by these houses, we are the leading trainer for craftsmanship worldwide,” Boquel said. “That’s already a first achievement we’re proud of after 10 years.”

Having started with just 27 participants in its first year, the IME is welcoming 520 this year, with ages ranging from 16 to 58, he said.

Yann LeCun, an NYU professor and senior researcher at Meta Platforms, says warnings about the technology’s existential peril are ‘complete B.S.’

Yann LeCun helped give birth to today’s artificial-intelligence boom. But he thinks many experts are exaggerating its power and peril, and he wants people to know it.

While a chorus of prominent technologists tell us that we are close to having computers that surpass human intelligence—and may even supplant it—LeCun has aggressively carved out a place as the AI boom’s best-credentialed skeptic.

On social media, in speeches and at debates, the college professor and Meta Platforms META 1.05%increase; green up pointing triangle AI guru has sparred with the boosters and Cassandras who talk up generative AI’s superhuman potential, from Elon Musk to two of LeCun’s fellow pioneers, who share with him the unofficial title of “godfather” of the field. They include Geoffrey Hinton, a friend of nearly 40 years who on Tuesday was awarded a Nobel Prize in physics, and who has warned repeatedly about AI’s existential threats.

LeCun thinks that today’s AI models, while useful, are far from rivaling the intelligence of our pets, let alone us. When I ask whether we should be afraid that AIs will soon grow so powerful that they pose a hazard to us, he quips: “You’re going to have to pardon my French, but that’s complete B.S.”

In person, LeCun has a disarming charm: mischievous, quick-witted, and ready to deliver what he sees as the hard truths of his field. At age 64, he looks simultaneously chic and a bit rumpled in a way that befits a former Parisian who is now a professor at New York University. His glasses are classic black Ray Ban frames, almost identical to one of Meta’s AI-powered models. (LeCun’s own AI-powered Ray Bans stopped working after a dunk in the ocean when he was out sailing, one of his passions.)

Sitting in a conference room inside one of Meta’s satellite offices in New York City, he exudes warmth and genial self-possession, and delivers his barbed opinions with the kind of grin that makes you feel as if you are in on the joke.

His body of work, and his perch atop one of the most accomplished AI research labs at one of the biggest tech companies, gives weight to LeCun’s critiques.

Born and raised just north of Paris, he became intrigued by AI in part because of HAL 9000, the rogue AI in Stanley Kubrick’s 1968 sci-fi classic “2001: A Space Odyssey.” After earning a doctorate from the Sorbonne, he worked at the storied Bell Labs, where everything from transistors to lasers were invented. He joined NYU as a professor of computer science in 2003 and became director of AI research at what was then Facebook a decade later.

In 2019, LeCun won the A.M. Turing Award, the highest prize in computer science, along with Hinton and Yoshua Bengio. The award, which led to the trio being dubbed AI godfathers, honored them for work foundational to neural networks, the multilayered systems that underlie many of today’s most powerful AI systems, from OpenAI’s chatbots to self-driving cars.

Today, LeCun continues to produce papers at NYU along with his Ph.D. students, while at Meta he oversees one of the best-funded AI research organizations in the world, as chief AI scientist at Meta. He meets and chats often over WhatsApp with Chief Executive Mark Zuckerberg, who is positioning Meta as the AI boom’s big disruptive force against other tech heavyweights from Apple to OpenAI.

LeCun jousts with rivals and friends alike. He got into a nasty argument with Musk on X this spring over the nature of scientific research, after the billionaire posted in promotion of his own artificial-intelligence firm.

LeCun also has publicly disagreed with Hinton and Bengio over their repeated warnings that AI is a danger to humanity.

Bengio says he agrees with LeCun on many topics, but they diverge over whether companies can be trusted with making sure that future superhuman AIs aren’t either used maliciously by humans, or develop malicious intent of their own.

“I hope he is right, but I don’t think we should leave it to the competition between companies and the profit motive alone to protect the public and democracy,” says Bengio. “That is why I think we need governments involved.”

LeCun thinks AI is a powerful tool. Throughout our interview, he cites many examples of how AI has become enormously important at Meta, and has driven its scale and revenue to the point that it’s now valued at around $1.5 trillion. AI is integral to everything from real-time translation to content moderation at Meta, which in addition to its Fundamental AI Research team, known as FAIR, has a product-focused AI group called GenAI that is pursuing ever-better versions of its large language models.

“The impact on Meta has been really enormous,” he says.

At the same time, he is convinced that today’s AIs aren’t, in any meaningful sense, intelligent—and that many others in the field, especially at AI startups, are ready to extrapolate its recent development in ways that he finds ridiculous.

If LeCun’s views are right, it spells trouble for some of today’s hottest startups, not to mention the tech giants pouring tens of billions of dollars into AI. Many of them are banking on the idea that today’s large language model-based AIs, like those from OpenAI, are on the near-term path to creating so-called “artificial general intelligence,” or AGI, that broadly exceeds human-level intelligence.

OpenAI’s Sam Altman last month said we could have AGI within “a few thousand days.” Elon Musk has said it could happen by 2026.

LeCun says such talk is likely premature. When a departing OpenAI researcher in May talked up the need to learn how to control ultra-intelligent AI, LeCun pounced. “It seems to me that before ‘urgently figuring out how to control AI systems much smarter than us’ we need to have the beginning of a hint of a design for a system smarter than a house cat,” he replied on X.

He likes the cat metaphor. Felines, after all, have a mental model of the physical world, persistent memory, some reasoning ability and a capacity for planning, he says. None of these qualities are present in today’s “frontier” AIs, including those made by Meta itself.

Léon Bottou, who has known LeCun since 1986, says LeCun is “stubborn in a good way”—that is, willing to listen to others’ views, but single-minded in his pursuit of what he believes is the right approach to building artificial intelligence.

Alexander Rives, a former Ph.D. student of LeCun’s who has since founded an AI startup, says his provocations are well thought out. “He has a history of really being able to see gaps in how the field is thinking about a problem, and pointing that out,” Rives says.

AI on your face

LeCun thinks real artificial general intelligence is a worthy goal—one that Meta, too, is working on.

“In the future, when people will talk to their AI system, to their smart glasses or whatever else, we need those AI systems to basically have human-level characteristics, and really have common sense, and really behave like a human assistant,” he says.

But creating an AI this capable could easily take decades, he says—and today’s dominant approach won’t get us there.

The generative-AI boom has been powered by large language models and similar systems that train on oceans of data to mimic human expression. As each generation of models has become much more powerful, some experts have concluded that simply pouring more chips and data into developing future AIs will make them ever more capable, ultimately matching or exceeding human intelligence. This is the logic behind much of the massive investment in building ever-greater pools of specialized chips to train AIs.

LeCun thinks that the problem with today’s AI systems is how they are designed, not their scale. No matter how many GPUs tech giants cram into data centers around the world, he says, today’s AIs aren’t going to get us artificial general intelligence.

His bet is that research on AIs that work in a fundamentally different way will set us on a path to human-level intelligence. These hypothetical future AIs could take many forms, but work being done at FAIR to digest video from the real world is among the projects that currently excite LeCun. The idea is to create models that learn in a way that’s analogous to how a baby animal does, by building a world model from the visual information it takes in.

The large language models, or LLMs, used for ChatGPT and other bots might someday have only a small role in systems with common sense and humanlike abilities, built using an array of other techniques and algorithms.

Today’s models are really just predicting the next word in a text, he says. But they’re so good at this that they fool us. And because of their enormous memory capacity, they can seem to be reasoning, when in fact they’re merely regurgitating information they’ve already been trained on.

“We are used to the idea that people or entities that can express themselves, or manipulate language, are smart—but that’s not true,” says LeCun. “You can manipulate language and not be smart, and that’s basically what LLMs are demonstrating.”

How will the UK government pay for much-needed infrastructure upgrades?

High energy bills and a troubled water sector trigger debate about which private finance schemes provide value for taxpayers

UK chancellor Rachel Reeves is hoping to attract billions of pounds of private finance to upgrade the nation’s creaking infrastructure and will be courting potential investors at the government’s investment summit on Monday.

Private finance schemes are already used more extensively in the UK than anywhere else in the world and include the energy, water and telecoms sectors and some ports and roads. Companies and investment funds provide upfront cash for projects, mostly in the form of loans with some equity. They recoup and earn a return on their initial investment via customer bills or taxpayer charges, sometimes over many years.

But the patchy record of private finance over the past few decades has triggered debate about which is the best model for attracting investors while still providing a good deal for taxpayers.

Will the Regulated Asset Base model remain dominant?

The most widely used method of securing private finance for infrastructure projects is the Regulatory Asset Base model.

The RAB model gives a value to a collection of physical assets, such as pipes and pumping stations, which can be borrowed against, much like a mortgage on a house. As it is used by companies that are natural monopolies, the regulator sets the charges to customers. This provides a guaranteed revenue stream to repay investors.

It is now being used to finance new projects, such as the Thames Tideway, a £4.5bn sewage tunnel being built under London.

This model allows investors to charge customers while the asset is still being built so they can receive returns from day one. For example, Thames Water’s customers are already paying for the Tideway through an annual surcharge of £28 per household added to water bills.

The late infrastructure expert Martin Blaiklock likened it to a diner “being forced to pay for a meal at a restaurant before the restaurant has even been built, let alone served any food”.

The government often acts as a backstop so if there are significant cost overruns, it has to inject equity or take over management of the project.

Contracts for difference model: the best option for low-carbon energy?

Contracts for difference are the government’s main mechanism for supporting large, low-carbon power infrastructure, providing certainty for investors on the price they will receive for the energy produced. The model has been used to support renewables throughout the UK, including one of the biggest solar and battery farms in Kent, which should provide enough renewable power for 10,000 homes.

The CFDs guarantee a set price for electricity — known as a strike price — that generators receive per unit of output. As the wholesale market price fluctuates, the generator is either paid a subsidy up to the set price, or pays back any surplus above the set price.

Similar models include the cap and floor regime, which sets minimum and maximum levels of revenues for energy storage and interconnectors to neighbouring countries.

The government is also setting up the state-backed Great British Energy, which it says will “attract private investment in the UK’s clean homegrown power”.

Will there be a PFI revival?

Private finance initiatives were canned for central government projects in 2018 after they were deemed poor value for taxpayers. Special purpose vehicles are set up by investors who hire contractors to build and maintain infrastructure such as schools, hospitals, housing or roads.

The Labour government is being urged by investors to launch a new version of PFI after a review by former Siemens chief executive Jürgen Maier backed the model.

A relaunch would come at a difficult time as there are a growing number of legal disputes between investors and public authorities over the terms of the contracts in the previous wave of PFI projects. Many local authorities and NHS trusts are also saddled with crippling debt repayments.

Former Labour minister Lord Hutton believes an amended version of PFI could work for future projects. This could include the Welsh model, where the government or local authority takes an equity stake and investor returns are capped.

Water regulator Ofwat is also encouraging utilities to use a similar model called “direct procurement for customers” for £14bn of new infrastructure.

Government guarantees: too much risk for public sector?

The government guarantees scheme is run by the UK Infrastructure Bank and provides unconditional assurance to lenders that they will be repaid in full in exchange for a fixed fee.

Most recently it was used to back Gigaclear, a broadband company, but the UKIB says it has more in the pipeline.

A 2016 National Audit Office report criticised the scheme for transferring “risk to the public sector”.

The UKIB invests in infrastructure projects alongside private investors and has recently been put in charge of managing the new £7bn National Wealth Fund.

What will the government do?

As the government is seeking to limit public borrowing it is expected to stick with most of these existing schemes.

Richard Threlfall, head of global infrastructure at KPMG, an adviser on several privately financed projects, said: “All infrastructure is ultimately paid for by us as citizens and consumers — but although private capital is more expensive than government borrowing it ensures the asset is delivered and maintained, rather than being deprioritised due to public spending constraints.”

But Stephen Glaister, infrastructure expert at Imperial College London, said the government should “avoid getting into overlong, unmanageable contracts just to disguise the total amount it is really borrowing”. 

Infrastructure experts also argue that where private finance is used it needs to be more tightly regulated. In particular, Alex Jan, a former economics director at Arup who advised several PPP schemes, said the schemes needed to be more transparent.

“It would be an easy hit for the government to insist on full disclosure on returns in exchange for public subsidies,” he said.

But Dieter Helm, utilities expert at Oxford university, warned that Labour’s pursuit of private finance meant it risked “leaving as its legacy a great new burden of debt that will have a long aftertaste, as did the earlier PFI schemes and the great financialisation of the utilities as witnessed in the disaster at Thames Water”.

Eli Lilly told UK health secretary that new drug had ‘potential to prevent Alzheimer’s’

Drug company made claims even though a study of donanemab’s preventive potential is not due to end until 2027

The drugmaker Eli Lilly told the-then UK health secretary last year that its new Alzheimer’s drug could be a one-off preventive treatment course, despite limited data to back up these claims, freedom of information requests have revealed.

In a December 2023 meeting with the Conservative minister Victoria Atkins, Eli Lilly’s chief executive David Ricks said that the company’s donanemab drug had “the potential to prevent Alzheimer’s by treating those with a diagnosis before symptoms have developed”. This would be done by reducing the amyloid plaque protein clumps in the brain that are thought to cause the disease, according to paraphrased minutes released in response to the FOI requests.

Atkins noted the drug’s “game-changing potential”.

But the company has yet to prove this is the case: a study examining donanemab’s preventive potential is not due to end until 2027, a point that was not made clear in the meeting minutes provided for the FOI requests.

Asked about the minutes, Lilly told the Financial Times it believed “there is the potential to treat those with an Alzheimer’s disease diagnosis before symptoms have developed, which we are validating through our ongoing trial”.

The comments have been revealed as drugmakers face more scepticism from European than from US regulators about the costs of identifying eligible patients and administering new Alzheimer’s drugs as well as safety concerns, after a rival treatment was rejected by the European Medicines Agency.

In a wide-ranging discussion, Ricks also told Atkins that donanemab was a “one and done treatment course, with amyloid plaque taking a couple of decades to reaccumulate after treatment”.

Amyloid does build up slowly in the brains of Alzheimer’s patients but whether donanemab is a “one and done” treatment is unknown because the drug has only been trialled in recent years.

Several experts said it was difficult to tell yet if the drugs had preventive potential, while longer-term benefits were also unproved.

Lilly told the FT that its ongoing trial exploring the preventive potential of the drug involved “nine monthly doses [delivered by infusion], following which therapy is stopped”. After the amyloid is removed “it will likely take many years to accumulate”, it added.

Atkins said that meeting companies like Eli Lilly was “one of the most exciting parts of the role to understand the developments and treatments” for diseases like dementia.

The meeting was one of several between Eli Lilly and Conservative health ministers in 2023.

Eli Lilly’s drug is being reviewed by the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) to treat patients with symptomatic, early-stage Alzheimer’s.

Donanemab and lecanemab, a rival treatment developed by Japanese drugmaker Eisai and US biotech Biogen, have both been approved by US and Japanese regulators. But the European Medicines Agency has rejected lecanemab and is still assessing donanemab.

The MHRA approved lecanemab for UK use in August but Nice, the

National Institute for Health and Care Excellence cost-effectiveness watchdog, said it would not be prescribed by the NHS because its benefits were “too small to justify the significant cost”.

During clinical trials, lecanemab slowed the progression of Alzheimer’s disease by four to six months in people in the early stages of the disease. Donanemab slowed it slightly more.

However, 27 per cent of lecanemab patients and more than a third of donanemab patients experienced “amyloid-related imaging abnormalities” (Aria) caused by brain swelling and bleeding.

In its decision to reject lecanemab, the European Medicines Agency said “the seriousness of this side-effect should be considered in the context of the small effect seen with the medicine”. The MHRA has called for testing for a gene linked to higher Aria rates.

Another challenge for health systems is the infrastructure required to diagnose the disease early enough for the drugs to be effective and to administer them and monitor patients for side-effects.

In his meeting with Atkins, Ricks noted that the Pet scans — used to identify potential patients and monitor their progress — are “expensive and there are not enough Pet cameras to test at the scale required”.

Eisai is appealing against both the Nice decisions and the EMA’s ruling. Gary Hendler, head of Emea at Eisai, said regulators should avoid making “a short-term decision that could impact R&D in the long term.”

Lecanemab is “obviously not the panacea, it’s not the cure. But without the first step, what’s the add-on medicine? Where do you go after that?” he said.

Anne White, head of neurology at Lilly, said it was “hugely disappointing that they reacted this way to [lecanemab]”. She added that it was “almost unthinkable” that new Alzheimer’s drugs would be “available in the US, China, Japan, UAE . . . across the world potentially and then, not in Europe”.

The EMA and MHRA declined to comment.

Spectre of low inflation returns to haunt Eurozone policymakers

Weak growth and reduced price pressures could force European Central Bank to consider prolonged series of rate cuts

The Eurozone’s weak economic growth and sluggish consumer price rises have raised concerns that the European Central Bank may be facing the threat of too little rather than too much inflation, economists have warned.

The prospect of a bout of reduced price rises is a sharp turnaround from recent historic levels of high inflation, which forced the ECB to push interest rates up to a record 4 per cent in September 2023.

Monetary policymakers will meet this Thursday and are widely expected to reduce rates. Having previously not anticipated a cut until December, investors now view a quarter-point reduction to 3.25 per cent as a given.

The October cut could usher in a series of faster and steeper reductions in borrowing costs in an effort to stop inflation from persistently undershooting its target, economists said. Financial markets are now pricing in that the ECB will lower rates to just 1.7 per cent by the second half of next year. In September, annual inflation fell to 1.8 per cent, putting it below the ECB’s 2 per cent medium-term goal for the first time in more than three years.

“Avoiding a fall back into the pre-Covid world [of inflation below 2 per cent] will be one of the ECB’s biggest challenges,” said Jens Eisenschmidt, chief Europe economist at Morgan Stanley, who until 2022 worked at the ECB. He predicts the ECB’s key deposit facility rate will have halved to 1.75 per cent by December 2025, but added: “It is very well possible that this level will not be the end [of the easing cycle].”

Historically, too little rather than too much inflation had been the ECB’s bigger problem. In 93 of 120 months to July 2021, when the recent surge in prices began as demand rebounded during the pandemic, inflation was lower than the ECB’s goal. The 2 per cent target was introduced that summer.

It replaced a more conservative goal of inflation being “below, but close to 2 per cent”. To stop further falls in inflation, the ECB embarked on an unconventional monetary policy, inflating its balance sheet through bond purchases and pushing its key interest rates into negative territory.

Minimal price increases increase the danger of falling into deflationary territory, which can trigger a self-reinforcing downward cycle as consumers postpone purchases while shrinking income makes it harder to pay down debt. Overcoming deflation can be much harder for central banks than reining in inflation.

For now, the latest ECB staff forecasts predict that annual inflation will hit its 2 per cent target in the fourth quarter of 2025 and stay well above that level over the first nine months of the year.

But central bank officials were concerned that the forecast, which was published in September, might be too rosy even before the month’s annual 1.8 per cent inflation figure was published. According to the minutes of the September meeting, rate-setters noted that “the risk of undershooting the target was now becoming non-negligible”.

Yannis Stournaras, governor of the Bank of Greece, said this week the most recent data “suggests that perhaps we get to 2 per cent in the first quarter of 2025”.

This is despite an expected temporary rise in headline numbers by the end of the year. Due to a statistical quirk, the year-on-year comparison in November and December will be distorted upwards as oil prices in the final months of last year fell temporarily.

But the ECB “will see through that”, said Bill Diviney, ABN Amro’s head of macro research.

As wage rises in leading Eurozone economies respond with a time lag to the past surge in inflation, headline inflation numbers next year are also expected to be higher than the more feeble underlying economic dynamics would suggest, said one person familiar with the thinking of a member of the governing council.

“In the short term, the weak growth outlook is the more critical factor but the risk of undershooting [the 2 per cent inflation target] is already part of the equation,” the person said.

ECB president Christine Lagarde said last week that the central bank would take into account increasing confidence that the ECB’s medium-term inflation target was in touching distance, a remark that increased investors’ expectations of a rate cut.

Yet Sebastian Dullien, research director of Düsseldorf-based Macroeconomic Policy Institute, said weak growth and sharply falling inflation suggested that the ECB “is acting too slowly [on adjusting rates] once again”, adding that the central bank’s analysis of the drivers of inflation was “flawed”.

Dullien argued that the inflationary surge between 2021 and 2023 was a temporary one driven by higher energy prices and supply chain bottlenecks rather than a fundamental rise in demand. He said the ECB increased interest rates too much, harming an economy that was already hit by low productivity, tepid investment and an ageing population.

“The overly restrictive monetary policy exacerbated some of the structural issues,” Dullien added.

European carmakers plan dozens of cheaper models to survive ‘EV winter’

Manufacturers must sell more electric cars to meet tough new EU carbon targets

European carmakers are planning dozens of affordable electric models next year as they brace for an “EV winter” driven by tough new EU carbon emission targets and fierce competition from China.

Ahead of this week’s Paris Motor Show, the big European manufacturers, who have also been squeezed by falling demand, are focused on recovering lost market share with new vehicles.

“We are here to fight,” said Renault chief executive Luca de Meo earlier this month as he unveiled a battery recycling project and plans to support the company’s EV business. “We have challenges everywhere. It’s not a walk in the park but we see a lot of potential.” 

Renault is the only major European carmaker that has not issued a profit warning recently. Volkswagen, Stellantis, BMW and Mercedes-Benz have all cut their earnings forecasts because of problems on multiple fronts from intense competition to weak European demand and rising inventories in the US. 

The pressure on the industry will increase again next year when new EU emissions targets come into force. These require carmakers to cut carbon emissions from their fleets — by increasing the proportion of electric and hybrid vehicles — or face large fines. 

Executives say meeting the emissions targets has been made harder by a recent slowdown in the growth of EV sales: consumers have become more cost conscious and subsidies have been cut in big markets such as Germany.

Some carmakers, with the exception of Stellantis, have called for the targets to be watered down or delayed, to avoid fines that could add up to a collective €51bn by 2030 according to consultancy AlixPartners. 

Addressing an Italian parliamentary committee on Friday, Stellantis CEO Carlos Tavares said the shift to EVs required by the rules would add significant costs for carmakers.

“In a system that cannot absorb more price because the consumer does not want to pay more, we are inserting 40 per cent more cost,” he said.

Barclays analyst Henning Cosman estimates global carmakers will launch more than 100 EV models this year in Europe and around 70 in 2025, but the cheaper prices required to make sales could cause an “EV winter”, he added. 

“If you are a consumer, you almost feel like buying an electric vehicle today is a mistake because you know that you can get a better one with longer range and newer technology and most likely at a lower price pretty soon. That’s really the downward spiral,” he added.

European carmakers, knowing they would be under pressure to sell cheaper models in 2025, have focused on the more expensive end of the market this year.

That has made them less able to compete with the likes of China’s BYD and Xpeng which have a €20,000 price tag for some models — about half the average price of an EV in Europe according to Transport & Environment, an NGO. 

“There could be a price war, but I’m not sure the Europeans are the best place to win it,” said Alexandre Marian of AlixPartners. 

EVs are already less profitable for carmakers before any new discounting next year. Across the industry, gross margins are about 15 percentage points lower than they are for combustion engine models, according to Barclays.

Some cheaper models will be displayed at the motor show, including an under €20,000 car made by Leapmotor, the Chinese partner of Stellantis.

Renault is already taking orders for its electric R5, priced at around €25,000. While Citroën, another Stellantis brand, will show models including the C3 Aircross compact SUV, though only the non-electric versions are priced at around €20,000.

According to research compiled by Renault, EU carmakers will need a 20 to 22 per cent share of the European market share to comply with the emissions targets. But at the moment, they are stuck at less than 15 per cent. 

Analysts say the targets are achievable if carmakers buy emissions credits from rival groups that sell cleaner vehicles. But the cost of doing this for the likes of Volkswagen and Ford, which are the most behind on the targets, are likely to drag their profits down further.

Ahead of the motor show, Luc Chatel, the head of French car lobby PFA, told radio station RTL that “manufacturers and the whole industry are investing billions of euros” to shift to EVs.

But he added a warning on the “serious danger” for the industry. “Consumers aren’t following any more. This means manufacturers will no doubt have to pay European fines next year, which is pretty surreal.”

New Abu Dhabi asset manager Lunate reveals deals streak

The firm, which officially launched in January, has already taken stakes worth $5bn this year

New Abu Dhabi asset manager Lunate has invested in 25 deals so far this year, buying stakes in companies from private equity firm CVC to India’s National Stock Exchange.

Managing partner Khalifa al-Suwaidi told the Financial Times that the firm, which officially launched in January, had already invested $5bn this year and hopes to deploy $8-10bn a year, making it an attractive potential client for money managers looking to raise funds.

The dealmaking comes as oil-rich Abu Dhabi seeks to attract foreign hedge funds and asset managers to set up in its financial centre, advertising itself as the “Capital of Capital”.  

Lunate manages assets for Abu Dhabi sovereign investor ADQ and others, and is owned by its three managing partners and Chimera Investment. Chimera is part of the sprawling business empire of Sheikh Tahnoon bin Zayed al-Nahyan, the United Arab Emirates’ national security adviser and chair of ADQ.

Abu Dhabi has several sovereign investment funds, including ADIA, Mubadala and AI-focused MGX. But Suwaidi said the emirate was keen to support an independently managed “local champion”. Lunate has also been awarded a UAE licence to manage employee savings schemes, and has launched several passive funds. 

Some in the industry, however, question the extent of Lunate’s independence. 

The firm says it has $105bn of assets under management, including the investments it has made this year, and future commitments from ADQ totalling around $47bn.

This is in addition to the alternative investments portfolio it manages on behalf of ADQ, which was worth around $34bn in 2023 according to ADQ’s bond prospectus; and legacy investments of undisclosed value managed on behalf of Chimera. 

It declined to comment on whether it was charging management fees on the assets that had been committed but not yet deployed, saying the details were “confidential, in line with industry practice”.

Lunate also owns Alterra, a $30bn climate fund with international firms BlackRock, TPG and Brookfield, to which ADQ has committed $6.5bn. Lunate includes Alterra in its assets under management. 

The firm also declined to comment on whether its managing partners had contributed their own funds.

Until now, among Lunate’s few publicised deals were two acquisitions — stakes in a Dubai office tower and the Abu Dhabi national oil company’s listed pipelines business — and one joint venture, with New York-listed alternative asset manager Blue Owl Capital. The joint venture has invested in healthcare private equity firm Linden Capital Partners.

One Emirati finance executive said it was “quite complex to make sense of what is going on at Lunate,” and that “it feels like another pool of sovereign wealth money”. Another characterised Lunate’s relationship with Abu Dhabi’s sovereign funds as “right hand to left hand”.

Suwaidi insists Lunate is independent, pointing out that it manages money for more than 10 clients aside from ADQ and Chimera. He declined to name any of them, citing confidentiality, but said it had recently signed on a large family office in the Middle East.   

“I think it’s very natural for Abu Dhabi to think about supporting a local champion that is the largest in the region as of now,” Suwaidi said.

Nonetheless, its ties to ADQ are strong. ADQ’s chief executive Mohamed Hassan Alsuwaidi is chair of Lunate, and ADQ’s former chief investment officer Murtaza Hussain is one of Lunate’s managing partners. ADQ’s bond prospectus states that its alternative investments team “were hired by Lunate”, although Suwaidi said that Lunate had not hired the entire employee group. 

Meanwhile, Lunate’s nearly 200 employees have been busy. Suwaidi said the business had looked at 550 possible transactions, but ultimately chose just 25. He declined to give the size of any of Lunate’s investments, but said its “sweet spot” was to invest $100-300mn. 

Although it says it is not sector specific, the deals Lunate disclosed to the FT skewed towards financial services.

The “whole strategy is really around co-investment and sometimes co-underwriting,” Suwaidi said. 

Its main strategy — some 45 per cent of its assets — is to invest in funds. Lunate said it has made 12 fund investments this year.

Fund investing enables Lunate to build relationships with global asset managers and private equity firms, Suwaidi said. These then share opportunities with Lunate, “generat[ing] our direct and co-investment deal flow,” its second-largest strategy.  

Lunate also has a special opportunities strategy “for IPO, pre-IPO, where access is an advantage,” and a long-term capital strategy to generate yield. 

Suwaidi said Lunate had invested in several initial public offerings this year, but only disclosed two: Parkin, a state-controlled parking company listed in Dubai, and European private equity group CVC Capital.

3i searches for next ‘gem’ as short seller circles

The UK’s oldest buyout group has become heavily dependent on Dutch retailer Action that makes up two-thirds of its portfolio by value

When Britain’s oldest private equity firm 3i purchased an obscure Dutch discount retailer early last decade, even those involved in the deal had little inkling it would become one of the most successful leveraged buyouts in history.

One former executive who worked on the 2011 takeover of Action, which sells cheap products from towels to toilet cleaner out of retail parks, remembers looking around its warehouses and seeing piles of “very dusty old stock”.

But the takeover of an unassuming chain of bargain stores has proved 3i’s redemption trade, rescuing a storied buyout firm from growing irrelevance after a painful restructuring and making eye-watering returns for its shareholders in the process.

The firm, which in recent years has added to the majority stake it bought in 2011 for £114mn, now values its investment in the retailer at almost £15bn.

Action has driven a more than 1,000 per cent rise in 3i’s shares as the retailer’s value has ballooned to account for 66 per cent of the firm’s portfolio by value, and has returned at least £2.9bn in cash to its controlling shareholder.

“It’s the gem in their portfolio,” said a former 3i partner.

However, not everyone thinks the rally is deserved. ShadowFall, the hedge fund that shorted the now-defunct fraudulent German fintech Wirecard, has built a multimillion-pound position against the firm because it believes its valuation of Action is too high.

The debate around Action’s valuation has underlined how 3i’s future, and that of its chief executive Simon Borrows, are intimately linked to the retailer’s success and raised questions over what the buyout firm might become — with or without its star asset.

“Shareholders are now essentially buying 3i as a proxy for Action,” said Haley Tam, senior equity research analyst at UBS.

3i declined to comment.

By the time Borrows was promoted from chief financial officer in 2012, the FTSE 100 company, which was founded in 1945 at the request of the UK government to support war-stricken businesses, had 124 investments in small to medium-sized companies and offices across the world.

“When I first joined, 3i was completing a transaction every working day of the year,” said the former executive, who joined the firm in the 1990s. “It was just an extraordinary volume machine.”

But Borrows, a former investment banker who advised on 3i’s initial public offering in 1994, whittled the group down, closing offices from Barcelona to Hong Kong, cutting more than a third of staff and restricting new deals to northern Europe and Brazil.

Within three years the number of companies in 3i’s portfolio had almost halved to 65, with some sold at a loss, while the group’s credit business was sold in 2016.

In 2015 Borrows put an end to third-party fundraising because the firm’s aim of investing in up to seven new targets a year left it with “no compulsion” to seek money from outside investors.

Meanwhile 3i had been growing Action, which had operated 250 stores across the Netherlands, Belgium and Germany when the group bought it. Sales at the retailer, which now operates more than 2,300 stores in 12 European countries, rose from €1.2bn to more than €11bn in the decade to March 2023. 

Action’s returns to the investment firm have largely been funded by the retailer taking on additional debt. The Financial Times reported this summer that 3i was set to receive another payout of at least €1.1bn as Action worked to raise new leveraged loans worth more than €2bn.

The buyout group recently increased its stake in the retailer from 55 per cent to 58 per cent.

Executives at 3i last year received £735mn in carried interest solely relating to the group’s investment in Action.

On top of carried interest, Borrows received more than £7.5mn in bonus and long-term incentives as well as a £700,000 salary for the financial year.

3i now values its stake in Action at £14.8bn.

But Matthew Earl, managing partner of ShadowFall, told the FT he believed the implied Action valuation of 18.5 times operating earnings before interest, tax, depreciation and amortisation was too high. He added the price of 3i’s shares implicitly attached an even higher multiple to the retailer.

Earl said he believed the retailer had benefited disproportionately from high inflation because it buys half its inventory months in advance — an advantage that would fade as price rises subsided.

He also questioned how much the chain could further expand in France, a “saturated market”.

Many remain bullish, and are not convinced by the thesis of ShadowFall’s short position. Clive Black, head of consumer research at Shore Capital, said Action was a “formidable business and it hasn’t gained the valuation it has through market manipulation, it has done it through exceptionally strong sequential growth”.

The discount chain may have benefited from “a short-term tailwind in [profit] margins from inflation”, Black added, but “it’s not just Action, inflation has been everywhere, Action used it well”.

Citi, which increased its price target for 3i days before ShadowFall’s position became public, subsequently argued that the valuation was “cheap when factoring in faster-than-peer growth” and that most of Action’s store growth was expected to be outside of France.

But regardless of Action’s valuation, the more important question for some is what 3i’s purpose is, whether it keeps or exits the asset.

Michael Sanderson, director in equity research at Barclays, said shareholders in 3i were “buying a business that is heavily exposed to Action’s development”, whereas 10 years ago it was “building value by . . . buying companies and growing them and selling them on after a short time period”.

He was positive about 3i and Action overall, but added there were “undoubted questions about what the long-term plan is, given [Action] is such a large part of 3i right now” and that the retailer had “got to such a scale now, there are very few options” for exiting it.

For the former 3i executive, the group’s non-Action portfolio “is now not of a scale that it probably survives on its own”. They added that 3i had “become a victim of Action’s success”.

The need to diversify appears not to be lost on 3i, whose executives have pointed to other portfolio companies that could be their next success story.

3i designated Royal Sanders, a European producer of personal care products, to its “longer-term” assets last year. It has also highlighted Netherlands-based bread and snack producer, the European Bakery Group, as a strong performer in recent years.

“A number of assets have the potential to become longer-term compounders like Action,” Borrows said in May.

“We’ve obviously learned the benefits of holding things for longer,” he said last month, adding that the group’s 2015 sale of global material-testing laboratory network Element had been too early because it had “continued to grow significantly” since.

The buyout group is also looking to make two or three investments a year in software and services companies, to add to an overall “non-Action portfolio” that it recently said had both strong and weak-performing assets.

Despite Action’s continued growth, the former 3i partner suggested the group would keep Action “as long as they can”, but questioned just “how much of the juice is left” in the retailer.

As for what the firm would be without Action, the person suggested 3i might regret selling the credit arm given the private debt market boom.

“Simon’s probably looking at Action as his swan song,” they said. “After that he goes off. There isn’t anything else.”

3i still manages third-party capital in its infrastructure strategy but the former executive said the decision to stop raising more third-party funds in private equity might also hinder its pursuit of the next Action.

“If you can’t raise third-party funds, it’s very difficult to be a private equity firm these days,” they said.

Borrows has, however, pointed to the lack of pressure to return cash to external investors as a strength that will allow 3i to hold portfolio companies for longer.

Some observers, though, do not hold much faith in it repeating its success with Action.

“Being the next Action is really, really hard,” said Sanderson at Barclays, adding that the prospect of another investment doing as well was “almost impossible”.

Two-and-a-half years after Vladimir Putin invaded Ukraine, provoking successive waves of Western economic sanctions, Russia is pumping about as much oil as ever. That’s the way Washington and other Western governments want it.

Russian production has dipped 8% from the prewar month of January 2022, to about 9.8 million barrels a day, but mostly thanks to compliance with OPEC+ cuts.

“From the beginning, the West tried to maximize sanctions without affecting Russia’s core industry, oil.” Says Eddie Fishman, a former U.S. sanctions official now at Columbia University’s Center on Global Energy Policy.

Avoiding an energy shock when inflation was already rocketing to 40-year highs took precedence over a strike at Russia’s economic jugular. That’s a comforting thought as crude prices head north again on Israel’s confrontation with Iran. It’s not so comforting for those hoping that Putin will make peace in Ukraine.

Sanctions did aim to cut Moscow’s earnings from oil sales. They have, some. The European Union stopped buying Russian oil in the winter of 2022-23. Exports rerouted elsewhere were supposed to be subject to a $60-a-barrel price cap. The EU and U.K. would enforce that by denying tanker insurance, which they dominate, to noncompliant shippers.

Moscow countered by assembling a “shadow fleet” of 300-some secondhand tankers, says Craig Kennedy, an associate at Harvard’s Davis Center for Russian and Eurasian Studies. It tacked on “mystery insurance that was good enough for India or China,” which stepped in as buyers.

The Biden administration started sanctioning individual shadow tankers last autumn, then stopped this February as Houthi militias in Yemen continued to threaten Red Sea shipping, Kennedy notes—another apparent concession to U.S. pump prices.

The expense and bother of shadow fleet shipments to Asia are still costing Russian exporters $5 to $10 a barrel compared with their former European sales, says Ronald Smith, senior oil and gas analyst at BCS Global Markets.

Roughnecks in West Siberia have adjusted well to any shortages of sanctioned Western equipment, and the forced exit of service companies like Halliburton and Baker Hughes, says Hunter Kornfeind, an oil market analyst at Rapidan Energy Group. “The domestic industry has continued to perform,” he says.

The worst economic blow to Russia was self-inflicted when Putin cut most gas exports to Europe in hopes of breaking its resolve to support Ukraine. That’s costing the Kremlin up to $20 billion a year, Smith figures, more than 1% of gross domestic product.

The Free World has stymied the Kremlin’s ambitions to replace pipeline exports with liquefied natural gas, forcing French oil major TotalEnergies out of an LNG partnership in the Arctic, and withholding ice-breaking tankers that are only built in South Korea. Exxon Mobil pulled out of a joint venture to extract oil from Russia’s Arctic, leaving longer term supplies in question as West Siberian fields dwindle. “Russia’s status as an energy superpower has fundamentally altered on a five-to-20-year horizon,” Fishman says.

For now, though, a trade surplus of $86 billion last year enables Putin to absorb his gas losses and meet skyrocketing military expenses. The next U.S. president, particularly if it is Kamala Harris, could have a freer hand to go after Russia’s shadow fleet and tighten other “secondary sanctions” without immediately worrying about losing an election over domestic gasoline prices. But markets aren’t betting on it.

“Either candidate will gradually push the envelope on Russia sanctions,” Rapidan’s Kornfeind predicts. “But not enough to raise prices.”

Letters and meeting minutes appear to show Hamas seeking funding from Tehran, trying to win support from Hezbollah

DUBAI—Israel’s military shared with journalists documents that it said its soldiers found in Gaza and that appear to show financial and military support provided by Iran to Palestinian Islamist militant group Hamas before the Oct. 7 attacks.

The Israeli armed forces gave The Wall Street Journal a series of what it described as letters and notes from meetings of the Hamas leadership as Israel weighs a retaliatory strike against Iran after Tehran fired a large salvo of missiles at Israel this month.

A major counterattack would deepen tensions across a region already teetering on the edge of a broader and more intense conflict.

The papers shown to the Journal suggest that Hamas leader Yahya Sinwar was negotiating with Iran over funding for a planned large-scale assault on Israel as far back as 2021.

In one of the letters, written in Arabic, Iran says it has allocated $10 million for Hamas’s armed wing. A few weeks later, Sinwar asks Iran for $500 million, divided into $20 million a month for about two years.

Other documents were shared with different media outlets. The officials who provided the documents declined to say why they were releasing them now.

The Wall Street Journal hasn’t independently verified the documents, most of which the Israeli military said it discovered on Jan. 31 in an underground bunker in the Gaza Strip city of Khan Younis, Sinwar’s hometown.

Hamas didn’t respond to a request for comment.

Iran’s permanent mission to the United Nations in a statement said Hamas has acknowledged that its armed wing planned and executed the Oct. 7 attacks without the knowledge of even its political officials based in Doha.

Any claim attempting to link the attacks “to Iran or Hezbollah—either partially or wholly—is devoid of credence and comes from fabricated documents,” the mission said.

Both Iran and Hamas have acknowledged some Iranian financial and military support for the Palestinian militant group, though many details of Iranian support remain unclear or in dispute. Western officials have estimated that Iran handed tens of millions to the group.

Hamas and Hezbollah officials have offered conflicting accounts of Iran’s possible prior knowledge. The Wall Street Journal has reported that some Hamas and Hezbollah officials said Iranian security officials greenlighted the attack, noting that others questioned that account.

The Israeli military also shared an undated presentation it said it found on a Hamas computer near Gaza City on Nov. 10 which described Hamas’s plans for an attack on Israel that was more ambitious than what eventually occurred.

It described gathering 3,100 aerial photos covering 90% of Israel as it assessed the country’s vulnerabilities, with plans for simultaneous attacks targeting airports and other critical infrastructure and a takeover of Israel’s legislature in Jerusalem.

Other targets would include a set of towers in Tel Aviv near the Israeli defense ministry’s headquarters, aiming for the sort of symbolism that came with the destruction of the World Trade Center on 9/11, the plan said.

The plans also suggested the idea of using horses and chariots to move Hamas militants through Israel, and included a slideshow with an image of two horses and a chariot beside a picture of an Egyptian pharaoh riding in a chariot with a bow-and-arrow.

In the actual Oct. 7 attack, Hamas militants used motorcycles, pickup trucks and paragliders to sweep into Israel. Hamas and other militants killed 1,200 people, including women and children, and kidnapped around 250 others.

The attack led to the current conflict in Gaza, where Palestinian health authorities say almost 42,000 people have been killed, most of them civilians. The figures don’t distinguish between combatants and noncombatants.

Other, undated letters from Hamas to Iran, provided by the Israeli military, suggest the two sides deepen cooperation and organize joint military, intelligence and logistical plans for future conflicts with Israel.

The letters propose developing better drone, air defense and communications systems together.

Together, “we will uproot this monstrous entity, change the face of the region together,” Sinwar wrote in a letter to the head of the Quds Force, an arm of Iran’s Islamic Revolutionary Guard Corps.

Israel in recent weeks has shifted its focus to its northern border, where Hezbollah, a key ally of Iran, began firing rockets at Israel a day after Hamas led the Oct. 7 attacks.

Israel in recent weeks has killed Hezbollah’s leader and senior Iranian officials working alongside the Lebanese militia. That has drawn Iran deeper into the conflict. Earlier this month it fired a barrage of about 180 missiles at Israel.

Israeli Prime Minister Benjamin Netanyahu has vowed a painful response.

Some files provided by the Israeli military dating back to 2019 describe how a Hamas delegation traveled to Iran to meet leader Ayatollah Ali Khamenei and Qassem Soleimani, then the head of the Islamic Revolutionary Guard Corps’ overseas operations unit, the Quds Force.

Soleimani, who was killed a year later by a U.S. airstrike in Iraq, told the Hamas delegation that they had few military allies in the region. Turkey, which hosted some Hamas officials, was sympathetic, he said, but couldn’t provide “a single bullet.”

“The reality,” Soleimani said, “is that there is no one but Iran.”