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Automaker says vehicle would not be profitable within a year of its launch in crowded market

Ford is cancelling plans to manufacture a three-row electric sport utility vehicle, potentially costing the company up to $1.9bn, swapping it for a hybrid version as car buyers demonstrate a slowness to embrace expensive EVs.

The US carmaker said on Wednesday the electric SUV would not be able to turn a profit within a year of launch, due to a crowded market segment and mainstream consumers’ reluctance to pay higher prices for EVs.

“These vehicles need to be profitable, and if they’re not profitable based on where the customer is and the market is, we will . . . make those tough decisions,” said chief financial officer John Lawler.

The company also said it would reduce the percentage of its annual capital expenditure going towards purely electric vehicles from 40 per cent to 30 per cent.

Ford’s decisions come as the pace of EV adoption has slowed among consumers who, unlike the first wave of EV buyers, are more discouraged by high prices and insufficient public charging infrastructure. Manufacturers including Tesla and Ford have cut prices, and Ford chief executive Jim Farley has publicly worried about competition from lower-priced EVs being churned out by Chinese carmakers, even though they have yet to hit the US market.

Ford also is dealing with investors who were disappointed by unexpectedly high warranty costs during the second quarter that caused the company to miss Wall Street’s expectations. The company’s stock has fallen about one-fifth since then, but shares were up 2 per cent on Wednesday to $10.90.

The carmaker will manufacture the three-row SUV as a hybrid instead, as the auto industry continues to re-evaluate a technology many in it had dismissed. Because batteries account for so much of the cost of an electric vehicle, “when you can take down the battery size . . . the profit profile is better”, Ford chief communications officer Mark Truby said.

Ford will take a $400mn writedown for assets tied to manufacturing that are already on its books, Lawler said. It could log another $1.5bn in charges in future quarters for assets that it has yet to receive but which are tied to the three-row electric SUV.

The company also said it “realigned” its battery sourcing to better qualify for tax credits in the Inflation Reduction Act targeted at both consumers and manufacturers.

Ford’s plans “make sense”, said Bernstein analyst Daniel Roeska. But “the criticism Ford will have to face is why its product plan was not more flexible from the beginning, why it has been slow to implement these changes, and why investors will need to wait for a comprehensive update until next year”.

Beijing escalates trade dispute after Brussels unveils additional levies on vehicles

China has launched an anti-dumping investigation into imported European dairy products, in the latest escalation of a trade dispute with the EU.

The investigation comes a day after the European Commission published a series of additional levies on Chinese electric vehicle imports, despite opposition from Beijing.  

The Chinese commerce ministry said on Wednesday that its probe into EU dairy imports was prompted by complaints from domestic manufacturers over European subsidies. According to a statement, the investigation will cover “certain products” including creams and cheeses.

The move marked Beijing’s strongest retaliation yet against Brussels’ EV tariffs. China has already opened anti-dumping probes into French cognac and EU pork imports and has lodged a complaint at the World Trade Organization.

The bloc’s chief diplomat Josep Borrell said at an event in Spain this week that the EU “mustn’t be naive” but that a trade war was “maybe . . . unavoidable”.

The European Commission said that Brussels “takes note” of China’s decision to launch an anti-subsidy probe into certain dairy products and would analyse the procedure “very closely”.

“The commission will firmly defend the interests of the EU dairy industry . . . and intervene as appropriate to ensure that the investigation fully complies with relevant WTO rules,” it said.

European dairy exports to China were valued at about €1.8bn last year, down from €2bn the year before, according to European Commission trade data, and accounted for about 9.5 per cent of the EU’s total dairy exports.

The Chinese dairy industry bodies claimed that imported EU dairy products had benefited from a total of 20 subsidy programmes. Germany is the bloc’s largest producer of milk, butter and cheese, followed by France.

The market share of imports in China’s infant formula market, where competition has increased and regulations have been tightened, fell from 51 per cent in 2019 to 44 per cent in 2023, according to Dutch bank Rabobank.

China’s declining birth rate has also forced domestic and foreign companies to push into new products in the country, such as those targeting older consumers.

Imports of milk power and fluid milk have also declined this year because of higher domestic production, according to estimates from the US Department of Agriculture in May.

“Growth in raw milk production continues to outpace consumption creating an oversupply in the Chinese market,” the report said.

Walmart confirmed it is seeking to sell its entire holding in the Beijing-based company

Hong Kong-listed shares in JD.com JD -4.57%decrease; red down pointing triangle fell by the most in nearly two years after U.S. retailer Walmart WMT 1.11%increase; green up pointing triangle moved to sell its stake in the e-commerce giant worth up to $3.7 billion.

Walmart confirmed it is seeking to sell its entire holding in the Beijing-based company, which has surprised the market recently with the strength of its earnings even as China’s economic outlook stays subdued. The deal also signals Walmart’s confidence that its own operations in China are big enough now to compete in a hotly contested retail market.

“This decision allows us to focus on our strong China operations for Walmart China and Sam’s Club, and deploy capital toward other priorities,” Walmart said.

Walmart owns a 10.35% stake in JD.com, according to FactSet. A person familiar with the process said Walmart’s stake is worth between $3.6 billion and $3.7 billion.

Walmart’s decision appeared to catch investors by surprise. JD.com shares fell 10% in Hong Kong, while its American depositary receipts, which are traded on the Nasdaq, were recently 9.5% lower in after-hours trading.

JD.com didn’t immediately respond to requests for comment.

JD.com reported a strong profit beat in three months through June, leading Citi analysts to raise their full-year adjusted net profit estimate by 9.6%. Daiwa analysts led by John Choi see potential for the company’s net margin to expand this year, helped in part by supermarket sales.

Still, Citi said Walmart can focus more on expanding its stores in China once it no longer owns JD.com stock. “Given the similarities of product categories and strong global supply chain capability of Walmart, it is likely that all e-commerce players in China could face more intense competition in general merchandise and supermarket categories,” Citi analysts led by Alicia Yap said in a research note.

In a separate filing to the Hong Kong stock exchange, JD.com said it had repurchased shares worth $390 million on Wednesday. That means the company has now reached a target set in March to buy back $3.0 billion of stock.

Japan Trade Slips into Deficit, Yen’s Rise Clouds Export Outlook

Japan posted a trade deficit of $4.28 billion in July after reporting a surplus in June

TOKYO—Japan’s balance of trade fell back into the red in July, with the yen’s recent appreciation dimming the outlook for the nation’s exports.

Japan posted a trade deficit of 621.8 billion yen for July, equivalent to $4.28 billion. That followed a 224 billion yen surplus in June, Ministry of Finance data showed Wednesday, and compared with the 359.1 billion yen deficit expected by economists polled by data provider Quick.

In July, exports rose 10.3% from a year earlier thanks to chip-related demand, faster than June’s 5.4% increase. But the rise in imports outpaced that of exports, increasing 16.6% on demand for pharmaceuticals and telephones, the MOF data showed.

A recovery in domestic demand on the back of rising wages has contributed to the strength in imports, economists say.

Higher import costs, inflated partly by the yen’s weakness, have left the country’s trade balance in the red in recent years as Japan depends largely on imports for items including food and energy. Economists say the country is on its way to report another year of an annual trade deficit.

Meanwhile, any sustained recovery in exports may be slow due to uncertainties over the global economic outlook. In July, Japan’s exports to the U.S. and China showed solid growth, while shipments to Europe fell 5.3% from a year earlier.

“[Japan’s] exports are likely to be sluggish for the time being as the slowdown in overseas economies continues, while the downward pressure from the strong yen is being added,” said NLI Research Institute economist Taro Saito.

A stronger yen reduces the competitiveness of Japanese exporters as their products become relatively more expensive overseas. The yen has appreciated sharply against the dollar over the past month after the Bank of Japan raised interest rates in late July, and as expectations grow that the Federal Reserve will cut interest rates soon.

The yen rallied against the dollar after research papers from the Japanese central bank published on Tuesday highlighted the persistence of inflationary pressure in Japan, reinforcing the case for more rate hikes, CIMB research analysts led by Michelle Chia said in a note.

The yen stood around 145.40 to the dollar on Wednesday in Tokyo, compared with around 162 in early July.

Figure of £3.1bn highlights challenge for Labour government

The UK government borrowed more than expected in July, according to official data that highlights the budget challenges facing the Labour chancellor Rachel Reeves.

Borrowing — the difference between public sector spending and income — was £3.1bn in July, £1.8bn more than in the same month in 2023 and the highest July level since 2021, the Office for National Statistics said on Wednesday.

The figure was also much higher than the £0.1bn forecast by the Office for Budget Responsibility, the UK fiscal watchdog, and the £1.5bn predicted by economists polled by Reuters.

The data underscores the challenge for the Labour government to fund its agenda amid soaring levels of debt.

Earlier this month, Reeves left the door open for more borrowing ahead of her first Budget on October 30, after the government identified a “fiscal hole” of £22bn of unfunded spending commitments.

“Today’s figures are yet more proof of the dire inheritance left to us by the previous government,” said Darren Jones, chief secretary to the Treasury, on Wednesday.

“We are taking the tough decisions that are needed to fix the foundations of our economy,” he added.

In the first four months of the fiscal year to June, borrowing was £51.4bn. That was £0.5bn less than the figure for the same four months last year, but £4.7bn more than forecast by the OBR.

Public debt, or borrowing accumulated over time, was 99.4 per cent of GDP, remaining at levels last seen in the early 1960s, due to higher spending during the Covid-19 pandemic.

ONS deputy director for public sector finances Jessica Barnaby said that while revenue had increased from last year, “this was more than offset by a rise in central government spending”, noting that the cost of public services and benefits had continued to increase.