TheChek News Flow

Rivian’s financial losses have crept up as it pushed out the last of its first-generation R1 trucks and SUVs in favor of newer, more cost-efficient versions — a sign of just how much the company could use the $5 billion it could get as part of a recently announced deal with Volkswagen Group.

The company announced Tuesday that it lost $1.46 billion in the second quarter of 2024, up from a first-quarter loss of $1.45 billion. The loss was nearly $300 million worse than the second quarter last year.

As a result, Rivian’s balance of cash and cash equivalents was $5.76 billion at the end of the quarter. That includes the first $1 billion from VW.

This all comes as Rivian has begun shipping revamped versions of the R1 that are simpler and cheaper to make. Rivian CEO RJ Scaringe has said these vehicles, shipped at scale, should help the company reach positive gross profit by the end of 2024.

But since Rivian is expecting to make and sell roughly the same number of EVs this year as it did in 2023, all eyes are on its second model — the R2 SUV, due out in 2026 — to help establish it as a sustainable company.

Until then, Rivian will be helped by the additional $4 billion that VW will pour into the young automaker — as long as the two companies finalize the agreement. That is supposed to happen sometime in the fourth quarter of this year. Once complete, the deal will see Rivian and VW create a joint venture that will leverage Rivian’s advanced electrical architecture and software. That technology will flow into Rivian’s R2 and the many VW Group’s EVs, and possibly ones built by other automakers.

Scaringe was careful not to share much new information about the VW tie-up during a conference call Tuesday. But chief software officer Wassym Bensaid said Rivian has a drivable demonstrator vehicle equipped with the company’s electronic components and its software stack.

“We’re actually extremely excited with the progress that we’re making in the electrical architecture integration analysis. Our engineers have been working very closely with the Volkswagen Group,” Bensaid said. “We’re moving forward really, really well in understanding how our technology will scale up and down the entire Volkswagen Group portfolio.”

Rivian had previously said in the run-up to the announcement that it had completed “significant work” to “validate that Rivian’s electrical architecture and software are compatible with Volkswagen Group’s vehicles.” Harry Porter, a spokesperson for Rivian, declined to offer any further information about the demonstrator vehicle.

Until the VW deal is done, Rivian will turn to other methods to pad out its business. For instance, the company said it sold $17 million worth of regulatory credits to other companies in the second quarter. Scaringe said on the call that major automakers scaling back EV ambitions has created a “void of products” that is increasing the opportunity for Rivian to sell these credits — so much so, he said, that Rivian could wind up selling more than it had anticpated.

The company is also building out an EV charging network to support its vehicles that could pull in some extra revenue, especially as Rivian allows other EVs to access it starting later this year.

Nikkei surges as deputy governor says central bank won’t tighten when markets are unstable

TOKYO—A week after Japan’s top central banker shook up global markets with comments about raising interest rates, one of his deputies walked them back Wednesday and promised not to raise rates when markets are unstable.

The pledge by Bank of Japan Deputy Gov. Shinichi Uchida led to a sharp recovery in Tokyo stock prices and a fall in the yen. That moved markets closer to where they were before the July 31 news conference by Gov. Kazuo Ueda, in which he suggested he wanted to keep raising rates despite lackluster consumer spending in Japan.

In a speech to business leaders in northern Japan, Uchida said Japan wasn’t in the position of the U.S. and Europe several years ago, when surging inflation led central bankers to push rates up rapidly.

“Therefore, the bank will not raise its policy interest rate when financial and capital markets are unstable,” Uchida said.

The Nikkei Stock Average rose 2.3% to 35464.61 at Wednesday’s morning close after starting the morning down by a similar percentage. The yen weakened to around 147 to the dollar compared with 144.50 earlier in the morning. The yen stood around a three-decade low of 162 in early July.

The Bank of Japan lifted its policy interest rate to 0.25% on July 31. Combined with Ueda’s hawkish comments and the prospect of Federal Reserve rate cuts soon, the move pushed up the yen sharply.

That in turn pushed down Japanese stocks, and the Nikkei on Monday suffered its biggest single-day percentage loss since 1987. Global stock markets including the U.S. followed suit.

Recent developments in the markets have been “extremely volatile,” said Uchida, a career central banker who is seen as the key player in setting the Bank of Japan’s monetary policy.

“The bank is monitoring developments in these markets and their impact on economic activity and prices with utmost vigilance,” Uchida said, adding that stock prices and currency rates needed watching because they could affect corporate investment and inflation.

He stressed the dovish side of the Bank of Japan’s current policy, observing that the policy rate of 0.25% is especially low in real terms after accounting for inflation. “The bank will therefore continue to support the economy by maintaining highly accommodative financial conditions,” he said.

Cathay Pacific First-Half Profit Fell, Announces Airbus Jet Order

The airline reported a net profit of 3.61 billion Hong Kong dollars, down from HK$4.27 billion a year earlier

Cathay Pacific Airways said it would buy Airbus AIR 1.95%increase; green up pointing triangle jets valued at US$11 billion as the Hong Kong flag carrier posted a drop in first-half profit on higher fuel costs and normalizing ticket prices.

The airline on Wednesday reported net profit of 3.61 billion Hong Kong dollars, equivalent to US$463.1 million, in the first six months of 2024, down from HK$4.27 billion a year earlier. It attributed the fall to the normalization of ticket prices.

Revenue for the period rose 14% to HK$49.60 billion.

Cathay Pacific’s 293 -1.25%decrease; red down pointing triangle passenger revenue in the first half rose 20% to HK$30.02 billion, with its passenger load factor falling to 82.4% from 87.2% a year earlier.

Cathay Pacific said it expects to restore passenger flights to prepandemic levels by the first quarter of 2025.

The airline said it would purchase 30 Airbus A330-900 aircraft with a basic price of about US$11.0 billion for delivery by the end of 2031. Cathay said it has the option to buy an additional 30 jets.

China exports growth slows slightly while imports boom

Strong trade figures for July continue to boost world’s second-largest economy

China’s export growth missed expectations last month but imports rose, reversing previous falls as trade remained the strongest driver in the world’s second-largest economy despite increasing accusations of oversupply from the US and EU.

Exports rose 7 per cent year on year in dollar terms in July, according to official data released by China’s customs authorities on Wednesday, lower than an 8.6 per cent rise in June. A Reuters poll of analysts had forecast growth of 9.7 per cent.

Imports rose 7.2 per cent, reversing a decline of 2.3 per cent year on year in June and far outpacing the 3.5 per cent growth predicted by the Reuters poll.

The figures put China’s trade surplus at $84.7bn, compared with forecasts for $99bn and June’s figure of $99.05bn.

China’s economy has depended on trade and industrial output to offset slowing growth from a prolonged real estate downturn and sour local government finances, which have knocked consumer confidence and household spending.

Investor confidence has also been hit by government crackdowns and Beijing’s insistence on providing only incremental stimulus to ensure the economy hits its official growth target of 5 per cent, which is low by the standard of previous decades.

President Xi Jinping is pushing a vision of lifting China’s productivity through investment in advanced technology, manufacturing and innovation, with state banks pumping lending into industry rather than stimulating domestic demand.

This has led to disinflationary pressures in the economy, with the lower prices supercharging the competitiveness of China’s exports at a time when developed markets are wrestling with higher inflation.

China imposes restrictions on fentanyl chemicals after pressure from US

Move is the first time in six years that Beijing will restrict the ingredients used in the drug

China is to impose controls on the production of critical chemicals for the manufacture of fentanyl, in a sign of rising co-operation between Beijing and Washington over efforts to crack down on the deadly synthetic opioid.

The Biden administration on Tuesday said China would impose regulations and controls on three essential chemicals used in fentanyl from September.

The move — a process known as “scheduling” — marks the first time China will impose restrictions on the production of ingredients for the drug in six years.

The White House said it was a “valuable step forward” that followed a meeting between senior US and Chinese officials in Washington last week.

Washington has been pressing Beijing for several years to crack down on the production of ingredients used in fentanyl, which it estimates claimed the lives of almost 75,000 Americans in 2023.

US officials say the illicit drug has become the leading cause of death for Americans between the ages of 18 and 45.

The enhanced US-China co-operation stems from an agreement reached between President Joe Biden and President Xi Jinping at a summit in San Francisco in November 2023.

The two leaders agreed to create a working group to tackle the fentanyl issue as part of an effort to stabilise turbulent relations between the two powers.

In 2019, China took measures to stem exports of fentanyl to the US, causing Chinese groups to shift their focus to making the chemicals needed to produce the drug. They have been sending the chemicals to cartels in Mexico which produce fentanyl for distribution in the US market.

In a statement, the Chinese government said it would subject three chemical ingredients — 4-AP, 1-boc-4-AP, and Norfentanyl — to controls from September 1.

“China has always attached great importance to international counter-narcotics co-operation and is willing to co-operate with countries worldwide including the United States,” said Liu Pengyu, the Chinese embassy spokesperson in Washington. “We hope that the US side can work with China in the same direction, and continue our co-operation based on mutual respect, managing differences, and mutual benefits.”

UN member states in 2022 agreed to impose international controls on the same chemicals, but China had until now not subject them to corresponding domestic controls.

Congress has become increasingly vocal in its criticism of China over the fentanyl crisis.

In a report in April, the House China committee blamed Beijing for the fentanyl epidemic and accused it of creating programmes to reward companies for exporting fentanyl and other illegal drugs to the US. The Chinese government has rejected the accusation.

Fentanyl is expected to be a significant election issue as vice-president Kamala Harris and former president Donald Trump battle for the White House.

According to a Morning Consult/Bloomberg poll earlier this year, 44 per cent of respondents said the approach to the drug was a “very important” in deciding who they would vote for in November.

The Biden administration last week urged Congress to pass legislation that would designate fentanyl-related substances as “Schedule I” drugs — which have no accepted medical use and a high potential for abuse — that would lead to higher penalties for distribution and possession.

Chinese battery industry faces consolidation wave

Companies cancel investments and smaller players leave amid slowing EV sales, fierce competition and stricter regulations

A wave of consolidation has swept across China’s battery industry, leading to cancelled investments and the exits of smaller players even as leaders CATL and BYD push ahead with their expansion plans.

In the first seven months of the year, 19 battery gigafactory projects were cancelled or postponed in China, according to London-based research firm Benchmark Mineral Intelligence. That has only accelerated an existing pullback of investment into battery plants as electric-vehicle manufacturers — mainly in Europe — grapple with slowing sales. 

“A lot of consolidation has occurred at Chinese facilities where low prices, combined with struggles with yield, means companies have abandoned plans,” said Benchmark analyst Evan Hartley. He has estimated that these cancellations would reduce China’s battery gigafactory capacity for 2030 by 3 per cent. 

The upheaval in the crowded Chinese batteries industry comes as EV sales growth have declined in parts of the world. After double-digit increases, the growth rates in Europe and North America are expected to fall to 6 and 7 per cent respectively, according to Rho Motion, an EV supply chain consultancy.

The Chinese car industry is also bracing for a similar rationalisation, after proliferating during an investment boom over the past decade. 

Industry bodies estimate that there are roughly 50 Chinese EV battery groups producing in the world’s largest car market, leading to a survival game that is set to intensify as they face fierce competition for technology and stricter government regulations. 

The Chinese market is sharply divided between the bigger players such as CATL and BYD, which dominate the global market for electric vehicle batteries, and a score of smaller players that are left to compete with less financial power and cost competitiveness. 

“The Chinese industry has entered a new round of competition driven by technology innovation and capacity upgrades,” said Kevin Shang, a principal analyst at data and analytics firm Wood Mackenzie. “Basically those who cannot keep up with the trend will gradually be kicked out of the market.” 

Beijing has also issued new regulations to tackle overcapacity, forcing a number of local battery manufacturers to suspend projects recently in China and overseas markets. 

China’s Ministry of Industry and Information Technology in June finalised revised guidelines for the country’s lithium-ion battery industry, which set higher standards for energy intensity, power density, cycle life and other battery specifications. The rules will help companies cut down on production projects that are “purely for capacity expansion”, the ministry said. 

“This indicates that the government is aware of the low utilisation across the supply chain,” Citi analysts wrote in a research note. “We believe that the regulation will benefit the leading names in each battery-related subsectors, as it tries to phase out idle capacity and strengthen the entry barrier with technical standards.”

As a result, new players have struggled. In April, Nanfang Black Sesame Group, China’s largest puréed foodmaker, told investors that it had suspended its planned $3.5bn battery project in the eastern province of Jiangxi, citing “profound changes” in the new energy market landscape. The group had only last year announced a pivot to energy storage.

“The company will not act too hastily . . . and wait for our best chance to execute [the project] to avoid higher investment costs and related losses,” it said in a stock exchange filing. 

In April, more than 20 Chinese companies disclosed construction plans for new battery production facilities that were expected to total an annual capacity of 152 gigawatt-hours, down 55 per cent from a year earlier, according to data compiled by the China Energy Storage Alliance, an industry group.

Smaller Chinese battery makers have also been forced to rethink their once aggressive overseas expansion plans. 

SVolt Energy Technology, which was spun off from carmaker Great Wall Motor and the seventh-largest battery maker in China, abandoned plans in May to build a battery plant in eastern Germany, citing uncertainty over planning, tariffs and subsidies, as well as the loss of a leading customer.

SVolt chair Yang Hongxin has warned that fewer than 40 battery manufacturers could survive the wave of consolidation by the end of this year. “Previously, tier-2 and tier-3 battery makers participated in pricing competitions to grab more market share. Currently, even the biggest players are lowering prices,” said Yang at an event last month.

Companies from battery makers and lithium miners to cathode and anode producers have suffered a profit decline because of falling battery prices, caused by an overexpansion in response to a demand surge between 2021 and 2022. 

Combined revenues and net profits at 107 mainland-listed companies in the lithium battery supply chain came in at Rmb293bn ($40bn) and Rmb17bn for the first quarter, down 18 per cent and 50 per cent from a year earlier, respectively. 

However, top-tier battery makers are expected to emerge even stronger and increase their investments as smaller players merge or go under. 

Last month, Amplify Cell Technologies, a joint venture between China’s fourth-largest battery maker Eve Energy, Indiana-based engine maker Cummins and two truck manufacturers, Daimler and Paccar, began construction of a new battery plant in Mississippi 

Eve Energy also announced a Rmb3.3bn investment in a new factory in Malaysia to produce energy storage and consumer batteries, while China’s fifth-largest battery producer Gotion High Tech plans to invest $1.3bn to build its first gigafactory for EV batteries in Morocco. Sunwoda, China’s sixth-largest battery manufacturer, aims to invest up to Rmb2bn to construct a new battery plant in Vietnam. 

But Shang at Wood Mackenzie cautioned that Chinese battery manufacturers, even the bigger ones, are likely to face challenges in their overseas ambitions as they face a different regulatory environment as well as the geopolitical uncertainty. 

“Chinese companies want to go overseas but they are becoming more realistic,” Shang said. “It’s not as simple as copy and paste [their success in China] so it’s much more complicated than that.”

Roche considers options for $1.9bn cancer data start-up

Swiss drugmaker examines options for Flatiron Health after acquisition has disappointed

Roche is considering divesting a cancer data specialist that was once backed by Alphabet, according to people familiar with the matter, highlighting the hazards big pharma can face when buying start-ups.

The Swiss company paid $1.9bn for New-York based Flatiron Health in 2018, one of a series of bets that the world’s biggest developer of cancer drugs made on early-stage health technology companies.

Flatiron manages electronic patient records for a sprawling network of cancer clinics in the US, giving the start-up access to one of the biggest repositories of data on the disease. Founded by two former Google executives, Flatiron then mines the data and sells it to pharmaceutical groups, which use it to inform their research and development efforts.

Although Roche has kept Flatiron as a separate legal entity, its ownership has deterred some rival drugmakers from doing business with the start-up and hurt sales, according to two people familiar with the matter. Flatiron generates about two-thirds of its revenues selling data to pharmaceutical companies.

The Roche executives who originally championed the deal have largely departed, leaving Flatiron with fewer advocates at the Swiss company, according to another person familiar with the matter.

Roche is now working with Citigroup to assess options for Flatiron, including divesting the business or selling part of the company to a partner that could help to run the business. Roche and Citigroup declined to comment.

Companies with a similar business model, such as Warburg Pincus-backed Modernizing Medicine, which operates patient record systems for surgery centres and other clinics, have proved profitable investments for private equity groups.

Despite Flatiron struggling to make money, one benefit of the acquisition is that its data has helped to improve cancer drug development at Roche, which is currently testing about 60 oncology drugs in clinical trials. It is possible the strategic review may not lead to the business changing hands, the people added.

Roche’s diagnostics division, which generated about a quarter of the drugmaker’s nearly SFr30bn of sales in the first half of the year, has invested extensively in health tech businesses. Under previous management, Roche also bought cancer-focused genomic profiling company Foundation Medicine for $2.4bn.

Shares in Roche have risen 7 per cent this year, giving the drugmaker a market value of SFr253bn, as investors have grown more enthusiastic about a weight loss pill the company is developing.