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National Audit Office report says strategy does not deliver value for money

The UK’s spending watchdog has questioned whether Britain’s investment in the European Space Agency is delivering value for money, after noting that the country received a lower return than France, Germany and Italy over most of the last decade.

The National Audit Office on Tuesday published a highly critical assessment of progress on implementing the UK’s national space strategy, unveiled in 2021 by the previous Conservative government. While directing space spending through the ESA “gives UK space companies and academics access to large-scale space programmes which would be challenging to replicate nationally,” the report said, “the UK does not yet receive contracts . . . proportionate to the value of the funding [it] provides.”

In addition to questioning the returns from ESA membership, the NAO said a lack of clarity and detail in the national space strategy was undermining the UK’s ambition to expand its space economy. Three years after unveiling the strategy, the UK Space Agency and the Department for Science, Innovation and Technology were still in the early stages of “identifying and developing the plans and capabilities needed to deliver the strategy’s ambitions”.

The NAO’s findings will rekindle a debate about the value of ESA membership after British companies were excluded from bidding for contracts on navigation service Galileo and the Copernicus earth observation project as a result of Brexit. 

Although UK companies are again eligible for Copernicus contracts since January, many in the space sector have been lobbying for a strong national programme to accelerate growth in areas where the UK has expertise, such as earth observation and data analytics.

“We still do not have a big national project that industry can focus on,” said one veteran space industry executive.

ESA acts as the procurement agency for the EU, but is an independent intergovernmental organisation that pools investment in big scientific and public space programmes. Its 22 members include non-EU nations such as the UK, Canada and Norway. 

Britain is the fourth largest contributor to ESA, accounting for about 9 per cent of its non-EU funding. Roughly three-quarters of the UKSA’s budget goes to ESA programmes and in 2022 the previous government pledged £1.84bn in funding between 2023 and 2027.

The ESA aims for member states to receive the equivalent of their funding pledges in contracts to industry and academia, minus a small deduction for overheads. A confidential report by the UKSA’s executive committee found that between the final quarter of 2015 and February 2023 the UK received 93p back in contracts for every £1 allocated to the ESA. 

The NAO notes that the UKSA has made efforts to boost the returns, helping companies to identify opportunities and to submit applications. By the end of last year the return had improved to 96p on the pound, “but this means UK industry and academia are still not benefiting in terms of contract value from the full funding given to ESA by UKSA,” the NAO said. 

“France, Germany and Italy achieved values between 0.99 and 1.02,” the report added.

David Parker, ESA’s Director of Human and Robotic Exploration until 2023, told the Financial Times that the UK received substantially more economic value from its ESA membership than was accounted for by contract awards. “The UK has had a larger share of the return on science programmes,” Parker said.

Parker said some of the deficit reflected a “change in the UK industrial landscape. Some of the capabilities have changed.” But work was being done to educate companies about the opportunities and procedures. “It will come back again,” he said.

The UKSA said it was working to improve the returns, with a target to reach parity by the end of this year. “We are making good progress,” the agency said.

Josef Aschbacher, director-general of the ESA, told an audience at the Farnborough air show that the agency was taking steps to “give more energy” to its UK based centre focused on satellite applications and telecommunications.

Berkshire once had a nearly 40% stake in the Chinese EV giant, but had promised to refocus investments in the U.S.

Warren Buffett’s Berkshire Hathaway pared its stake in BYD to less than 5%, further unwinding its long-term bet on China’s largest electric-vehicle maker amid a broader refocus on U.S. investments.

The Omaha, Nebraska-based investment giant recently lowered its stake in BYD to 4.94% from 5.06%, selling 1.4 million H shares at an average of 246.96 Hong Kong dollars, or about $31.64 each, according to an exchange filing Monday. Dropping below the 5% threshold means that Berkshire will no longer be required to disclose its sales of BYD stock on the Hong Kong stock exchange.

BYD shares closed 3.1% lower in Hong Kong and 4.7% lower in Shenzhen on Tuesday. The company’s Hong Kong-listed shares have risen about 11% this year, while its China-listed shares are up about 28%.

Berkshire has been regularly trimming its stake in BYD since August 2022, shortly after shares hit a record high. At the time, Berkshire’s shareholding exceeded 20%. At its peak in 2008, Berkshire held a nearly 40% stake.

Berkshire didn’t immediately respond to a request for comment.

Buffett said in May that his late business partner, Charlie Munger, had been the one to initially push to buy into BYD, but that going forward, Berkshire would focus its primary investments in the U.S.

Berkshire in early 2023 sold all its holdings in Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker.

Berkshire “made it clear that they will engage with more opportunities in U.S.” markets, Nomura analyst Joel Ying said. Intense competition in China’s EV market is likely another major reason for trimming the BYD stake, he said.

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Excess inventory of Jeep and RAM vehicles looms over an otherwise benign environment for Detroit’s automakers

Two of the Detroit Three had a good first half. The third risks spoiling the fun.

General Motors GM 2.61%increase; green up pointing triangle and Ford Motor F 1.00%increase; green up pointing triangle are expected to report surprisingly resilient results this week, including record quarterly revenues, according to FactSet’s analyst consensus. Investors can thank the strength of the American consumer, sales discipline among manufacturers and a slowdown in electric-vehicle sales.

Six months ago, GM and Ford were penciling price declines into their forecasts for the year as the American vehicle market started to normalize following supply shortages. But sales prices have turned out better than expected, enabling the manufacturers to lift their profit guidance for the year despite a stalling recovery in sales.

Detroit also is a beneficiary of the EV slowdown that has hit Tesla. The prospect of consumers gradually shifting to a new powertrain technology—that the industry incumbents haven’t yet worked out how to make profitably—has been a significant investor concern. It still is, but the pain appears to be delayed, with EV sales stuck at around 7% of the U.S. total in the first half, down slightly from the second half of last year.

GM and Ford shares are up 34% and 15% so far this year, respectively. Profit-forecast upgrades account for most of the gains, with generous buybacks mechanically increasing earnings per share more for GM. Rising earnings multiples explain the rest, though they remain below their historic averages. Last fall, GM’s stock was trading at the lowest multiple in its postbankruptcy history, so there was ground to catch up.

The biggest risk for the second half is that pricing discipline starts to slip—led by Stellantis, which this year has gone from being the star of the Detroit family to the black sheep.

After a knockout few years, the successor company to Fiat Chrysler has struggled to shift an aging, aggressively priced line up of Jeeps and RAM trucks. With inventories accumulating on lots, dealers have been pushing it to sweeten the deal with buyers. This month the company kicked off a $2,000 summer “bonus cash” program.

Cutting prices that were too high won’t necessarily start a price war, and Stellantis’s problems seem largely of its own making. “We were arrogant,” as Chief Executive Carlos Tavares admitted at an investor day last month.

Yet it wouldn’t take much more competition for buyers to make life tough for Stellantis’s peers. Car manufacturers’ results are very sensitive to small changes in vehicle prices given their high fixed costs. So far, the new-vehicle market has weathered high interest rates better than many expected, helped by demand pent up during the pandemic era, but this can’t last indefinitely.

Inventories have been gradually building back to pre-Covid levels: There were about 2.9 million vehicles on dealer lots as of July 8, shy of the 3.4 million level at the start of 2020 but up from less than a million at the 2021 lows, according to Cox Automotive data.

What higher incentives from Stellantis will certainly do is hit its own results. Analysts have cut their forecasts for the company’s earnings per share over the next 12 months by about 8% this year, including a roughly 3% decline this month.