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Carlos Tavares says price reductions for battery-powered models risk damaging carmakers’ financial health

Stellantis boss Carlos Tavares has warned carmakers cutting electric vehicle prices too fast risked a “bloodbath” in the industry, hours after Ford said it was reducing production of its battery-powered F-150 Lightning pick-up truck because of weaker sales. 

Ford said on Friday it wanted to bring the vehicle’s production in line with customer demand, expecting “continued growth in global EV sales in 2024, though less than anticipated”. 

The F-150 has for years been the best-selling motor vehicle in the US, and the launch of the Lightning model in 2022 was seen as an important moment in the evolution of EVs.

“We see a bright future for electric vehicles for specific consumers,” said Ford chief executive Jim Farley. But the group “has capacity available to scale production of gas-powered and hybrid F-150 trucks based on customer demand”. 

Ford has scaled back plans for an EV battery plant, while General Motors and Tesla have paused some of their EV expansion efforts.

Rental group Hertz, which took Teslas on to its fleet in 2021, has begun selling 20,000 EVs, or one-third of its global electric fleet, to buy more petrol vehicles amid strong demand for internal combustion cars. 

Tavares, whose company owns the Jeep and Ram brands that compete directly with Ford and GM, said that slowing EV demand globally was due to high prices, but warned companies against cutting them on vehicles where they already make very little money.

“If you go and cut pricing disregarding the reality of cost, it’s a race to the bottom and that will end up with a bloodbath,” he said. “That is exactly what I am trying to avoid.” 

Stellantis is one of the biggest EV sellers in Europe through its Peugeot, Fiat, Opel and Citroën brands, and is embarking on an EV “offensive” in the US from this year.

Tavares singled out Tesla, which has cut prices multiple times over the past year to stimulate demand, igniting a price war with Ford, but has seen a slide in its profits at the same time. 

“I know one company that has brutally cut pricing, and their profitability has brutally collapsed,” he said. “When you do that you are jumping in the red ocean, and when you do that things become very difficult in the future.” 

Companies that consistently lost money “become potential targets for consolidation”, he said, adding he did not rule out further acquisitions by the group in the future. Stellantis was formed by the merger of Peugeot owner PSA — which itself bought lossmaking Opel and Vauxhall from General Motors — and Fiat Chrysler, a business created when the bankrupt Chrysler was sold to Italy’s Fiat. 

EV sales continue to rise across the world, at slower rates than had been expected as mass market customers balk at higher prices compared with petrol alternatives.

The market share of EV sales in both the UK and Europe fell last year, while US growth has slowed. 

A record 1.2mn EVs were sold in the US in 2023, including 317,168 in the fourth quarter, according to data from Kelley Blue Book, a research company owned by data group Cox Automotive. EVs made up 7.6 per cent of the domestic car market last year, up from 5.9 per cent in 2022.

However, “while records were set, the oft-reported slowdown is real”, said Kelley Blue Book analysts. “The EV market in the US is still growing, but not growing as fast.”

Sales in the last three months of 2023 rose 40 per cent compared with the same period a year earlier, moderating from 52 per cent in the fourth quarter of 2022.

With European production in the balance, BASF is preparing for a smaller domestic industry

Germany’s Faustian pact over cheap Russian energy has collapsed. Costs initially soared across the country’s industrial sector last year. Chemical manufacturers are particularly sensitive to the price rises. Economic weakness in China, their biggest source of growth, has further squashed margins as volumes fall. Preliminary results from BASF illustrate the malaise.

Operating earnings at the chemicals conglomerate fell 45 per cent last year to €3.8bn. Not only were figures worse than expected but they deteriorated at the end of the year. BASF has a lengthy cost-cutting plan that spans the next two years.

It has already started selling assets — jettisoning oil and gas business Wintershall Dea in December. With core chemicals markets expected to remain in the doldrums this year, incoming chief executive Markus Kamieth will be under pressure to source more growth when he arrives in April.

There are some positive signs for 2024. European gas prices have stabilised around 2021 levels as imported LNG supplies make up the Russian shortfall.

But Europe’s chemical businesses are hardly humming. Petrochemical plants run at 75 per cent capacity — decade lows, according to Barclays. Weak Chinese volumes mean spreads on commodity chemicals — during the transformation of fossil fuels into petrochemicals such as ethylene — remain near 20-year lows.

If the cycle improves and volumes pick up then more gas demand could push up prices. But without a Chinese recovery, the prospect of this is slim. Cyclical upswings in chemical demand are strongly linked to Chinese credit expansion, notes Jefferies. 

European production is in the balance. BASF is preparing for a smaller domestic industry. A new €10bn Zhanjiang plant in China is expected to start operating in 2025.

Having already scrapped a share buyback programme at the start of last year, BASF’s progressive dividend policy could be called into question. The company said on Friday that it expected 2023 free cash flow of €2.7bn. This would not cover consensus expectations for a dividend payout of €3bn, as compiled by Visible Alpha.

The final figure will be confirmed in February. Even at €2.7bn, BASF would need to dip into debt or cash from divestments to cover the shortfall. This is unlikely to sit well politically amid job losses and plant closures. Tough choices — more asset sales or cost cutting — leave Kamieth little to look forward to when he takes charge.

Europe is again on the front line of the latest geopolitical tensions, a development that threatens to widen the economic gap between it and the U.S.

For the second time in three years, a conflict in Europe’s unruly neighborhood is threatening to weaken an already struggling economy while a more robust U.S. is watching from a safer distance.

This time, attacks by Houthi rebels in Yemen targeting cargo ships in the Red Sea have persuaded more carriers to opt for the safer but longer and more expensive journey around Africa via the Cape of Good Hope.

Those detours are raising freight costs and leading retailers to worry about running out of stock. Some factories have suspended work in the absence of needed parts. Should the threat persist, economists think the decline inflation Europe enjoyed last year could slow down, pushing back a potential cut in key interest rates.

“This is clearly one of the major downside risks to growth, and upside risks to inflation,” said Ana Boata, chief economist at insurer Allianz Trade. “We could talk about a recessionary risk.”

The latest geopolitical flare-up could cement a growing asymmetry between Europe and the U.S. As a large energy producer, the U.S. has emerged arguably stronger from the crisis sparked by the Ukraine war. And while some of its imports transit via the Suez Canal, their share is comparatively small, and the Pacific offers an alternative route for cargo out of Asia.

For now, the interruptions to supply chains are on a modest scale compared with the more widespread blockages seen in 2020 and 2021, and their economic impact is likely to be proportionately smaller. Businesses have also learned lessons from interruptions during the Covid-19 pandemic, and have larger inventories than they did then.

IKEA boss Jesper Brodin said the Red Sea conflict has lengthened its shipping routes by about 10 days or longer though its customers aren’t affected.

“The huge difference at the moment is that we have recuperated after the pandemic,” he said at the World Economic Forum in Davos, Switzerland. “So that means our stocks in our warehouse are in good shape.”

Discount retailer Pepco said conflict in the Red Sea has had a limited effect on product availability, but could hurt supply in the coming months if it continues. The discount retailer—which houses Poundland in the U.K. and Dealz and Pepco in continental Europe—said Thursday that Houthi attacks on vessels were leading to higher spot freight rates and delays to container lead times.

But coming in the wake of a global pandemic and the largest European war in eight decades, the escalation of the conflict that began with an attack on Israel by Hamas in early October is a reminder that the outlook for the global economy is increasingly shaped by developments beyond the reach of economic policymakers.

Ships traveling through the Red Sea carry about 40% of the goods that are traded between Europe and Asia. The Houthis initially claimed to target Israeli ships or those bound for its ports but in practice, their attacks have been indiscriminate. That has prompted more operators to divert their traffic around the Cape of Good Hope.

Last week, Tesla said delays in delivery of components caused by the rerouting of ships would force it to suspend production at its only large factory in Europe, the GigaBerlin plant outside Berlin. Volvo Cars, the Chinese-Swedish automaker, said gearboxes needed to build conventional combustion vehicles at a plant in Belgium were delayed, forcing the company to halt production for three days.

Volkswagen, Europe’s largest carmaker by sales, said its plants hadn’t been affected, but that it continued to monitor the situation in close contact with its suppliers. VW said it was rerouting shipments, which was causing some delay.

Oxford Economics estimates that a ship traveling at 16.5 knots from Taiwan to the Netherlands via the Red Sea and the Suez Canal takes about 25½ days to complete the journey. But this rises to about 34 days if the journey is diverted around the Cape.

Extra traveling time reduces the annual capacity of each ship, and can have a knock-on effect on freight costs on other routes, including those between Asia and the U.S. According to the Freightos Baltic Index, the average cost of transporting goods in a container across the globe doubled between Dec. 22 and Jan. 12.

Those times could lengthen even further if diverted ships have to wait to take on additional fuel to complete their unplanned journeys at overstretched African ports, of which South Africa’s Durban is the largest.

“We haven’t seen tremendous congestion in Durban,” said Ami Daniel, CEO of shipping consulting firm Windward.

For Europe, the impact of the crisis would largely depend on the extent and duration of the disruption. Economists at Allianz Trade calculate that a doubling of freight costs sustained for more than three months could push the eurozone’s inflation rate up by three-quarters of a percentage point and reduce economic growth by almost a percentage point. With the eurozone’s economy already weakened, that could push it into contraction during 2024.

Paolo Gentiloni, the European Union’s top economic official, told reporters on Monday that the situation in the Red Sea “should be monitored very closely” because it could cause energy prices and inflation to rebound.

There are several reasons why the crisis’s impact on Europe’s economy might be less severe than previous episodes of surging freight costs. For one, businesses have been through a number of supply-chain disruptions over recent years and believe they are better prepared.

“We are affected by the crisis,” said Matthias Zink, CEO of Schaeffler Automotive Technologies. “But it’s under control. Maybe the explanation is that we have a lot of experience now in this resilience or in the reaction to these crises.”

Stellantis, the French-American-Italian maker of Fiat, Peugeot and Jeep, said it was compensating for delays in rerouted ships “by using some limited airfreight solutions,” adding that the delays had “almost no impact on manufacturing to date.”

Patrick Lepperhoff, a consultant with Inverto, a unit of BCG, said past crises had made companies better prepared for sudden shocks. Many companies invested in IT to gain better visibility on their supply chains and got closer to their main suppliers, he added.

In addition to greater preparedness, the economic environment is also different from during the pandemic—a global event affecting supply chains around the world. The current crisis is local, leaving suppliers with more alternatives and many businesses now hold bigger inventories than they did before the pandemic struck. In Europe, weak consumer demand has padded this cushion.

“The Red Sea is not as dangerous to global trade as the events were a few years ago,” said Lepperhoff.

Offshore wind turbines are proving too risky for many utilities

U.S. power companies raced to get in on the offshore wind boom a few years ago. Now some are rushing to get out.

Already, utilities have unloaded pieces of a planned New Jersey wind farm and a yet-to-be-built seabed off Massachusetts. Now, “for sale” signs sit on stakes in four developments aimed at electrifying hundreds of thousands of homes in New York, Connecticut, Rhode Island and Virginia.

The pullback is adding to the turmoil in a new industry at the center of the U.S.’s renewable-energy ambitions. Developers behind projects totaling 8.5 gigawatts of electricity—more than a quarter of President Biden’s 2030 goal—canceled or are expected to cancel state-approved power contracts to propose deals with new terms, according to Intelatus Global Partners. Two projects have been nixed outright.

US legislators say Swiss group not sufficiently addressing concerns

US lawmakers have accused ABB of failing to address “alarming” vulnerabilities in China-made cranes that use its technology, saying the Swiss industrial conglomerate’s ties with Chinese state-owned companies could jeopardise national security.

ABB disclosed on Friday it had received a letter from the US House of Representatives committees on homeland security and on China that complained it had “failed to sufficiently answer” questions about “cyber security risks, foreign intelligence threats and supply chain vulnerabilities at seaports in the United States”.

The letter said that in one instance ABB’s response to a request for information from the committees made in July was “troubling” and implied it might have complied with the Chinese Communist party’s “authoritarian national intelligence, cyber security, or national security laws”.

The letter to ABB’s chief executive Björn Rosengren, a copy of which has been seen by the Financial Times, highlights increasing scrutiny by US legislators of international companies with operations or interests in China.

The letter cited a particular concern about ABB’s work with state-owned Shanghai Zhenhua Heavy Industries (ZPMC), which it said installed the Swiss group’s software systems on ship-to-shore cranes sold to the US.

The committees said they had engaged “in a good-faith effort to work with ABB to remedy the alarming security vulnerability created by the installation of ABB equipment and technology by ZPMC engineers in China”.

ZPMC’s installation of that equipment was “unacceptable and must be remedied without any further delay”, committee chairs Mark Green and Mike Gallagher said in the letter, which was first reported by Swedish broadcaster Sveriges Radio.

ABB said it had been engaging with the committees since July to “respond to their requests with care” in a timely manner and was “operating in line with all relevant US regulations”.

“ABB’s crane software technology is supplier-independent and installed on cranes manufactured by major crane builders including Chinese companies,” it said. “These cranes are bought by US ports from Chinese and other companies, not from ABB.”

ZPMC offices in China and Europe did not immediately respond to requests for comment.

The US is ABB’s biggest single market, followed by China. The group’s shares fell 3 per cent on Friday morning.

The committees’ letter called on Michael Gray, ABB country holding officer for the US, to testify before them in an upcoming public hearing “in light of the breakdown in good faith negotiations and to better understand how ABB is securing its software and hardware on US ship-to-shore cranes”.

The letter added that it was vital that ABB explained its relationships with Chinese state-owned enterprises “and whether ABB should be trusted to continue working on behalf of US government agencies”.

The FT reported last week that the House China committee had asked the chief executives of US chipmakers to testify before Congress as part of its intensifying scrutiny of companies with interests in China.

The committee sent letters to Intel, Nvidia and Micron summoning their chief executives to testify, according to several people familiar with the situation. The panel has not previously held hearings with CEOs from any industry since it was created to strengthen Congress’s focus on possible threats from China.

New law cuts time that applicants must live in the country and lifts ban on dual nationality for those from outside EU

The German parliament has passed a law that will make it easier for foreigners to acquire citizenship, as Berlin looks to immigration to solve a dire shortage of skilled workers.

Under the law, passed by 382 votes to 234, people will be able to apply for citizenship after living in Germany for five years, rather than eight as at present. Those who have made a particular effort to integrate — for example by becoming proficient in German or doing voluntary work — can apply after three years.

It also lifts a ban on dual nationality for people from non-EU countries.

“We have to make an offer to skilled people from all over the world, just like the US and Canada do,” said Nancy Faeser, interior minister. “We must show our appreciation for the people who come to this country and contribute to keeping our society going.”

Reem Alabali-Radovan, the government’s integration commissioner, said the law would enfranchise millions who were not yet full members of society. Official statistics show that about 10mn people living in Germany do not have a German passport, and 5.7mn of them have lived in the country for at least 10 years.

“Anyone who is an integral part of our society should be able to vote and be elected,” Alabali-Radovan said. 

The measure sets Germany apart from other countries in Europe that are tightening naturalisation criteria. Under an immigration law passed by the French parliament last month, children born in France to immigrant parents will no longer automatically acquire citizenship but will have to request it between the ages of 16 and 18.

Alexander Throm, domestic policy spokesman for the opposition Christian Democrats, said the new law “devalues citizenship” and “goes in completely the wrong direction”, adding: “While other countries such as France, after painful experience, are toughening their rules for naturalisation, we are massively reducing the requirements.”

The legislation came a day after parliament passed a law making it much easier to deport foreigners.

The combination of the two measures underscores the delicate balancing act western governments are being forced to tread: on one hand trying to attract more foreign workers to solve demographic deficits while on the other taking a tougher line on illegal immigration — one of the drivers of surging support for rightwing populist parties such as the Alternative for Germany (AfD).

The AfD has been under pressure after it emerged that politicians from the party met rightwing radicals in November to discuss plans to deport from Germany millions of people with an immigrant background, including those with German citizenship.

The deportation law passed on Thursday simplifies procedures for removing people who have no official leave to remain. People facing deportation often go into hiding in Germany, and the new law gives the authorities the power to detain individuals before their expulsion for up to 28 days, compared with 10 days before.

“Anyone who has no leave to remain in Germany must leave Germany,” Faeser said on Thursday. “That is a precondition for ensuring that immigration is accepted by society and integration works.”

Under the new law, police looking for deportees will be able to enter the rooms of third persons in migrant hostels, which was previously illegal. The law also stipulates that the timing of repatriations must no longer be announced to deportees in advance. In addition, it creates more grounds for deportation, including entering the country with forged papers or committing antisemitic acts.

French group is still sending some vessels through Suez Canal when accompanied by French navy

CMA CGM, the world’s third-biggest container shipping group, said some of its vessels were continuing to go through the Suez Canal but warned of scheduling chaos and worried clients as attacks by Houthi rebels disrupt navigation in the Red Sea.

Rodolphe Saadé, owner and chair of the Marseille-based company, said ships that could be accompanied by a French warship were still being sent through the canal, while the rest were being rerouted around southern Africa.

“France is helping us a lot,” he told the Financial Times.

The disruption hitting the maritime shipping industry is starting to trickle through supply chains and slowing up production lines, including those of car manufacturers such as Volvo, which has halted some production in Europe because of a shortage of parts.

Attacks by Yemen’s Houthi militants on ships in the Red Sea have shrunk traffic on the route and forced many transporters to take the long detour around the Cape of Good Hope, adding two weeks to deliveries on key Asia-Europe routes.

Some rival shipping groups including AP Møller-Maersk have suspended the Red Sea route linking Europe and Asia. Hapag-Lloyd, Germany’s biggest container line, said on Friday it was not looking at the possibility of using military escorts to return to the Red Sea route.

Lasse Kristoffersen, chief executive of Wallenius Wilhelmsen, an Oslo-based company that is one of the world’s biggest operators of car-carrying ships, said he did not believe military protection would provide sufficient security to allow companies like his to return to the Red Sea route.

“The principle is that we will not go back [until] we believe there’s a safe transit and we do not think that, with the current threat in Yemen, that any military protection will be sufficient,” Kristoffersen said. “For this situation to become safe, the threat situation needs to be substantially different.”

However, CMA CGM said it was handling the matter on a case-by-case basis. It is holding daily meetings to chart the routes and plan.

“Our schedules are in complete disarray and we’re not able to stick to our timings because sometimes we’re passing around Good Hope and sometimes we’re having to wait to pass” the Red Sea, Saadé said.

He acknowledged some clients were fretting, adding: “I understand them, we’re worried too. But what we’re trying to do is to reassure them, saying it’s going to take so many days to arrive . . . so that they can organise their supply chains.”

Disruption is expected to spread even as the US and allies including the UK carry out strikes on targets linked to the Houthi groups.

“There appears to be no solution for now. We’re bracing for this to last several months,” Saadé said. That projection is shared by Maersk, which has warned that the upheaval may cause a big hit to global growth.

The shipping industry is heavily exposed to geopolitical ructions and swings in freight rates, which soared at the height of the Covid-19 pandemic when aeroplanes were grounded and ports jammed.

Armed with billions in windfall profits from that period, CMA CGM has accelerated its diversification strategy in the less volatile logistics business via multiple acquisitions.

Its latest came on Friday via its CEVA Logistics unit, which has agreed to buy Wincanton in a deal that values the British delivery and warehousing company at £765mn. The company, also focused on Ireland, has clients including Ikea and Asda.

Wincanton’s board has recommended shareholders accept the offer, which marks a 52 per cent premium to the last closing price.

The deal has been backed by roughly 7 per cent of investors in letters of intent so far, according to a London Stock Exchange filing.

CMA CGM was advised by Morgan Stanley on the deal, and Wincanton by HSBC.

Logistics accounted for roughly 45 per cent of CMA CGM’s revenues, Saadé said, although the group is yet to close its €5bn acquisition of the logistics business of French billionaire Vincent Bolloré. CMA CGM had annual sales of €74.5bn in 2022, although shipping rates came off their highs last year and revenues in recent quarters have dropped.

It has yet to publish full results for 2023.

The pivot towards logistics, a segment that is less profitable but operates with more reliable contracts with fixed prices, is aimed at bringing stability to the group. Shipping rates, meanwhile, are being pushed up again by turmoil in the Middle East.

“The Red Sea crisis — even in the worst Hollywood movies we would never have imagined this,” Saadé said.

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