TheChek News Flow

WASHINGTON, Sept 11 (Reuters) - The U.S. State Department has approved the potential sale of an Integrated Air and Missile Defense Battle Command System to Poland for an estimated cost of $4 billion, the Pentagon said on Monday.

As it upgrades its air defenses, the Pentagon said NATO-ally Poland had requested to buy phase two of a two-phase program for the command system enabled PATRIOT Configuration-3+ with modernized sensors and components.

The sale would include 93 of the system's engagement operation centers, 175 fire control network relays and other related equipment, the Pentagon said.

European interest in U.S. weaponry has increased with demand centered around such supplies as munitions, air defenses, communications equipment, shoulder-fired Javelin missiles and drones which have proven critical to Ukraine's war efforts.

The principal contractor for the missile defense system will be Northrup Grumman (NOC.N), the Pentagon said in a statement.

BMW’s decision to invest more than £600mn to make electric Minis in Oxford has given a much-needed shot in the arm to the UK car industry in the latest example of how the west is scrambling to respond to a wave of electric vehicle competition from China. 

UK car production has fallen 40 per cent since the start of the pandemic thanks to plant closures, component shortages and decisions by manufacturers to move operations abroad. Brexit has been a key issue: China’s BYD, the world’s largest seller of electric and hybrid cars, blamed it for ruling out the UK as a location for its first European factory.

The threat from China — the world’s largest market for cars — is all-encompassing. Over the past 15 years, it has built up an EV industry that is now making a concerted push into Europe with sales that could reach 1.5mn vehicles by 2030. Last week, BMW chief Oliver Zipse said the EU ban on combustion engines from 2035 was pushing European makers of cheaper cars into a price war with Chinese rivals that they were unlikely to win (although an exemption from Brussels for cars powered by e-fuels may provide a bit of a lifeline).

China’s incursion into Europe was on full display at last week’s Munich motor show, with its carmakers taking up almost two-thirds of the floor space. Its industry has capitalised on the experience of joint ventures that international auto groups were required to form, while simultaneously placing significant bets on electric batteries.

Underpinned by vast state subsidies and unchecked bank lending, China, which has already cornered the market in the wider clean tech supply chain, is building battery plants far beyond levels needed for domestic demand, while manufacturers including world leader CATL are planning to expand into the US and Europe. It is also pouring record amounts into metal and mining investments to defend its position.

The most significant response in the west has been the US Inflation Reduction Act, which has pumped money into clean tech, including electric vehicles and batteries. However, the investment has failed to quell discontent from autoworkers whose threatened strike over pay could deliver a multibillion-dollar blow to the US economy.

In the EU, member states are being allowed to “match” incentives from elsewhere, while economy commissioner Paolo Gentiloni has urged Brussels to go further.

Meanwhile, the UK and Germany are trying to postpone tariffs on EV sales between the UK and the EU after industry warned that the measure would backfire. At present, Britain’s post-Brexit trade deal means levies of 10 per cent will be imposed on EVs shipped across the Channel from January if they have batteries made outside Europe.

France has introduced its own plan to subsidise EVs based on the emissions of their producers, in effect hitting Chinese manufacturers whose factories are run on electricity powered by coal.

Britain’s failed offshore wind auction

The government needs to restore confidence in its renewables pricing regime

Anyone who has visited Britain can vouch for its breezy weather. The gusts off the Atlantic Ocean and North Sea, and shallow coastal waters, means it has the greatest wind energy potential in Europe. So far, it has capitalised well on that advantage. The UK is a genuine world leader in wind: a third of its electricity came from the renewable energy source in the first quarter of 2023, and it is second only to China for its offshore wind energy capacity globally. Britain’s gale-force winds will be vital to meet its 2050 net zero target. This makes its failure last week to attract any bids from offshore wind developers in its annual renewable energy auction both worrying and embarrassing.

Last year the government committed to raise its offshore wind capacity to 50 gigawatts by 2030. After receiving zero offshore wind bids at its fifth auction — which will add about 3.7GW in other renewable energy capacity — the UK is about 36GW short of its goal with seven years to go. Onshore wind projects are, meanwhile, stymied by planning rules despite last week’s partial easing of a de facto ban. If Britain cannot harness its abundance of wind effectively, it will face an uphill battle to meet its emissions targets.

Britain has allocated low-carbon electricity capacity via its contracts for difference scheme since 2014. The government sets a maximum guaranteed price, and firms bid at auctions at a price they can produce at. Under CFD schemes, when the market electricity price falls below the agreed contract price, the government pays the difference to the producer. This has been an effective mechanism. It has given developers of renewables, who face high upfront capital costs, clarity over their future revenue streams.

But the latest auction failed primarily because the government did not promise a high enough maximum unit price for electricity. With recent high inflation, developers’ costs, including for turbines, cabling and wages, have all risen sharply. Higher interest rates make capital-intensive projects less attractive too. Yet the maximum £44 per MWh in 2012 prices offered by the government in last week’s auction — little changed on the previous auction — is considerably below wholesale prices in today’s terms. Vattenfall, a Swedish firm, had recently paused work on a 1.4GW site due to high costs: this should have been a warning sign.

The government must of course balance the need to develop renewable energy with costs for bill payers and taxpayers. This may explain why it tried to lowball the maximum price. But with electricity generated from offshore wind set to remain notably cheaper than gas for the foreseeable future, the failed auction in effect locks households and businesses into the more expensive and volatile fossil fuel for longer. RenewableUK, a trade body, said the lost wind farms eligible for the auction could have saved consumers £2bn a year.

The industry is also partly to blame. Many developers have squeezed suppliers to deliver projects at a low price, but now companies in the supply chain are trying to recover margins alongside high raw material costs.

But ultimately, the government needs to learn from this failure. Its processes for setting price caps ought to be reviewed. It should be more flexible and incorporate significant shifts in costs and interest rates into its offer. Providing information in advance on how prices will be set will help developers plan ahead too. It should also consider accelerating its future wind auctions.

Last week’s failure puts the UK’s net zero journey at risk and sends a bad signal to investors, who may now look for projects elsewhere. Tempestuous weather is indeed a mixed blessing. But when it comes to energy security and cutting emissions, wind is a strength Britain must lean into.

Labour action could take 150,000 workers off Detroit’s assembly lines

In some ways, these are good times in Detroit. Profits for carmakers have been growing. US consumers, flush with cash since the pandemic, are happy to buy $50,000 sport utility vehicles and pick-up trucks. General Motors, for example, has increased its 2023 operating profit target to as much as $14bn. More importantly, its free cash flow is set to hit $9bn. 

But to whom should such prosperity accrue? Detroit remains on guard of the next bump in the road, wary of a repeat of the financial crisis when the Big Three nearly went under. GM, Ford and Stellantis are careful to sock away cash for a rainy day and to invest in the watershed megatrends of electrification and autonomous vehicles. These are set to eliminate the traditional combustion engine vehicle.

In an era when organised labour is ascendant, the powerful United Auto Workers union want what it thinks is its fair share. A strike — unusual these days — could take 150,000 workers off assembly lines. The stoppage looks likely to proceed, given intransigence on both sides.

The legacy carmakers are in a tricky spot. Car manufacturing is now a high-tech industry with more than a little in common with Silicon Valley. Traditional businesses have huge incumbency advantages — and some serious challenges to contend with.

Chief among these is a high cost of labour. Foreign carmakers have set up shop in southern US states where unions are far less prominent. Start-ups such as Tesla, which recently slashed electric vehicle sticker prices, do not have workers who bargain collectively either.

GM’s magic number is an overall operating profit margin of 10 per cent in North America. That target shows how taut the business remains. For the moment, shareholders are pessimistic. Since late 2021, shares in the company have halved. Even with annual free cash flow approaching $10bn, the market capitalisation is just $45bn.

Today’s profits have little chance of persisting amid existential disruption and labour disputes.