TheChek News Flow

Berlin’s switch comes after industry warnings but the European Commission remains split

Germany is pushing the European Commission to postpone tariffs on electric vehicle sales between the UK and the EU after industry warned that the measure would backfire.

In a boost for Rishi Sunak’s government, Berlin now supports the UK’s calls for a three-year delay to the duties, two people familiar with the situation said.

At present, Britain’s post-Brexit trade deal with the EU is set to impose 10 per cent levies on EVs shipped across the Channel from January if they have batteries made outside Europe.

The German shift followed debate within the country’s three-party coalition, with chancellor Olaf Scholz taking the final decision. 

Brussels has refused to date to delay the tariffs, but, as the EU’s biggest member, Berlin has considerable influence with commission president Ursula von der Leyen, a former German defence minister.

The commission said: “These rules of origin aim to support the EU’s strategic objective to develop a strong and resilient battery value chain in the EU.”

Britain has maintained for months that hasty introduction of the tariffs will heap excessive costs on the region’s industry as it seeks to compete with Chinese EV manufacturers — arguments that big European carmakers have also backed.

The UK is a key market for EU producers. ACEA, the European Automobile Manufacturers’ Association, has said EU carmakers will lose €4.3bn and cut production by almost 500,000 electric vehicles over the next three years if tariffs kick in. 

Von der Leyen will meet Sunak, Britain’s prime minister, to discuss the issue on the sidelines of the G20 summit in India this weekend.

The two sides have already improved relations from the post-Brexit low point under Boris Johnson’s administration, with this week’s agreement for the UK to rejoin the Horizon research programme, but the commission is not united on whether to delay the duties.

“The EU side can see it makes no sense to hobble the European car sector when Chinese EV imports are rising,” a UK official said, expressing hope that the EU “will agree to swerve before the cliff edge” but adding: “ultimately it is up to them”.

The official described talks between Kemi Badenoch, UK trade secretary, and EU trade commissioner Valdis Dombrovskis as “productive”. 

But Dombrovskis is pushing for a deal against opposition from colleagues, three people familiar with his thinking said.

Thierry Breton, the French internal market commissioner, and Maroš Šefčovič, who oversees both relations with the UK and the battery industry, are holding out against a deal.

The two commissioners maintain that a postponement — which Brussels can decide upon — would reduce the incentive for battery makers to open plants in Europe.

The Brexit trade deal’s “rules of origin” stipulate that, to avoid the duties due to begin in January, at least 60 per cent of their value of EVs’ batteries and 45 per cent of their overall parts must be sourced from the EU and the UK.

But Chinese imports, which already pay the tariff, accounted for almost a third of new EV sales in the UK in 2022 and are growing fast. 

Sigrid de Vries, head of ACEA, called on the EU not to be “rigid” about rules when battery investment had been delayed by “reasons that were beyond everyone’s control” such as the pandemic.

She added that the rules of origin would make it harder for EVs to be “affordable for people and small businesses to buy”.

Recommended

ExplainerElectric vehicles

What is at stake in the EU-UK battery deal?

Ford, which is investing €2bn to turn its Cologne factory in Germany into an EV plant and is reliant on exports to the UK market, is also among those opposing the plan.

Martin Sander, the group’s European boss, said it was currently “almost impossible to hit the target to qualify for the rules of origin” — although he told the FT that “in the long run, the concept makes sense.”

Sander said imposing the rules at present would drive up prices and “disadvantage customers, and does absolutely not support the overall ambition to bring the [electric vehicle] adoption up”. 

The German government and the European Commission have yet to respond to requests for comment.

Today's trade featured a lack of conviction among buyers. The Dow Jones Industrial Average closed with a slim gain while the S&P 500, Nasdaq Composite, and Russell 2000 declined 0.3%, 0.9%, and 1.0%, respectively.

Apple (AAPL 177.56, -5.35, -2.9%) registered another sizable decline, which hung over the broader market. The ongoing weakness followed a Bloomberg report that China is aiming to broaden its iPhone ban to state and federal agencies. That sent semiconductor stocks lower as well, leading to a 2.0% loss in the PHLX Semiconductor Index.

The news goes beyond Apple and the semiconductor stocks, however. The worry for the market is that, if China purposely chooses to make business difficult for a company like Apple, which has a good and important working relationship in China, then it can do so for a lot of other U.S. companies doing business in China. Interestingly, these restrictions come at a time when The Wall Street Journal reported that Huawei has introduced a new smartphone to compete with Apple.

The S&P 500 information technology sector (-1.6%) saw the largest decline, weighed down by Apple and its semiconductor components. The utilities sector (+1.3%) closed at the top of the leaderboard.

Market participants were focused on action in the Treasury market, which was turbulent today. Yields drifted lower after China reported an 8.8% year-over-year decline in exports and a 7.3% year-over-year decline in imports for August. Rates turned noticeably higher at 8:30 a.m. ET, however, when it was learned that initial jobless claims for the week ending September 2 were just 216,000 -- the lowest since February -- and that Q2 productivity was revised lower (to 3.5% from 3.7%) while unit labor costs were revised higher (to 2.2% from 1.6%).

The combined takeaway from these reports is that they would likely leave the Fed convinced that the policy rate needs to be kept higher for longer. The Treasury market settled down following the initial burst of selling interest after the U.S. data, and as it did, the early selling pressure on stocks relented.

The 2-yr note yield, at 4.99% just before the release, hit 5.05% in the immediate aftermath but settled at 4.96%. The 10-yr note yield was at 4.27% before the data, hit 4.31% immediately after, but settled at 4.26%.

WTI crude oil futures fell 0.7% to $86.97/bbl, breaking a nine-day winning streak.

Nasdaq Composite: +31.4% YTD

S&P 500: +15.9% YTD

S&P Midcap 400: +6.0% YTD

Russell 2000: +5.4% YTD

Dow Jones Industrial Average: +4.1% YTD

Reviewing today's economic data:

Weekly Initial Claims 216K (consensus 233K); Prior was revised to 229K from 228K; Weekly Continuing Claims 1.679 mln; Prior was revised to 1.719 mln from 1.725 mln

The key takeaway from the report is that initial claims -- a leading indicator -- were at their lowest level since February. That is really good news -- economically speaking -- but it is also news -- monetary policy speaking -- that will likely keep the Fed in a restrictive policy position for longer.

Q2 Productivity - Rev. 3.5% (consensus 3.7%); Prior 3.7%; Q2 Unit Labor Costs - Rev. 2.2% (consensus 1.6%); Prior 1.6%

The key takeaway from the report is that unit labor costs weren't as low as previously reported, so they look disappointing at the headline level; however, they still fit the bill of disinflation given that unit labor costs were up 2.5% a year ago.

Friday's economic calendar features:

10:00 ET: July Wholesale Inventories ( consensus -0.1%; prior -0.5%)

15:00 ET: July Consumer Credit ( consensus $15.8 bln; prior $17.9 bln)

Case involving the Suez Rajan further threatens to raise tensions between Washington and Tehran

The owner of a vessel carrying Iranian oil that was seized by Washington has pleaded guilty to conspiring to violate US international commerce laws.

The owner, Suez Rajan Limited, in March signed an agreement with the Department of Justice pleading guilty to one count of conspiring to violate the International Emergency Economic Powers Act, which gives the US president power to freeze and confiscate foreign assets, according to court filings that were unsealed last month.

The Marshall Islands company is the registered owner of the Suez Rajan, a 12-year-old tanker. It agreed to a three-year probation period and a $2.46mn fine. Empire Navigation, the Greece-based operator of the vessel, entered into a deferred prosecution agreement, according to court documents.

A lawyer representing the defendants did not immediately respond to a request for comment.

The Suez Rajan case is the latest maritime incident involving the US and Iran that further threatens to strain relations between the two countries as Washington and its European allies have resumed talks over how to handle Iran’s nuclear activity.

The Suez Rajan has been in US waters since May after the US redirected it under a court order with co-operation from at least one company involved with the vessel, the Financial Times previously reported. The ship had been heavily scrutinised following claims made by campaigners that it took on board a cargo of Iranian oil, intended for China.

Following that incident, Iran seized the Advantage Sweet, which was carrying Kuwaiti crude oil for US energy company Chevron.

The Suez Rajan took delivery of 1mn barrels of oil from another vessel, the Virgo, in February 2022 — a transaction that was spotted using satellite photographs and transponder analysis by United Against Nuclear Iran, a pressure group. The group established that the oil had been sourced from Iran’s Kharg Island. 

Prosecutors said in a court filing that, as part of the scheme to move the Iranian oil, the crew of the Suez Rajan visited a third vessel. It took on a small amount of oil from that ship, but pretended to have loaded its entire cargo from it, in an alleged effort to obscure the commodity’s true origin.

Unusually for a vessel transporting Iranian oil, the Suez Rajan had a clear American link that enabled US courts and authorities to take action: the vessel was financed by Fleetscape, an affiliate of the Los Angeles-based Oaktree Capital. Fleetscape had provided lease financing to Empire Navigation.

After UANI raised the issue, the ship waited near Singapore, close to the area where it had taken on the oil. On April 7, more than a year later, it began a voyage up the Malacca Strait, west across the Indian Ocean and then crossed the Atlantic. It arrived off the coast of Houston on May 30, where it has remained.

According to Kpler, a data analytics platform, its million-barrel load was discharged between August 20 and September 5 and the oil was taken, via another vessel, to a terminal in Houston.

Transmissions to other vessels indicate that the Suez Rajan no longer has oil cargo.

Finger-prick technology on mobile device can detect long Covid and Alzheimer’s

UK scientists have developed a finger-prick blood test that can detect the proteins associated with a wide range of diseases from long Covid to Alzheimer’s in 10 minutes or less.

Attomarker, a spinout from the University of Exeter, “is revolutionising diagnostic technology and the potential of big data”, said chief executive Andrew Shaw as he demonstrated the new testing devices at the British Science Festival in Exeter.

The technology gave its first clinical results this year in diagnosing long Covid from the presence of six antibodies that showed the Sars-Cov-2 virus persisting in a patient’s body.

It is also being developed to detect “biomarker” proteins associated with female fertility, food allergy, diabetes and Alzheimer’s, and to fight antimicrobial resistance by distinguishing bacterial from viral infections.

At present, the technology, which delivers results within seven to 10 minutes, runs on a benchtop laboratory instrument. But next year Attomarker expects to launch a handheld device with a diagnostic cartridge connected to a mobile phone.

Shaw said the apparent similarity between Attomarker and Theranos, the fraudulent US blood-testing company founded by Elizabeth Holmes, “always comes up when I’m talking to investors. The difference is we’ve got the technology to work and demonstrated it, which they never did.”

The scale of funding was different too, he added. While more than $700mn was invested and lost in Theranos, Attomarker has raised £4.5mn since 2017 and hopes to raise another £3mn by the end of 2023. A larger Series A funding round will follow in the next two years.

Attomarker’s technology works with gold nanoparticles printed on an array of sensor spots. The nanoparticles on each spot are treated to bind to a particular protein, and the array can scan for up to 20 biomarkers from a blood sample of just 0.01ml. In contrast, a routine hospital blood test takes a 30ml sample.

When the spots are illuminated from below as blood flows over the array, the nanoparticles scatter the light with a pattern that indicates the quantity of biomarkers that has stuck to the surface.

With several applications under development, Shaw singled out three that he expected to have great commercial potential.

One is a device capable of detecting nine different biomarkers associated with Alzheimer’s disease, including five variants of tau protein and two of beta amyloid protein, will be launched next year.

Another is an “infection chip” to tell whether an infection with non-specific symptoms is caused by bacteria that can be treated with antibiotics or by viruses, which do not respond to antibiotics. A third is capable of detecting hormones associated with fertility and menopause.

The mobile device is likely to cost about £300, Shaw said, with each test array or chip costing between £10 and £20. “The route to market will be private clinics to begin with and then the NHS later,” he said.

Ryan Salame would become fourth leader of crypto exchange to reach agreement with prosecutors

Former FTX executive Ryan Salame is expected to plead guilty on Thursday to criminal charges over the collapse of the cryptocurrency exchange, less than a month before the trial against founder Sam Bankman-Fried is set to begin.

Salame, who co-led the exchange’s main Bahamian entity FTX Digital Markets and became a big Republican political donor, will appear in Manhattan federal court at 3pm local time, according to people briefed on the matter.

He would become the fourth former FTX executive to cut a deal with prosecutors, further isolating Bankman-Fried, who has already seen one of his other close advisers, Caroline Ellison, co-operate with authorities.

FTX, once a major crypto exchange, collapsed in November after a crisis in digital asset markets revealed a multibillion-dollar hole in its accounts. Bankman-Fried faces a long list of criminal charges including wire fraud and conspiracy to commit money laundering. He has pleaded not guilty.

Soon after FTX’s collapse, prosecutors announced guilty pleas from Ellison, who led FTX affiliate Alameda Research, and co-founder of FTX Zixiao “Gary” Wang. Both are expected to testify at Bankman-Fried’s trial.

In February, Nishad Singh — former head of engineering at FTX — also entered a guilty plea to charges including conspiracy to commit fraud.

Salame, alongside Ellison, Wang and Singh, formed a tight circle of associates that helped run Bankman-Fried’s crypto empire, which was backed by blue-chip investors including Sequoia Capital.

In addition to his role at FTX, Salame bought four restaurants in Lenox, a western town in Massachusetts where he grew up. Bankruptcy filings showed Bankman-Fried’s companies extended $55mn in loans to Salame. 

A lawyer for Salame did not respond to a request for comment. A spokesman for Bankman-Fried declined to comment.

As well as helping to run FTX, Salame gave more than $24mn to rightwing candidates in the 2022 election cycle, according to public records. In the same period, Bankman-Fried donated more than $40mn to Democratic causes.

Prosecutors have alleged that such donations amounted to campaign finance violations, and have pledged to prove at trial that Bankman-Fried sought to illegally gain political influence in Washington.

In the trading shop’s final days late last year, Salame informed Bahamian regulators that FTX customer funds had been used to cover losses at Alameda Research, according to court records in the Caribbean country. 

The allegation triggered a referral to local law enforcement, followed by the appointment of liquidators.

Bankman-Fried, who was jailed last month after a judge revoked his bail in the face of allegations that he had attempted to intimidate Ellison and other potential witnesses, has repeatedly protested that he is unable to properly prepare for his trial while behind bars.

Industry warns maximum guaranteed price in this year’s bidding round is too low to offset cost inflation

The UK renewables industry has warned of low or even no uptake in the latest auction of state contracts for offshore wind projects with developers deterred by rising costs, in the latest blow to the government’s decarbonisation plans.

Ministers are due to announce the results on Friday for this year’s round of subsidies for renewable energy projects, which guarantee a minimum price per unit of electricity generated and are a key tool in reaching the goal of net zero by 2050.

The government has set a target to more than triple offshore wind capacity by 2030 from about 14GW to 50GW. The Climate Change Committee, the government’s independent climate adviser, has described the technology as the “backbone” of the future energy system.

Ana Musat, executive director for policy at trade group Renewable UK, said she expected “very little” in this year’s auction from developers, who have warned the maximum price on offer from the government is too low to offset rising costs. 

“It could be the case that we get nothing, or it could be that we get the lowest levels of offshore wind clearing that we’ve seen since about 2015,” she warned.

“I think it will be very concerning because, obviously, we have really clear targets for offshore wind . . . And if we’re not building year-on-year, I think it’s going to be very difficult to achieve that,” she added.

Projects in the UK are subsidised by so-called “contracts for difference”, in which the government guarantees wind developers an inflation-linked fixed price for 15 years through an annual auction.

The UK’s offshore wind industry has grown rapidly over the past decade and is the world’s second-largest behind China, supplying about 11 per cent of the UK’s electricity in 2021. But it has suffered a series of recent setbacks as developers have been hit hard by surging costs globally.

In July, Vattenfall suspended work on one of the country’s biggest offshore wind farm projects, blaming surging costs of up to 40 per cent. The Swedish developer said it was no longer viable under the price guaranteed in the contract it was awarded last year.

Developers have repeatedly warned that the maximum price in this year’s auction, which is just under a fifth higher than last year’s guaranteed price, was too low given the cost inflation. Contracts are available for about 5GW of offshore wind at a maximum of £44 per MWh in 2012 prices.

Alistair Phillips-Davies, chief executive of SSE, one of Britain’s largest renewable energy producers, said the government needed to “fix [the contract round] if it’s the problem that everyone expects it to be at the end of the week”.

In a letter to the government last month, trade body Scottish Renewables said there was a “real risk” that the auction would fail to secure the investment needed from the industry.

In August, Mads Nipper, the chief executive of Orsted, the world’s largest offshore wind developer, warned the government would struggle to find bidders for new projects in this year’s auction.

The government said it remained committed to expanding offshore wind capacity. “The UK is home to the world’s four largest offshore wind farms and we have attracted £120bn investment in renewables since 2010, with a further £100bn in private sector investment expected by 2030 — supporting up to 480,000 jobs.”

Automaker propose 10% wage increase, far short of the union’s 40% ask

General Motors delivered a counteroffer to the United Auto Workers union Thursday that shows the sides remain far apart on pay and other benefits, one week out from a strike deadline.

The Detroit carmaker offered a 10% wage increase among other benefits, far short of the UAW’s demand of at least a 40% wage hike. The offer follows a similar one from Ford Motor last week, which called for a 9% wage increase. Both companies also proposed additional inflation-protection payments and signing bonuses totaling more than $16,000.

UAW President Shawn Fain in a statement called the GM GM -1.39%decrease; red down pointing triangle proposal insulting, and said the company is wasting union members’ time. Last week, Fain responded similarly to the proposal from Ford.

Jeep-maker Stellantis is planning to deliver its counteroffer to the union by the end of the week, a spokeswoman confirmed Wednesday.

The three companies face a deadline of Sept. 14 at 11:59 p.m. to reach tentative agreements with the UAW on a new four-year contract. Fain has said the union is prepared to strike any of the three companies that haven’t reached a deal by that date, potentially taking 146,000 factory workers off the job.