FT : VW reports stronger cash flow after cutting spending

VW reports stronger cash flow after cutting spending
Carmaker says improvement at its auto unit in 2025 follows lower than expected capital expenditure and R&D

Volkswagen said it generated net cash flow of €6bn from its automotive division in 2025, a significantly better figure than the carmaker had expected as it aims to cut costs to deal with growing Chinese competition.

The German company on Wednesday said it expected its positive inflows in its automotive division to be about €6bn, according to preliminary figures.

Previously, VW had forecast a net cash flow of about zero, although chief financial officer Arno Antlitz in October suggested the figure could be slightly positive.

Volkswagen said it also expected net liquidity at the end of 2025 to be €34bn, up €4bn from its forecast. The improvement in the company’s cash position was “primarily attributable to lower working capital and lower than expected investments in capex and research and development”, it said.

The automotive division is the core of Volkswagen’s business — covering car production across 10 brands and the group’s battery and engineering efforts — and its main revenue driver. Its cash position is closely monitored by investors and analysts, who have warned the company might need to step up its cost-saving drive if the figure deteriorates further.


The carmaker aims to make €6bn in savings by the end of the decade as it looks to respond to falling sales in China, high production costs in its European manufacturing base and increases in US tariffs.

Under a plan agreed at the end of 2024, the carmaker will slash production at VW brand factories in Germany and cut 35,000 jobs in the country by 2030.

Volkswagen has also trimmed its investment plans. The rolling budget, which is updated annually, is expected to fall to €160bn over the coming five years. For 2023-27, the figure was €180bn.

Struggles at sports-car maker Porsche, one of the 10 brands in the Volkswagen group, were expected to weigh on the company’s full-year results, which will be announced on March 10.

The group registered an impairment of €4.7bn in the third quarter after Porsche watered down its plans to release more electric vehicles and shifted its focus more towards petrol and hybrid models.

FT : European governments turn to short-term debt as borrowing costs rise

European governments turn to short-term debt as borrowing costs rise
Sovereign issuers are curbing sales of long-term bonds amid waning demand from pension funds

European governments are curbing their sales of long-term sovereign bonds, as they shift towards shorter-term funding to limit the damage from a rise in borrowing costs.

The average maturity of debt sold across big Eurozone markets including Germany, France and Italy is expected to dip below 10 years for the first time since 2015 this year, according to a Barclays forecast based on government issuance trends. In the UK, the bank expects an average maturity of roughly 8.8 years, the lowest this century.

The figures underline how countries’ debt managers are responding to waning appetite for long-term debt from traditional buyers such as pension funds. This month, the Netherlands completed a sweeping overhaul of its €1.8tn pension system that is expected to sap demand for long-term debt. Economies such as the UK have also experienced shifts away from the defined-benefit pension systems that were once almost insatiable buyers of long-dated bonds.

“Structural demand has fundamentally changed,” said Stephen Jones, global chief investment officer at Aegon Asset Management. “You’ve removed the forced-buyer base and indeed begun to unwind it.”

The picture is a stark change from a decade ago, when European governments were rushing to lock in low borrowing costs by issuing ultra-long-dated bonds — sometimes not maturing for as much as 100 years. “We were at an extreme, the pendulum is swinging back,” Jones said.

Short-term borrowing is typically cheaper for governments, meaning they can cut their interest bill by eschewing long-dated issuance. However, relying on shorter maturities — something the US has done in recent years — leaves public finances more exposed to swings in interest rates as the debt needs to be regularly refinanced.

But the gap between two-year and 10-year borrowing costs has widened sharply in the past two years in big European economies amid a global glut of issuance.


April LaRusse, head of investment specialists at Insight Investment, said debt managers moving to shorten maturities were “coming to the rescue” of countries dealing with a drop in demand for their long-term debt.

Max Kitson, analyst at Barclays, said the scaling back of the maturity of sovereign debt issuance was in part a response to “heavy volumes of issuance coming down the pipeline”. Barclays forecasts a €100bn increase in gross debt sales across the EU sovereigns this year.

A sell-off this week in Japanese debt has spread to bond markets around the world, in the latest sign of investors’ worries over record borrowing by rich nations.

The Eurozone market has also been transformed by Germany’s landmark announcement last year that it would loosen its constitutional borrowing limit to make way for a huge increase in infrastructure and defence spending.

The debt brake had created a shortage of the country’s debt that had suppressed its borrowing costs and supported its status as the bloc’s safest borrower. The “scarcity of Bunds is definitely over”, declared the country’s debt chief in June.

German Bund yields — the benchmark for long-term government borrowing in the Eurozone — have climbed sharply since the spending plan, as investors brace for a surge in issuance as well as stronger economic growth. Its 30-year yields are hovering close to 3.5 per cent, levels not previously seen for more than a decade.

Jason Borbora-Sheen, portfolio manager at investment manager Ninety One, said: “Supply-demand dynamics are a key consideration for pricing government bonds, in particular with fiscal concerns increasingly influencing market behaviour.”

In the UK, the Debt Management Office’s actions to cancel some auctions of long-term debt and announce a consultation on expanding the market for Treasury bills — debt maturing within one year — were a vital reason why the November Budget landed calmly with the market, investors argue.

Matthew Amis, investment director at Aberdeen Investments, said that while the Budget had “calmed some nerves”, the DMO’s actions were in his view the more important catalyst behind the recent outperformance in gilts.

FT : Poland upgrades navy against Russia’s Baltic threat

Poland upgrades navy against Russia’s Baltic threat
Warsaw is spending billions to equip its long-neglected maritime defence forces with first submarines and frigates built in decades

Poland is undertaking the biggest overhaul of its navy since the cold war, building up long-neglected capabilities as Russia asserts itself in the Baltic Sea.

Warsaw is building three frigates at Gdynia on Poland’s northern Baltic coast and agreed to buy three Swedish submarines in November. It has also launched new minesweepers and started construction of a rescue ship to support submarine operations.

The acquisitions are intended to reverse decades of under-investment in the country’s navy, which operates one submarine, a Soviet-built vessel transferred to Poland in 1986, and two frigates built in the US in the 1970s.

Higher defence spending since Russia’s full-scale invasion of Ukraine in 2022 has mostly gone to the air force and the army, which is now the EU’s largest.

“The Russian threat is spreading and we cannot ignore now their hybrid warfare, as seen for example with the rupturing of cables,” said Paweł Bejda, Poland’s deputy defence minister. “Poland needs to be a very active participant in ensuring security in the Baltic Sea.”

Russia’s recent use of hybrid tactics has heightened concerns about Nato’s vulnerability in the Baltic Sea. While Russia’s Baltic fleet is based in neighbouring Kaliningrad, Poland and other states have accused Moscow of orchestrating sabotage attacks on undersea power and data cables, as well as launching drones that violated Nato’s airspace.

Nato allies have also intercepted some ships from Russia’s so-called shadow fleet of oil and cargo ships that Moscow has used to evade western sanctions. Swedish authorities boarded one cargo vessel under sanctions in December, and Baltic nations reported six suspicious cable incidents within six days earlier this month.

The three warships are being built under a €3.5bn partnership between PGZ, Poland’s state-owned defence group, and British defence manufacturer Babcock. The three submarines will be delivered by Sweden’s Saab for €2.3bn.

The navy had now switched “from zero to hero”, said Jan Grabowski, a board member of PGZ, which owns the Gdynia yard.

Poland is proportionally Nato’s biggest spender, with the equivalent of 4.7 per cent of GDP allocated to military expenditure in 2025. Tens of billions of dollars have been spent on acquiring mostly US and South Korean equipment for the land and air forces.

Following the cable incidents, Poland and its Baltic allies launched a new Nato mission to protect critical infrastructure, including the gas pipeline linking Norway via Denmark to Poland and offshore wind farms that Poland will start operating in 2026.

In September, Poland and Sweden staged their first-ever joint military drill in the Baltic. A month later, the Polish government drafted legislation granting navy commanders broader powers to use military force against threats.


“I’m very happy that the weather has changed and the wind is now blowing for the navy,” said Commodore Piotr Skóra, a senior officer who now oversees naval procurement within the defence ministry.

Skóra said Poland’s navy would have benefited from earlier investments but he argued that being late offered some advantages, including access to newer technology and the ability to avoid manufacturing problems encountered by others. Poland’s frigates are based on the design for the British Type 31 frigates, for which Babcock booked a £90mn loss in 2024 owing to design changes and cost overruns.

“I’m very thankful to the British because they were open and shared the mistakes they made so that we would be able to avoid them,” said Skóra.

Poland’s two existing frigates were donated by Washington to Warsaw more than two decades ago after the US navy decommissioned them.

The three frigates being made in Gdynia are scheduled to enter service between 2029 and 2031, reviving a shipyard that came close to bankruptcy, according to PGZ executives, after Poland scrapped an earlier frigate programme because of funding problems. Instead, the yard spent 17 years building a single patrol vessel, the Ślązak.

Thanks to the latest investment, the shipyard was “growing like a phoenix from the ashes”, said Grabowski.

Babcock had deepened its partnership with PGZ to align Gdynia’s capabilities with those of the UK shipyard in Rosyth where the British Type 31 frigates were being assembled, according to Mark Goldsack, a senior Babcock executive.

He predicted smoother and faster production in Gdynia thanks to the experience gleaned at Rosyth. “The first product that goes down the line tests the whole system,” Goldsack said. If Gdynia can now “learn all our lessons, they’ve just massively shortened the development cycle”.

Grabowski attributed Poland’s long neglect of its navy in part to geography, noting that politicians and military commanders were based in Warsaw, more than 300km from Poland’s coast.

“I think the distance was quite long when it comes to sending the message about what is important” for the navy, he said.

The frigate programme also comes as the UK and Poland aim to sign a new bilateral defence agreement in the coming months, after UK Prime Minister Sir Keir Starmer launched talks during a visit to Warsaw last January.

The head of the Royal Navy, General Sir Gwyn Jenkins, told the FT that Russia’s elite deep-sea sabotage unit was poised to deploy submersibles capable of damaging British seabed cables and pipelines.

While the politicians negotiated their bilateral agreement, Babcock’s Goldsack said: “It’s got to be to both countries’ advantages to have more than one shipyard that can operate on the same class of ships.”

FT : Israel set to sell defence company stakes to offset war costs

Israel set to sell defence company stakes to offset war costs
Officials consider partial privatisations after surge in military spending during wars in Gaza, Lebanon and Iran

Israel plans to sell stakes in some of its largest weapons manufacturers as it seeks to raise revenue to offset a surge in defence spending from the past two years of conflict, senior government officials said.

Yali Rothenberg, the finance ministry’s accountant general, told the FT that work had already begun on the privatisation of Israel Aerospace Industries, whose products include the Arrow air defence system, missiles and drones.

It is also examining the possibility of privatising Rafael Advanced Defense Systems, which manufactures Israel’s Iron Dome and David’s Sling air defence systems.

Rothenberg said that in light of “the additional resources required for defence”, the government was considering “the partial privatisation of certain defence-related assets”.

However, Rothenberg and Gil Pinchas — who spoke to the FT shortly before he stepped down as chief financial adviser to the Israeli military and defence ministry this month — cautioned that privatising Rafael would be more complicated.

The finance ministry estimates the direct security cost of the two years of conflict triggered by Hamas’s attack on October 7, 2023, to be $62bn, a figure that excludes the impact on the economy.

Israel’s defence budget soared to 8.3 per cent of GDP in 2024 — double the figure two years earlier — as the country fought conflicts on at least seven fronts, including in Gaza, Lebanon, Syria and Iran.

In addition, the US has provided at least $21.7bn to Israel since Hamas’s attack, according to the Quincy Institute for Responsible Tradecraft.

Following US-backed ceasefires in Gaza and elsewhere, Israel’s defence budget is forecast to fall to about 5 per cent of GDP this year, or $35bn, and remain at that level for the medium term, Rothenberg said.

The huge spend on defence, and the broader economic impact of the war, saw growth decline and the budget deficit widen to 6.8 per cent of GDP in 2024.

Rothenberg said the government’s “working assumption” was that it would sell a 25 per cent stake in IAI, “with an upper range of up to 49 per cent, subject to government decisions”.

In a separate interview Pinchas, an Israeli brigadier general, put the initial sale at between 20 per cent and 25 per cent of the state-owned company, predicting it would happen “within a year or two”.

It was too early to determine IAI’s valuation, Rothenberg said, but cited the company’s order book of almost $30bn in arms sales as an indicator of its size.

IAI reported sales of $6.1bn in 2024, and net income of about $493mn, a 55 per cent increase on the previous year.

Rafael has enjoyed a similar boost, with its sales in 2024 increasing by more than a quarter to $4.8bn and its net profit rising 64 per cent to $257mn compared with the previous year.

It developed Israel’s vaunted Iron Dome system — which was designed to intercept short-range rockets fired from Gaza and elsewhere — with US funding and support, but Israel has never sold the system to a third country despite numerous requests.

Israel’s defence industry had record exports of $14.8bn in 2024, even as the country faced increasing international condemnation over the conduct of its war against Hamas in Gaza.

Pinchas said income generated from the sale of a stake in IAI would help both Israel’s state finances and reinvestment into the firm itself.

The finance ministry often finds itself in a struggle with the defence ministry over spending and budgets.

But the latter could also be expected to make changes to help replenish the government’s coffers, including moving some of its operations — such as major bases like the Kirya military headquarters, located in a prime area of central Tel Aviv — to areas where property prices are cheaper.

Rothenberg said “discussions are taking place regarding the relocation of certain Ministry of Defence activities to lower-cost areas, which could allow for the monetisation of existing land assets”.

“Any such measures are intended to help offset the long-term fiscal and financial implications of increased defence expenditure,” he said.

FT : Carmakers spurn Brussels’ ‘made in Europe’ bid

Carmakers spurn Brussels’ ‘made in Europe’ bid
Companies divided on proposals that lay out minimum thresholds for locally produced parts and supplies

Carmakers have refused to back an effort by the EU’s industry commissioner to rally support from leading industries on its plan to prioritise “made in Europe” products, highlighting deep divisions over how to fight back against the influx of affordable Chinese vehicles.

Stéphane Séjourné, the European commissioner for industrial strategy, last week asked business leaders to sign an opinion piece calling for “made in Europe” policies that would reward companies with products using high levels of parts and supplies made in the region with public subsidies. 

“We must establish, once and for all, a genuine European preference in our most strategic sectors,” Séjourné’s team said in the article seen by the Financial Times. “It is based on a very simple principle: whenever European public money is used, it must contribute to European production.” 

More than 1,000 chief executives and industry associations have signed up to the initiative, including European trade body Clepa, German industrial conglomerate Thyssenkrupp and French tyremaker Michelin. 

But five people with direct knowledge of the situation said the signatories did not include carmakers due to concerns about details on what would count as European and how the rules would be implemented in practice.

The so-called Industrial Accelerator Act was first due to be proposed on December 10 but was delayed until January 29 and has now been pushed back until February 25 in part due to concerns that Séjourné, who is overseeing the proposal, had gone too far.

EU officials outside of Séjourné’s inner circle said the proposal was “not ready” and there were concerns that it would not be workable. However, a member of his team said the unveiling of the proposal had been delayed “in order to maintain the very high level of ambition as it is discussed internally” and it was not going to be rushed out.

The controversial proposal involves dictating minimum levels of domestic content for strategic products such as batteries and cars to cut Europe’s reliance on China and protect local production against cheap imports.

For cars, officials had discussed a local content threshold of 70 per cent but carmakers have clashed over how stringent the conditions should be since their manufacturing operations are globally spread out. 

There are also discussions over whether to lower some of the thresholds, which are individually defined for each component, and whether the number of sectors covered by the proposal should be more limited.

With the industry already struggling with the higher energy and labour costs in Europe, some companies including Renault, Stellantis and Volkswagen have supported the initiative in principle to reward local assembly and engineering.

But BMW chief executive Oliver Zipse has warned that Europe would fall behind the global innovation race by setting complex local content rules. 

Others, even those based in the EU, have called for the “made in Europe” definition to be broadened beyond the bloc to include other manufacturing hubs such as Turkey and the UK as well as major trading partners such as Japan. 

“If you start chopping up the European region [to exclude countries such as the UK], you’re just going to create a more uncompetitive industrial base in Europe,” said another person at a leading carmaker, warning that such a measure would burden European companies in the face of Chinese competition.

A draft of the IAA proposal seen by the FT has indicated that the “made in Europe” definition could be expanded to include countries with which the EU holds trade agreements. Critics have warned that this would undermine the main objective of boosting local production. 

Being a signatory to Séjourné’s op-ed piece does not legally tie companies to the policy, but one person close to a European carmaker said the commission was trying to get auto groups to sign a “blank cheque” without revealing critical details of the proposal. 

“We recognise that [carmakers] have been the only sector more hesitant to sign, with many of them highlighting that it did not mean a rejection in principle of European preference, but a precautious approach,” said Séjourné’s cabinet.

Volkswagen said a “made in Europe” strategy should avoid creating a “quota for everything” and called for the new requirements to be applied not only to individual cars but to define “overall targets” for manufacturers’ fleets.

Renault said it had “always supported local content measures” but acknowledged that it had not signed the draft opinion piece. “At this stage, we have not yet taken a position, as we are waiting for the details of the proposal.” 

The idea of European content rules has long been favoured by France to protect its industry. The Nordic countries and Germany, which have historically had much more open markets, have been sceptical towards the idea.

FT : Donald Trump drops tariff threat against Europe and touts ‘future’ Greenlan

Donald Trump drops tariff threat against Europe and touts ‘future’ Greenland deal
US president backs away from new trade war after talks with Nato chief Mark Rutte

Donald Trump said he was dropping his threat to hit European countries with new tariffs after striking “the framework of a future deal” over Greenland in talks with Nato’s secretary-general Mark Rutte.

The US president on Wednesday said he had held a “very productive” meeting with Rutte and would hold future talks and find a solution that “if consummated” would be a “great one” for the US and Nato members.

“Based upon this understanding, I will not be imposing the Tariffs that were scheduled to go into effect on February 1st,” Trump wrote on Truth Social. “Additional discussions are being held concerning The Golden Dome as it pertains to Greenland,” he added, referring to his planned missile defence system.

“We took that off the table,” Trump added in an interview with CNBC later on Wednesday, referring to his threat to impose tariffs on European countries opposed to a US takeover of Greenland. “Because we had pretty much the concept of a deal.”

He added the framework agreement could involve Greenland’s natural resources. “They’re going to be involved in mineral rights and so are we.”

Vice-president JD Vance, secretary of state Marco Rubio and the president’s special envoy Steve Witkoff would hold further negotiations. The agreement would last “forever”, Trump said.

His comments marked another reversal of a tariff threat and a significant softening of his stance on Greenland. They came hours after he told an audience at the World Economic Forum in Davos that he would not use force to acquire the territory from Denmark — but told Europe to back his plan.

Europeans had a choice over Greenland, he said: “You can say yes and we will be very appreciative, or you can say no and we will remember.”

Nato said: “Discussions among Nato allies on the framework the president referenced will focus on ensuring Arctic security through the collective efforts of allies, especially the seven Arctic allies.”

The western military alliance added “negotiations between Denmark, Greenland and the United States will go forward aimed at ensuring that Russia and China never gain a foothold — economically or militarily — in Greenland”.

Rutte told Fox News on Wednesday evening that he and Trump did not discuss whether Greenland would remain a part of the Kingdom of Denmark under the framework.

Trump’s threats to impose new tariffs on European countries had shaken the transatlantic relationship and raised fears of a new trade war, alarming markets.

The US president’s latest turnaround comes after Wall Street stocks recoiled on Tuesday when he threatened to open a new front in his global trade war. The S&P 500 share index posted its worst day since October, while US government bonds also came under pressure.

Market volatility has previously tamed Trump, including after his “liberation day” tariff announcement in April ignited serious tumult in stocks and Treasuries.

Stocks rallied on Wednesday after he dropped the threat of new levies, with the S&P 500 jumping 1.2 per cent. The price of US government debt also rose, pushing the yield on the benchmark 10-year Treasury note down 0.04 percentage points to 4.25 per cent.

Trump claimed his new deal just hours after he delivered a lengthy and at times rambling address in Davos.

He said in the speech that he was “seeking immediate negotiations” to discuss the acquisition of Greenland from Denmark, “just as we have acquired many other territories throughout our history”.

Denmark’s foreign minister Lars Løkke Rasmussen welcomed Trump’s Truth Social statement, saying “the day ends better than the day started”.

But he added: “It is not going to happen that the USA will own Greenland. That is a red line.”

Italian Prime Minister Giorgia Meloni, who has forged a warm personal bond with Trump, also hailed the decision, but said “it is essential to continue fostering dialogue between allied nations”.

Denmark and Greenland have repeatedly insisted the Arctic island is not for sale since Trump first expressed interest in 2019.

EU leaders will gather for an emergency summit in Brussels on Thursday to discuss their approach to talks on Greenland as concerns increase over the fraying relationship with Washington.

Trump also used his speech to berate an “unrecognisable” Europe, diminished by economic decline and unlimited immigration. “I love Europe . . . but it’s not heading in the right direction.”

His coercion of Denmark and its European partners has incensed European officials, with many claiming he has destroyed trust in the transatlantic relationship.

Canadian Prime Minister Mark Carney on Tuesday declared a “rupture” in the international order over Trump’s unbridled assertion of American power.

UK Prime Minister Sir Keir Starmer, who decided not to attend the WEF, accused Trump of “splitting the world at the moment with material consequences” through his plans to take over Greenland.

Tensions between European and US officials erupted in Davos on Tuesday night, when US commerce secretary Howard Lutnick was heckled at a dinner after making combative comments that led multiple guests to walk out.

Among those leaving the dinner early was European Central Bank president Christine Lagarde, said people familiar with the matter.

Earlier on Wednesday, hedge fund manager Ken Griffin criticised Trump, saying the US had “frayed our relationship with our European allies in ways that I don’t understand or appreciate”.

>>> US After Hours Summary: IPAR +6% and KRMN +6% higher on upside guidance; BAN

After Hours Summary: IPAR +6% and KRMN +6% higher on upside guidance; BANC -4.5% and KNX -3.9% lower on earnings; WINA +4.6% on news it will join S&P SmallCap 600

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: IPAR +6% (guidance), KRMN +6% (guidance), TCBX +5.6%, CACI +1%, KMI +0.6%

Companies trading higher in after hours in reaction to news: OPRT +12% (CEO to step down; provides guidance), GROY +5.5% (preliminary Q4 results; completes Borborema Royalty acquisition), WINA +4.6% (to join S&P SmallCap 600), CRML +3.7% (signs MoU with TQB to establish one or more joint ventures related to extracting rare earth resources in Saudi Arabia), GME +2.7% (CEO Ryan Cohen acquires 500,000 shares at $21.60 per share), BBAI +0.7% (acquires assets of CargoSeer), CP +0.4% (investing $800 million in American manufacturing with Tier 4 locomotives), OKE +0.4% (increases dividend), RTX +0.4% (awarded $380 mln modification to Navy contract), MSFT +0.3% awarded $170 mln Air Force task order for the Cloud One program)

After Hours Losers

Companies trading lower in after hours in reaction to earnings/guidance: BANC -4.5%, KNX -3.9%, RLI -2.7%, PNFP -1.4%, FULT -0.3%

Companies trading lower in after hours in reaction to news: WYFI -6.9% (convertible notes offering), AXGN -5% (stock offering), TE -5% (files mixed shelf offering), NEXA -4.9% (production at the Atacocha San Gerardo open pit mine is temporarily suspended), CAL -3.8% (names interim CFO), APOG -1.9% (names new CFO), HON -0.1% (finalizes settlement and renews long-term contract with Flexjet)

FT : Logical Intelligence brings LeCun on board as it touts AI breakthrough

Logical Intelligence brings LeCun on board as it touts AI breakthrough
Six-month-old US start-up launches new ‘energy based’ reasoning model as it targets $1bn-plus valuation

Logical Intelligence, a start-up that claims to have made a breakthrough in developing a more advanced AI model, has appointed Yann LeCun to its board as it seeks funding at a $1bn-plus valuation.

The six-month-old Silicon Valley-based firm on Wednesday unveiled a new “energy based” reasoning model called Kona, which it says can solve a variety of problems with greater accuracy and less power than popular large language models such as OpenAI’s GPT-5 and Google’s Gemini.

Eve Bodnia, Logical Intelligence’s founder and a quantum physicist, told the FT that the high accuracy of its mathematically-grounded system made it suitable for industries where errors are critical, such as advanced manufacturing, robotics and energy infrastructure.

The launch comes as Logical Intelligence prepares to kick off a funding round in the coming weeks, targeting a valuation of between $1bn and $2bn, according to two people familiar with the matter.

It has also appointed LeCun, Meta’s former chief AI scientist who left late last year to set up his own AI start-up, as chair of its technical research board.

The push comes as some of the world’s top AI groups including Google DeepMind and Nvidia have stepped up their focus on alternative systems such as world models to achieve machine “superintelligence” amid concerns that LLMs are reaching a ceiling in their progress.

Logical Intelligence is the first start-up to attempt to commercialise an energy based model. In a demo on Wednesday, the company showed Kona beating rival LLMs from OpenAI, Google and Anthropic to solve a sudoku, and is planning future demonstrations of the games chess and go.

The company claims that Kona’s ‘reasoning’ is based on the model’s ability to recognise and correct its errors on one task and extrapolate that across other tasks.

“If general intelligence means the ability to reason across domains, learn from error, and improve without being retrained for each task, then we are seeing in Kona the first credible signs of AGI,” said Bodnia. “It is not the end state, but it is a clear break from narrow AI.”

In contrast to LLMs, which respond to queries by predicting the likely next word in a sequence, energy based models are trained on a set of fixed parameters, such as the rules of sudoku, the capacity of an energy grid or the physical constraints on a warehouse robot.

The more EBMs seek to deviate from the rules, the more energy they use, preventing digressions — or hallucinations — that can occur with LLMs. EBMs grade their complete answer against the parameters they have been set, with the lowest energy answers scoring highest.

Bodnia describes LLMs as “a guessing game”. “We think that because it sometimes gives you the right answer, it must be intelligent. If you take a cat and you teach it to bark, that doesn’t mean it’s a dog,” she said. “I’m creating the dog.”

LeCun, who this month launched Advanced Machine Intelligence Labs, a start-up that will focus on developing world models, has long been an outspoken critic of the idea that LLMs alone could achieve AGI. World models aim to navigate the physical world by learning from videos and robotic data rather than just language.

“Logical Intelligence is the first company to move EBM-based reasoning from a research concept to products, enabling a new breed of more reliable AI systems,” said LeCun.

He and Bodnia both believe that true human-level AI will come from combining models.

“[Humans] can dance, we can sing, we can do a lot of things that are not just language based. So you need all of it to navigate the world: you need to recognise the danger of the world, you need to maximise plausible outcomes,” said Bodnia.