TheChek News Flow

Carmaker has already moved some production to the Americas and China to bypass supply bottlenecks

Volkswagen will consider expanding production outside Europe if the conflict in Ukraine continues, its chief executive has said, as the continent’s largest carmaker struggles to secure crucial supplies from parts manufacturers in the war-torn country.

“For sure, we have to think about additional investments in the United States and overseas,” Herbert Diess told reporters on Tuesday, although he cautioned that “the specific effects [of the war] cannot be conclusively assessed at the present time”.

Russia’s invasion of Ukraine has forced VW to idle some plants in Germany, due to a lack of specialised wiring harnesses being delivered from Ukraine. Diess said the lack of such parts remained the “dominant constraint” on production. A 150-person strong task force at VW’s headquarters in Wolfsburg is working on identifying alternative suppliers.

Diess said VW had already shifted production of up to 100,000 vehicles to the Americas and China, in order to bypass supply bottlenecks.

Last week, Diess told the Financial Times that a prolonged war could have a larger impact on the global economy than the coronavirus pandemic, which shut car plants for weeks.

His latest comments come as VW joined local rivals BMW and Mercedes-Benz in delivering higher annual profits despite selling far fewer vehicles, as it prioritised the production of expensive high-end models during the semiconductor crisis.

Pre-tax profits at the VW exceeded €20bn in 2021, almost double that of the previous year, and higher than the €18.4bn posted in 2019, when it sold 2.4mn more cars.

VW’s Porsche brand continued to lead the group in terms of profitability, achieving a 16.5 per cent margin, driven in part by record deliveries in China. The company said it still planned a partial initial public offering of the luxury carmaker towards the end of this year.

VW’s management expects to use some of the proceeds from a Porsche flotation to accelerate the company’s electrification strategy and help build six European battery plants, which executives say will probably be too costly for the carmaker to finance on its own.

The company confirmed on Tuesday it was in “final discussions” about building a battery factory in Spain, to add to ones being constructed in Sweden and Germany. “We have started the scouting process for a fourth location in eastern Europe already,” Diess said.

Separately, Sweden’s Northvolt, which VW has invested in, said it would build its third European battery factory in the German state of Schleswig-Holstein, with the hope of starting production towards the end of 2025. The plant would have the capacity to provide batteries for roughly 1mn vehicles a year, the company said.

Despite a surge in nickel, cobalt and lithium prices, VW’s chief financial officer Arno Antlitz said the company expected profit margins from battery electric cars to reach parity with combustion engine models “earlier than we originally thought”. This would happen in part because raw materials used in conventional cars would rise too, he said.

China has a choice to make on Ukraine, and the world is watching

• Beijing's support could tilt the balance in Putin's war and it will also be consequential for its global standing
• Its hedging strategy has become increasingly untenable as it comes under growing pressure from the West

Turkmenistan established a political dynasty Tuesday, as authorities said the son of the Central Asian country’s leader won its presidential election after an unusual vote-counting delay.

Serdar Berdymukhamedov, 40, was the overwhelming favourite in Saturday’s election to lead the isolated, gas-rich country and succeed his father, Gurbanguly. The central election commission said Serdar Berdymukhamedov won 72.97 per cent of the votes.

His nearest rival in a field of nine candidates was university official Khyrdyr Nunnayev, who won 11 per cent.

There was an unexpected wait for the result, after authorities said Sunday they needed more time to count the votes. Central election commission chairman Gulmyrat Myradov told reporters that votes were still being counted, including those from people living abroad, and that preliminary results would likely be reported Monday.

Turkmenistan typically announces preliminary election results on the following day, such as when the elder Berdymukhamedov won re-election with more than 97 per cent of the vote in 2017. No election in Turkmenistan, which became independent with the 1991 collapse of the Soviet Union, has been considered genuinely competitive.

Gurbanguly Berdymukhamedov, 64, announced the vote last month, saying the country should be run by younger people. He had been the country’s leader since he was first appointed acting president when the eccentric Saparmurat Niyazov died in December 2006.

The country has long been difficult for outsiders to enter, and has not reported a single case of infection in the coronavirus pandemic. It also has struggled to diversify its economy, overwhelmingly dependent on vast natural gas reserves.

The elder Berdymukhamedov established a cult of personality with the title Arkadag, or Protector, and was keen to show his physical fitness with stunts including driving sports cars, target shooting and hoisting a gold weightlifting bar to applause from his cabinet. Apparently, he is also a champion equestrian.

Under his rule, China replaced Russia as the main buyer for Turkmenistan’s vast gas reserves.

Serdar Berdymukhamedov has risen through a series of increasingly prominent government posts and most recently has served as the country’s deputy prime minister, answering directly to his father. He recently turned 40, the minimum age for president according to the Turkmen law.

“My main goal is to continue on the glorious path of development built during 30 years of independence and to successfully implement programs aimed at ensuring a high level of social conditions for the people,” Serdar Berdymukhamedov said while presenting his platform in a televised speech.

Speaking to reporters after casting his ballot, he vowed to continue the country’s neutral foreign policy if elected.

During the campaign, all candidates praised Berdymukhamedov’s father, who said he will retain the post of the head of the country’s upper house of parliament.

On voting day, folk dancers and singers performed as loud music blared from loudspeakers at polling stations. Engulfing the stations were fumes from burning harmala, a plant widely used in Turkmenistan to fumigate homes and public spaces to help prevent the spread of infectious diseases.

No way out

Renault is hoping for the best in Russia. Jean-Dominique Senard, the French carmaker’s chairman, said last week that war in Ukraine would not threaten the company’s recovery. Investors who have wiped 40% off its share price in less than a month appear to disagree.

Renault is the largest maker and seller of cars in Russia, with close to 30% of the market. It owns two-thirds of Avtovaz, the maker of Lada cars, and operates its two plants. The company also makes cars under its own brands in a Moscow factory.

However, the loss of 4 billion euros of market value may look an overreaction. Avtovaz brought in just 6% of the group’s 46 billion euros of revenue last year, and is valued at 3 billion euros in Renault’s balance sheet.

Nevertheless, Renault has no good options in Russia. The company shut its operations there after President Vladimir Putin’s invasion of Ukraine last month. Trucks carrying crucial semiconductors couldn’t reach the factories. The Avtovaz plants, which use fewer imported components, may reopen this week.

With 40,000 mostly Russian employees, Renault cannot just shut up shop and leave. The Russian government is also threatening to take over companies more than 25% owned by “foreigners from unfriendly states” if they threaten to close their local operations.

The French company is familiar with Putin’s approach to nationalisation. After Avtovaz became the target of brutal wars between armed gangs, the government effectively took control in the mid-2000s by sending hundreds of armed policemen to a shareholder meeting.

Renault bought into Avtovaz in 2008 after Rostec, a major defence player, was tasked with cleaning it up. This alliance has added to the French headache. Rostec, which retains a one-third stake, is headed by Sergey Chemezov, a close Putin ally sanctioned by Western governments. Rostec is also the majority shareholder of Novikombank, one of the seven lenders excluded from the Swift international payments network earlier this month.

Some of Russia’s nationalist newspapers have questioned why Renault, which is 15% owned by the French state, should be allowed to operate in the country. In the rest of the world, the company’s brand could suffer from its associations with the Russian military. A bad situation could soon turn uglier.

Hard to do

A Tencent breakup is a radical but simple way to address mounting regulatory battles. The Chinese titan may be in hot water over money laundering and other financial breaches on its payments-to-messaging WeChat app, the Wall Street Journal reported on Monday. At the same time, censors are also targeting its video-games cash cow, adding to a selloff. Spinning off the latter would be a straightforward way to isolate risks from Beijing.

A financial crackdown on its mobile payments arm is the last thing boss Pony Ma needs amid volatile markets. The company is already grappling with a broader economic slowdown and China’s recent Omicron outbreak. Tencent has deftly sidestepped the cybersecurity probes and anti-trust investigations that have ensnared peers like Didi Global and Alibaba. Its games, though, have been in an awkward spotlight for causing online addiction and myopia among kids. Over the past year, the company’s market capitalisation has halved to roughly $400 billion; the stock trades at just 17 times forward 12-month earnings, less than half its own 5-year average, per Refinitiv, and below global video-games peers like Take-Two Interactive and Activision Blizzard.

Ring-fencing its core business might help ease some of the uncertainty. The regulatory risks for video games are more predictable than, say, in financial technology, where China’s central bank has a track record of stamping out entire industries like peer-to-peer lending and cryptocurrencies.

Tencent has also addressed most of Beijing’s concerns, including enforcing caps on how much time and money kids can spend on online games, at what executives say is a minimal hit to its bottom line. Thanks to global expansion efforts, the business is forecast to generate roughly $27 billion in sales in 2021, up a decent 11% from the previous year, according to analysts at Citi.

A spinoff would crystallise that value, rather than leaving it weighed down by Tencent’s sprawling, under-fire empire that spans its WeChat social network, payments, cloud computing and advertising across various platforms. It helps too that the unit has limited overlap with those divisions, and as a result of a 2018 restructuring operates under a separate business group. Breaking up may be the best way forward.

Beijing slams what it calls US efforts to spread disinformation and ‘distort and smear’ its position on Ukraine

China is concerned that it could be hit by western sanctions imposed on Russia for its invasion of Ukraine and will retaliate if necessary, according to the country’s foreign minister.

“China is not a party to the crisis, nor does it want sanctions to affect China,” Wang Yi told his Spanish counterpart, José Manuel Albares, in remarks published by the Chinese foreign ministry on Tuesday.

“China has a right to safeguard its legitimate rights and interests,” he added.

A series of strict sanctions rolled out by the US and its allies has hit equity markets around the world and sent the cost of some commodities, such as oil and wheat, soaring. China is a large importer of Russian energy and agricultural commodities.

Chinese equities have been hit particularly hard, with Hong Kong-listed Chinese stocks on Monday falling their most since the global financial crisis in 2008.

The sell-off has gathered pace following a report in the Financial Times that US officials believe China responded positively to Russian requests for weapons and military assistance. Beijing has hit back at what it says are US efforts to spread disinformation and “distort and smear” its position on the Ukraine war.

President Xi Jinping and other senior Chinese officials have insisted that Beijing is a neutral party, but they and state media continue to repeat and bolster Russian justifications for its invasion.

In a further reflection of the Chinese government’s de facto support for President Vladimir Putin, who met Xi in Beijing a few weeks before the invasion, on Tuesday a US organisation that published a Chinese scholar’s criticism of the war said one of its websites had been blocked in China.

The article by Hu Wei, a Shanghai-based political scientist affiliated with the State Council’s research office in Beijing, was first published on March 12 by the Carter Center in Atlanta.

“Russia’s ‘special military operation’ against Ukraine has caused great controversy in China, with its supporters and opponents being divided into two implacably opposing sides,” Hu wrote in what he described as an “objective analysis” of the situation in Ukraine and its potential implications for China.

Hu was highly critical of Putin’s war, which he called “an irreversible mistake” that China should disassociate itself from immediately. “The bottom line,” he said, “is to prevent the US and the west from imposing joint sanctions on China”.

“China cannot be tied to Putin,” Hu added. “China can only proceed by safeguarding its own best interests, choosing the lesser of two evils, and unloading the burden of Russia as soon as possible.”

He added: “At present, it is estimated that there is still a window period of one or two weeks before China loses its wiggle room. China must act decisively.”

The Carter Center said it had not commissioned the article, which Hu had submitted. Hu was not immediately available for comment.

“Our English and Chinese-language websites are now completely inaccessible in China,” Yawei Liu, director of the Carter Center’s China programme, said on Twitter. “But we do not regret publishing Hu Wei’s voice.”

The Italian house best known for its cashmere knitwear paid €15.05 million for a 43 percent stake in its long-time supplier of the luxury fabric, Lanificio Cariaggi Cashmere.

In a statement, creative director Brunello Cucinelli described the new acquisition as “one of the jewels of Italian manufacturing.”

The Cariaggi family will retain control of the remaining 57 percent and continue to manage the day-to-day operations of the company.