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Herbert Diess wants to sell 26m emission-free vehicles in 9 years, overtaking rivals including Tesla

When Volkswagen unveiled its first battery-powered prototype in 2009, chief executive Martin Winterkorn warned about “electro-hype” — the idea that this new technology could be as affordable and ubiquitous as its fleet of petrol and diesel cars.

A decade later, VW’s incumbent boss Herbert Diess is spending more than €33bn on proving him wrong.

The German group has launched a wildly ambitious plan to produce 26m emission-free vehicles in the next nine years, leapfrogging Tesla to become the world’s largest electric carmaker.

But perhaps the most radical element of the scheme is its focus on generating profits almost from the get-go, in defiance of dire industry-wide projections.

“When it comes to pricing for the next generation . . . [profitability is] on the level of a Golf [VW’s best-selling combustion engine car],” Mr Diess told the Financial Times.

The first car to make Golf-level margins will be a battery-powered model the size of VW’s Tiguan sport utility vehicle released next year, and built on VW’s purpose-designed modular electric skateboard, he added.

This forecast puts the company in pole position, ahead of some of the automotive world’s largest players, including Toyota and General Motors, who caution that their electric cars are years away — perhaps even a decade — from being able to generate petrol-level profits.

“This is a very bold statement,” said one person close to VW’s top investors, upon hearing about Mr Diess’s projection. “It would be a surprise if that was possible.”

McKinsey estimates that midsized electric vehicles cost $12,000 more to produce than their petrol or diesel counterparts, forcing carmakers to charge more or face squeezed margins.

VW’s rivals “face three or four years of pressure on their profit margins” due to electrification, said Jürgen Pieper, a car analyst at Metzler bank.

What sets VW apart, Mr Pieper added, is its “very tough” culture. “I probably wouldn’t like to work there,” he said. “There are hirings and firings all the time, but what I like is the culture of ambition.”

That culture of ambition was in part what led to Dieselgate, the 2015 scandal that saw VW admit to having sold 11m cars worldwide fitted with devices that under-reported emissions of nitrogen oxide.

The fallout is still being felt five years later, with VW on Friday agreeing to an €830m settlement in a lawsuit brought by more than 400,000 affected drivers in Germany.

The scandal also made the company a lightning rod for criticism of the industry from environmental groups and European lawmakers.

Today, Mr Diess admits the company is the “focus” of EU rules that force carmakers to lower CO2 emissions. “We are happy with it,” he said, “because if society decides, ok, we’ll go for electric cars, actually that’s good for us.”

Ever since he ascended to the top floors of VW’s Wolfsburg headquarters in 2018, Mr Diess has been insistent: despite concerns about the lack of consumer demand, inadequate charging infrastructure and bottlenecks in battery supply chains, the company’s decision to bet the farm on electric vehicles is more than a high-risk gamble.

“There is no other alternative to electric cars,” he said, in an office overlooking the sprawling factory halls and railway tracks that criss-cross VW’s historic home.

In a week that saw the production of Audi’s electric e-tron model grind to a halt due to battery supply shortages, Mr Diess added he was confident that the company had identified enough lithium-ion cell supply to see it through to the end of 2023, by which point it hopes to have produced 1m emissions-free vehicles.

But the former BMW executive, who first arrived at VW just a few months before the diesel emissions scandal broke in 2015, wants to do more than just shepherd the company out of its self-created crisis.

His long-term aim is to convince capital markets to treat VW more like Tesla than an old-world car manufacturer, propelling it to a market value of €200bn, more than double its current €75bn valuation.

Investors are yet to be fully convinced.

VW boasts annual sales of almost 11m and has suffered only two lossmaking years in the past three decades, on Friday reporting a 17 per cent increase in pre-tax profit for 2019, and pledging to vastly increase its dividend.

Yet the company is eclipsed in market value by Tesla, which has sold fewer than 1m vehicles in its 17-year existence, and has yet to post a yearly profit.

Mr Diess, who was on stage at a car industry award ceremony in Berlin when Elon Musk announced Tesla would be building his first European factory a mere 150 miles from VW’s base, has gone out of his way to compliment the Twitter-keen chief executive, crediting him with “paving the way” for electric cars.

“[Mr Musk] is taking risks which we couldn’t,” said Mr Diess. “So I think we make a good pair because he is pulling ahead and we are fast followers, we try to keep as close as possible.”

Despite Mr Diess’ confidence, the odds of achieving this goal appear to be stacked against the German carmaker.

Its unique ownership structure, in which the Porsche and Piech families indirectly own a majority stake, and the state of Lower Saxony has a blocking minority, prevents the company from rushing through seismic shifts in strategy. The strength of the unions on its supervisory board also makes radically reducing VW’s 300,000-strong German workforce almost impossible.

Additionally, while Tesla can raise more than $2bn overnight by issuing new shares, “Mr Diess would have to sell 2.5m cars to get that money,” said a person close to investors.

VW has to rely on debt to finance its overhaul, and has “de facto no equity capital market access”, he said.

“What Diess is doing is braver than what Elon Musk is doing. He needs to fund this transition with 4 per cent profit margins from VW [brand].”

It is, therefore, unsurprising that improving returns is high on the VW chief’s agenda.

Addressing 120 of the company’s managers in Berlin this year, Mr Diess made it clear he would happily halve Bentley’s annual sales in exchange for higher earnings. Returning to profitability in the US, where VW has languished for years, is also a priority.

But the fate of the world’s biggest carmaker, he emphasised, is not merely dependent on boosting margins, but “more about managing the transition [to electric] better than others”.

“If you look at Tesla’s evaluation, it’s not about profitability,” Mr Diess said. “It’s a new game, and that’s also what I have always said.”

The rules of the game have partially been set in Brussels, which has fuelled the shift to electric vehicles by forcing car manufacturers operating in Europe to lower their fleet-wide CO2 emissions drastically over the next few years, or face billions of euros in fines.

Thousands of miles away, the likes of Google and Uber in the US are threatening to rewrite the carmaker playbook, betting that decades of auto-building expertise can either be aped or acquired.

It is a threat Mr Diess takes seriously. “[Tech companies] have to invest a lot [to become carmakers],” he said. “It’s still scary because they are so rich that they could. If you have 100-and-something billion in cash, you can buy whatever you want. The question is, do they really want to?”

Before waiting to find out the answer, the VW boss is intent on taking the battle to Silicon Valley.

In a country whose postwar economic growth has been driven by hardware excellence, Mr Diess hopes to attract the necessary talent to help VW write the 300m lines of software code that will power electric and semi-autonomous vehicles, as well as battery-management tools and entertainment systems.

“The big differentiator in the future will be software, direct customer contact, the car becoming an internet device,” said the chief executive, who is pouring roughly €8bn into software development in Berlin, Bavaria, the US and China. “This is our biggest effort.”

The effort is focused on the ID. 3, VW’s talismanic electric model, and its first emissions-free mass-market hatchback.

Launched in November to great fanfare by Angela Merkel, Germany’s chancellor, the car, which will be priced at about €30,000 and is due to go on sale in August, will feature a 4G-enabled, centralised software system.

VW needs to sell hundreds of thousands of ID. 3s, and other electric models, to bring down its fleet-wide CO2 emissions and comply with EU regulations. For 2020, every electric car it sells will be counted twice by regulators — in future years the added weight given to them decreases. But its production at VW’s east German Zwickau factory has been plagued by complications over the installation of complex technology inside the car.

Other short-term risks could prove an even bigger hurdle for VW.

Last year’s contraction in the global car market shows little sign of being reversed in 2020, while the impact of the coronavirus on China, its most profitable market, all but wiped out sales in February. The disease, which forced the cancellation of this week’s Geneva Motor Show, has also thrown the industry’s complex supply-chains into chaos.

But Mr Diess is adamant that neither the outbreak nor an economic downturn will curb his commitment to electric vehicles.

“There has been a major cultural change at Volkswagen, and it has to do with [wanting to move on from] Dieselgate,” said Metzler’s Mr Pieper.

All the more reason, he said, to consign the strategies and soundbites of Mr Winterkorn, who is facing criminal charges in the US and elsewhere, to the past.

—Investors, fearing that the spread of the coronavirus to at least 56 countries could send the global economy into a recession, drove the stock market to its largest weekly loss since the 2008 financial crisis on Friday, creating the possibility that one of the longest economic expansions in history may be coming to an end.

—Former US president Barack Obama hasn’t gotten involved in the current Democratic presidential race, and has avoided playing favorites, saying that his main role will be unifying the party after a nominee is selected and helping to ease tensions.

—In a ruling that could have far-reaching consequences for executive branch secrecy powers long after Trump leaves office, a divided three-judge panel of the US Court of Appeals ruled that Congress can’t sue to enforce its subpoenas of executive branch officials

.—As Turkey presses the European Union for help managing the crisis in Syria, it is threatening to open its borders to refugees, a move that would allow them to start flooding into Europe via Greece.

—The Trump administration may use the 70-year-old Defense Production Act to speed up the manufacturing of medical supplies amid the coronavirus outbreak, an acknowledgment that the virus poses a threat despite Trump’s claims to the contrary.

—In an attempt to soothe investors, Federal Reserve chairman Jerome Powell issued a short statement Friday reaffirming that the central bank would use its tools and “act as appropriate to support the economy.”

—The fact that global interest rates are dropping “amounts to a powerful and pessimistic warning about the world economy in years to come—and that warning remains valid even if the economic damage from the coronavirus epidemic turns out to be mild and short-lived.”

—Democratic presidential candidate Joe Biden won a decisive victory in the South Carolina primary Saturday, giving his campaign a much-needed boost and establishing himself as the leading contender to counter the rise of Bernie Sanders.

—The US signed a deal with the Taliban on Saturday to end the nearly two-decade-old war in Afghanistan that began after the Sept. 11 attacks, killed tens of thousands of people, and left mistrust and uncertainty on all sides.

—The US is better positioned than most countries to deal with the coronavirus outbreak—hospitals have triage plans and state and local governments have broad powers to quarantine, but a shortage of medical supplies such as respirators and masks could hamper containment.

—The Fed and other central banks face a unique economic threat as markets look to them to contain the fallout from the coronavirus with limited ammunition and tools ill-suited to deal with broken supply chains and quarantined consumers.”

—“If a recession happens, it will probably be a result of a poor fit between the economic effects of the potential pandemic and the mechanisms the government uses to try to keep the economy growing.”

—Tom Steyer, the billionaire former hedge-fund executive whose prolific campaign spending altered the Democratic primary and allowed him to persist in the race, withdrew after failing to deliver strong results in the South Carolina primary.

—Story reports on the growing gap between the super-rich and everybody else, noting that “As the rich get richer and more businesses focus exclusively on serving them, there is less attention and shabbier service for everybody who’s not at the pinnacle.”

—Columnist N. Gregory Mankiw says that while most voters ascribe the economy’s ups and downs to Trump, most economists are skeptical that a president can be judged so simply, and that most of what happens in the economy is outside policymakers’ control.

—Front page story reports “The spread of coronavirus world-wide has intensified efforts to prepare for a U.S. outbreak, with hospitals straining to increase capacity to handle an influx of contagious patients and local governments mulling closures.”

—Online furniture seller W is trying to prove to investors that it can moderate its losses—which came to $330M in the past quarter—as revenue growth slows and investor appetite for unprofitable companies dries up.

—A federal appeals court ruled the Trump administration must halt a policy of returning migrants along the southern US border to Mexico while courts consider their requests for asylum in America.

—California’s mountain snowpack is about half its normal level, raising fears of a renewed drought after a string of mostly wet years, a situation state water officials say could be caused by climate change.

—The House passed a bill that would expand current restrictions on flavored tobacco products to include a ban on menthol-flavored cigarettes and e-cigarettes despite some Democratic defections and strong GOP opposition.

—The House Judiciary Committee plans to interview more than a dozen federal prosecutors, including those involved in the sentencing of Trump advisor Roger Stone, as part of a broader examination into whether the White House is interfering in the Justice Department’s independence.

—“Factory shutdowns across China because of the coronavirus have exposed an uncomfortable health-care reality: Many medicines rely on raw materials that are made in that country,” with generic drugs being the most vulnerable to supply disruptions.

—Official gauges of China’s factory and non-factory activity dropped to record lows in February as the nation’s economy struggled to resume normal production as it faced the coronavirus epidemic.

—In East Africa, the worst plague in generations is putting some 20 million people at risk of starvation, as enormous clouds of locusts defy pest control and devour every crop in their path.

—Plans to mandate simulator training for pilots before grounded BA 737 Max jets can return to service—a time-consuming and costly undertaking—are causing friction between the plane maker and regulators, potentially delaying the process.

—Under fire from the Trump administration, Huawei has approached high-profile figures in Washington to try to turn around negative perceptions of the company.

—Vanguard and Fidelity customers faced difficulties accessing online accounts on Friday morning, angering investors who couldn’t trade as stock markets fell.

—H.O.T.S.: Birkin and Kelly handbags are more expensive to buy secondhand than new, making it hard for Hermes to take control of the growing resale market; Betting on a treatment for Covid-19 isn’t likely to be a cure-all for investor portfolios; The coronavirus is weighing on online advertising in China, but that isn’t the biggest problem for BIDU and Weibo.

—Front page story reports the global effects of the coronavirus, which sent stocks down last week and prompted the World Health Organization to raise its risk assessment to “very high.”

—The UK’s Serious Fraud Office lost a high-profile, seven-year case against three former top BCS executives who were charged with fraud relating to deals made with Qatar at the height of the 2008 financial crisis.

—IBM and MSFT signed an “ethical resolution” with the Vatican to develop artificial intelligence in a way that will protect the planet and the rights of all people, a pledge known as the “Rome Call for AI Ethics.”

—“As the Federal Reserve weights up a response to the spread of the coronavirus, it faces a novel challenge—there is not much evidence on whether monetary policy is the right response to a potential pandemic.”

—Iran closed its parliament because of coronavirus fears, leaving the approval of most of the country’s budget for the next financial year unfinished, with only enough approved to prevent an immediate financial shortage.

—Big Read: The coronavirus “has the potential to change politics around the world—the outbreak could make Donald Trump and Xi Jinping more vulnerable politically, feed conspiracy theories, and lead to closed borders.”

—Lex Column: Financially weak airlines and travel businesses may not survive the coronavirus outbreak in its current form; The global second-hand clothing market, including thrift and resale, will more than double to $51B by 2023, says Barclays; Higher traffic on Internet sites doesn’t tend to equate to higher income for search platforms.

—Comment: Buying on the coronavirus dip would be a bold move for investors, says Merryn Somerset Webb, because the global economy was already looking vulnerable to shocks.

—The nation’s wealthiest billionaires, including Warren Buffett, Bill Gates, and Mark Zuckerberg, are seeing their net worth decline as coronavirus fears create dire market conditions on Wall Street.

—A survey by Coresight Research found that American shoppers will avoid malls and shopping centers if the coronavirus outbreak worsens in the US.

—US surgeon general Jerome Adams said face masks aren’t effective in preventing coronavirus infection, and that a shortage could cause an even bigger medical threat if healthcare providers can’t get them to care for sick patients.

—The New York City Department of Consumer and Worker Protection says that about 14 percent of city residents with student loan debt are 90 days or more past due on loan payments.

UK draws up battle plan to beat coronavirus

Warning of city lockdowns and school closures as Scottish patient pushes cases to 36

The British government could ban mass gatherings, close schools and urge people to avoid public transport to halt the spread of coronavirus, health secretary Matt Hancock said on Sunday.

He was speaking before the Department of Health and Social Care announced a further 12 people in England had tested positive for Covid-19. The total number of coronavirus cases in the UK rose to 36, as the first patient was reported in Scotland.

A government “battle plan” to deal with the escalating outbreak in Britain and due to be unveiled this week is expected to say that a “war room” of scientists and other experts will be established, with each Whitehall department nominating a minister to lead on the effort. There will also be a public information campaign.

Mr Hancock told the BBC that newly retired doctors and nurses could be called back into the National Health Service to fill in for sick or otherwise absent colleagues.

Employers could also be encouraged to tell staff to work from home if the disease strengthens its hold.

Asked whether the government would consider locking down entire cities, Mr Hancock said: “There’s clearly a huge economic and social downside to that. But we don’t take anything off the table at this stage, because you’ve got to make sure that you have all the tools available, if that is what’s necessary.”

However, he wanted “to minimise the social and economic disruption”, stressing such drastic so-called social distancing measures were not yet imminent and emphasising the steps individuals can take to limit their chances of catching coronavirus.

“So long as people are washing hands and taking the precautions that are set out that is the right thing to do,” said Mr Hancock.

The UK authorities on Friday reported that a man living in Surrey was the first case of coronavirus in a patient who had not been abroad. On Sunday, the health department said another patient, this time from Essex, had contracted coronavirus without travelling. It added that among the 12 new cases were people from London, West Yorkshire, Greater Manchester, Hertfordshire and Gloucestershire.

The Scottish government said later on Sunday that the first patient in the country had been diagnosed with coronavirus, in Tayside. Cases have previously been reported in Northern Ireland and Wales.

Mr Hancock made it clear that the government had not given up hope that the coronavirus outbreak could be stopped from becoming pandemic.

However, should scientists tell the government that “it’s going to go right through the world and therefore become endemic here”, ministers would move into the delay phase “where we have to take judgments about how much action to take that might have downsides and costs in order to delay it”, he added.

The government would “only look at things that epidemiologically, scientifically make sense”, said Mr Hancock.

The government’s plan to deal with the Covid-19 outbreak is expected to provide for emergency legislation giving the public sector new powers to respond. For example, this could include allowing school class sizes to rise, to take account of sick teachers.

Mr Hancock said such “enabling powers to help the public services to continue to operate effectively” would “be temporary, if they’re taken, and they are essentially about how to deal with a very large-scale problem”.

He also moved to reassure Britons that the NHS could cope, promising that an additional 5,000 critical care beds could be made available. The government plan is based on a 2011 document that was drawn up to respond to a flu pandemic.

Rhode Island confirms its first case of the virus, while number of cases in King County, Wash., rises to six

As the number of confirmed novel coronavirus cases in the U.S. continued to rise, with two new cases in Washington and the first likely positive test in Rhode Island, Trump administration officials stressed that the government is ramping up efforts to test for and fight the outbreak, which they said is certain to spread to more Americans.

Two additional people tested positive for the novel coronavirus in Washington state on Sunday, local health officials said, raising the number of confirmed cases in King County to six, including the first patient death in the U.S.

Both new patients are men in their 60s with underlying health conditions, with one in critical condition. The number of confirmed diagnoses in the county is expected to rise as more people are tested, local health officials said.

On Friday night, a man in his 50s, with underlying health conditions, became the first death in the U.S. related to the new virus. The man, who didn’t have any travel history to areas where the virus was circulating, died at Evergreen Health Medical Center in Kirkland, Wash., located in King County, after test results confirmed he had novel coronavirus, according to a letter from the EvergreenHealth health-care system.

Two other King County patients are both associated with a long-term care facility called Life Care Center in Kirkland. One of those patients, a woman in her 40s currently in good condition, is the first health-care provider in the U.S. diagnosed with the infection, the CDC said on Saturday.

The other patient associated with the facility is a woman in her 70s in serious condition. Health officials warned of a potential outbreak in the facility and said that an additional 27 residents and 25 staff are experiencing symptoms.

As the number of cases rises, state, local and federal officials are working to prepare for more possible infections and community spread.

President Trump said on Twitter Sunday that travelers from high-risk countries or areas will be screened for the virus both before boarding and when they arrive in the U.S.

On Saturday, Vice President Mike Pence, head of the government’s task force on the virus, said the U.S. will bar foreign nationals who have traveled to Iran in the past 14 days. The government is also strongly advising people against travel to areas in Italy and South Korea that are affected by the virus and has asked those countries to ensure adequate screening of travelers to the U.S.

In response to a reporter’s question Saturday, Mr. Trump said the U.S. is also considering restrictions at the Mexican border. Mexico has confirmed two cases of the virus, both of which are travel related.

During Saturday’s hastily arranged White House news conference, the president and other officials sought to project confidence in how the U.S. is handling the situation, which has sent markets tumbling. “This too will end,” the president said.

Robert Redfield, director of the Centers for Disease Control and Prevention, said, “The risk is low. We need to get on with our normal lives.”

The number of cases in the U.S. was expected to rise after the Food and Drug Administration on Saturday said it would let some 300 to 400 academic-hospital labs to begin testing for the virus, allowing for checks of thousands of people rather than the few hundred already tested.

Until that announcement, there were relatively few diagnostic tests conducted in the U.S., with most state and local health departments sending patient samples to the CDC and waiting days for results. Even those initially had some accuracy problems, though the CDC has said those problems have been remedied.

Washington state started testing patient samples locally on Friday, officials said, which contributed to a quick uptick of reported cases in the region.

At least 25 people have been diagnosed with the novel infection within the U.S., not including repatriated Americans. On Sunday, Rhode Island confirmed its first case. The Rhode Island patient is a man in his 40s who had traveled to Italy, France and Spain in mid-February, said Dr. Nicole Alexander-Scott, director of the state Department of Health.

Officials said they are working closely with the hospital where the individual is being treated and extensive efforts are under way to reach anyone the person has had contact with since returning to the U.S. But state officials stressed that they aren’t seeing widespread community transmission and that the risk to the general public remains low.

“The risk here in Rhode Island, at this point, is low, and we have been preparing for weeks,” Gov. Gina Raimondo said. “There’s no need to panic.”

Earlier in the weekend, California, Illinois and Oregon also reported new cases of the virus. Many of them were patients who currently have no clear path of exposure, signaling that there might be wider spread of the novel coronavirus in some American communities.

The patients were tested following a change in the CDC guideline, which the agency expanded on Thursday to include people with recent travel history to Japan, Italy, Iran and South Korea as well as people with severe respiratory illnesses and a fever without a clear cause of infection.

The agency expanded the guideline after a patient in California wasn’t tested right away because the woman didn’t meet the stricter guidelines but ended up testing positive.

So far, roughly 80% of the cases are mild, with the most common symptoms being a fever and a dry cough. Many patients recover within a few weeks. But the rapidly spreading virus can also be deadly, especially among older adults and those with underlying health conditions, such as chronic cardiac disease, lung disease and diabetes.

Federal health officials said that the overall risk to the general public in the U.S. is still low, though the risk is rising in some areas and is higher for certain groups. People can protect themselves and their communities by taking steps such as frequent handwashing, avoiding contact with people who are sick and staying home if they develop symptoms, health authorities say.

Mr. Trump is scheduled to meet Monday with pharmaceutical companies as work continues on a vaccination.

“We are facing a historic public health challenge,” Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases, said on a press call Saturday. “While we still hope for the best, we continue to prepare for this virus to become more widespread in the United States.”

Even those on trading desks have struggled to keep pace with the market tumult

Global investors are bracing for another hair-raising ride, after a week of frantic and at times disorderly trading.

The Dow industrials have dropped seven straight days entering trading Monday, posting their steepest weekly decline since the financial crisis. Their 14% pullback since Feb. 12 places the longest-ever U.S. stock rally in jeopardy of falling into a “bear market,” marking a 20% decline from a recent high.

The rout has been by the book to some extent. A roaring rally in government bonds has taken the yield on the 10-year U.S. Treasury to a record low of 1.127%. The markets for oil and copper, whose prices reflect in part global economic expectations, have fallen sharply.

But investors have been gobsmacked by unexpected developments elsewhere. Gold raced through early 2020 to its highest level in seven years, before dropping 4.6% Friday in its sharpest drop since 2013. High-yield bond funds posted their largest-ever outflow by one measure this past week. The technology-laden Nasdaq Composite Index surged late Friday to close higher for the first time since its record close on Feb. 19, while the Dow and S&P 500 both declined.

Adding to investors’ worries, weekend data from China showed the country’s economy has taken even more of a hit from the epidemic than some had anticipated. Sentiment among manufacturers’ purchasing managers, as well as an index tracking purchasing plans in services industries, both fell to a record low in February.

The market tumult has left Wall Street scrambling. Fixed-income traders at JP Morgan Chase & Co. and trading teams at Barclays PLC met late in the week, focusing on preparing for further declines in stocks and commodities. A Federal Reserve statement Friday afternoon promising appropriate action wasn’t enough to quell nerves on many trading desks. Even those who counsel patience are for now expecting a period of intense volatility.

“When you are getting new information by the minute or by the hour, that creates anxiety in markets,” said Joe Amato, president and chief investment officer of equities at Neuberger Berman Group LLC. “People don’t want to take risk.”

The turmoil is increasing trading activity among investors in retirement funds. Alight Solutions, which tracks 401(k) trading activity among investors at large employers, said trading volumes on Thursday were 11.4 times higher than normal. Since 2008, there have only been two other days when trading volumes exceeded 11 times the historical average, says the company.

The violent downdraft in stocks has created an acute need for cash. Declines in gold and other areas of the market often associated with stability, like the shares of utilities firms, show that investors are being forced to raise cash to make up for losses from stocks, some traders said—including margin calls to investors who had used stocks as collateral to buy other securities. With the value of those positions shrinking substantially, banks can demand repayment, triggering forced sales of unrelated assets.

“You have a tremendous amount of people who needed cash,” said George Gero, managing director at RBC Wealth Management. “There is no haven at the moment with the exception of Treasurys.”

A Bank of America survey of fund managers in February showed investors’ positioning in cash at the lowest levels since March 2013.

Friday capped one of the worst two-week spans for high-yield credit since the financial crisis, marking the end of a long spell of largely placid trading. Analysts say moves haven’t been this violent since 2011, citing jumps in credit-default swap indexes and outflows from high-yield funds.

The average bid for S&P Global Market Intelligence’s LCD 15-bond sample of high-yield issues tumbled 2.47 percentage points over the past week, wiping out all 2020 gains on Thursday. Markit’s high-yield CDX index dropped nearly 5 points in two weeks, the steepest decline for any comparable period since 2011.

The action is evidence that the rapid evolution of coronavirus from an epidemic to what appears to be a pandemic has paralyzed Wall Street, some investors say, because there are too many unanswered questions.

“It’s a brand new thing,” said Chris Stanton, chief investment officer at Sunrise Capital Partners LLC, a California-based quantitative fund. “If the next headline says Disney is shutting its theme parks, we will start seeing moves like 2008.”

For now, many portfolio managers and investors believe the storm will pass, leaving intact a bull market that started in 2009 and has pushed the Dow up some 300%. Some took heart at the frantic late-afternoon rally that narrowed Friday’s losses, while others said they believe the selling is likely to prove overdone.

“I still think we’re in a secular bull market,” said Nancy Tengler, chief investment officer at Laffer Tengler Investments.

Yet even those who believe the coronavirus scare will blow over are bracing for additional volatility as investors struggle to discern the true impact of the illness on global markets and economies.

Ms. Tengler holds some options to hedge against stock declines. The move wasn’t even primarily prompted by worries about the coronavirus. Months before, she had already had a feeling that stocks were due for a pullback, given the extent to which they had risen despite a lackluster year of earnings in 2019 and muted growth.

She wasn’t sure what the trigger for the decline would be. But she believed it was coming nevertheless. The options have more than tripled in value, so Ms. Tengler plans on selling some of them to take in a profit.

Some of her clients haven’t been as farsighted. She said she got a text from a client as the market selloff picked up steam last week.

“Wow, you were right,” the client said. “I wish I had hedged.”

Healthcare group is facing a cash crunch and is operating without a full finance department

NMC Health has hired Moelis to advise on debt restructuring as the struggling healthcare group faces signs of a cash crunch with staff members complaining about late salary payments.

The mandate was welcomed by lenders, who have become increasingly concerned about their loan exposure to the scandal-hit FTSE 100 company. Trading of NMC’s shares was suspended last week as the UK’s Financial Conduct Authority launched an investigation into its finances.

“We just desperately need to see some stabilisation,” said one banker.

Moelis declined to comment on the appointment, which was first reported by Reuters.

While NMC reported £500m of cash on its balance sheet as recently as June, the true state of its finances is unclear after the company announced last week it had found discrepancies in its bank statements. The Abu Dhabi-based group is also operating without a full finance department, after suspending a member of its treasury team and granting “extended sick leave” to its chief financial officer.

Some staff at NMC facilities on Sunday complained that they had yet to receive their February salaries.

“We are all very worried,” said one administrator. “They don’t give us any information.”

One manager said salaries would be paid on Sunday, blaming the delay of several days on recent management changes. “We will have to look elsewhere for work quickly if the money doesn’t come through,” said another employee.

Late salary payments have heightened concerns among the group’s lenders that the company could collapse without external assistance.

“They are running out of cash,” said one person briefed by NMC management on the state of its finances. He said that the delayed salaries were affecting staff at facilities across the United Arab Emirates.

Two people briefed on the matter said NMC’s interim management and some shareholders have been in talks with officials in Abu Dhabi over the weekend seeking a financial solution to save the firm, which faces questions over its true debt position.

The Financial Times reported last week that the group recently resorted to pledging future credit card payments from customers to secure funding, a form of receivables financing arrangement more commonly used by small businesses or those that are short of cash.

NMC did not respond to requests for comment.

Rating agency Moody’s said last week that uncertainty surrounding NMC’s share ownership “could trigger a change of control and lead to a debt acceleration” on its main loan facility — meaning that banks could demand full repayment immediately.

Some lenders are also concerned that there is more debt secured against assets and cash flow than they initially realised. “The lenders have been blindsided here, and are scrambling to catch up,” said one UK-based banker.

One investor said that NMC is now at risk of losing access to working capital loans from some UAE banks, which could make it even harder for the company to pay staff and suppliers.

The rapid decline in NMC’s fortunes, sparked by a steady stream of revelations about confused shareholdings and unreported debts, has prompted calls among bankers and investors for the government to intervene to protect the UAE’s largest private healthcare provider.

NMC is an integral part of the Gulf federation’s healthcare system. The situation is particularly acute given the unfurling coronavirus crisis, which has hit the UAE, a popular tourist destination.

A cycling race was cancelled last week after two staff members of a team participating in the tour tested positive, leading to top professional athletes — including four-time Tour de France winner Chris Froome — being placed under quarantine in their hotel in Abu Dhabi. Teams started to head home on Sunday after being tested.

Think-tank finds evidence of Uighur detainees making parts for likes of Apple and Huawei,

China’s Uighur minority are being moved from their homes and mass detention camps into factories to work under conditions that strongly suggest forced labour for suppliers to a range of multinationals including Apple and Huawei, according to new research.

More than 80,000 Uighur residents and former detainees from the north-western region of Xinjiang have been transferred to factories in a range of supply chains including electronics, textiles, and automotives, according to the report released on Sunday by the Australian Strategic Policy Institute (ASPI). At least 83 Chinese and foreign multinationals are known to be benefiting from “forced Uyghur labour under a state-sponsored labour transfer scheme”, the think-tank found.

It names 27 factories in nine Chinese provinces as beneficiaries of workers transferred from Xinjiang since a crackdown on the Uighur Muslim minority began in early 2017. While a handful of companies had previously been named in public reports, their supply chains were concentrated in Xinjiang itself, particularly the cotton industry.

Over the past three years, the Chinese government has detained some 1.8m Uighur Muslims in a system of camps in the region. While Beijing says some have been released, many have been sent to work in factories across China as part of government-organised labour-transfer schemes. The schemes also include individuals who have not previously been interned.

The transferred workers typically undergo “ideological training outside working hours, are subject to constant surveillance, and are forbidden from participating in religious observances”, according to ASPI.

The think-tank arrived at their conclusions by cross-referencing state media and Chinese government reports announcing Xinjiang work-transfer projects to lists of suppliers for international brands, as well as local companies’ claims of who they were supplying.

Family members of forced labourers in Xinjiang have previously said their relatives are not allowed to leave the factories and that communications with the outside world, if allowed at all, are monitored.

The factories implicated by Xinjiang labour transfers stretch as far as Nanchang, a city in southern China where Apple supplier O-Film Technology has three factories, according to Apple’s supplier list. O-Film also says it supplies Huawei and other multinationals with camera and touchscreen components.

Local media in southern Xinjiang reported that in the space of a few days in 2017, 700 workers were transferred to O-Film’s Jiangxi plants. Although local media did not mention they were ex-detainees, it described the work-transfer programme as aiming to “gradually change their ideas, letting them grow into . . . youth who would understand the Party’s compassion and feel gratitude for the Party”.

The phrase is reminiscent of Beijing’s official line that the purpose of Xinjiang’s mass-detention camps are “re-education” or ideological correction. The government has a target to transfer 100,000 people from the Uighur-majority southern Xinjiang region into industrial labour in the three years to 2020.

Asked to comment on the findings, an Apple spokesperson pointed to a statement previously given to the Washington Post: “Apple is dedicated to ensuring that everyone in our supply chain is treated with the dignity and respect they deserve. We have not seen this report but we work closely with all our suppliers to ensure our high standards are upheld.”

Huawei declined to comment.

Exporting products made by prison labour is against Chinese law, as well as the World Trade Organization’s member rules, although prison labour has been documented across various parts of China’s export supply chain.

Intervention would confirm moral hazard as defining market principle of post-crisis era

At the end of last week, Federal Reserve chairman Jay Powell cryptically assured markets that the Fed would do the “appropriate” thing to counter Covid-19’s plague on equity prices. This is a carefully crafted promise of nothing specific, ensuring that the Fed can do anything it wants.

Even so, investors have taken it not only as assurance that US short-term interest rates will drop at least a full percentage point, but also that the Fed will expand its “whatever it takes” promise for financial markets into a no-holds-barred backstop for stocks.

If the Fed does step in, the aptly named dead-cat bounce in which prices recover only for a short while, should not be mistaken for resurrected animal spirits. No amount of rate cuts will cure a single coronavirus patient, nor will anyone frightened of illness decide to buy a new house, a car, or even a night out at a restaurant. Markets that are priced for a rescue ignore reality at great peril, and central banks that encourage them to do so run even greater risks.

The first problem with a central-bank rate cut as a restorative for markets is that it will not work.

The reason for this is simple: central banks have financial-market weaponry and coronavirus risk is not financial: it is, of course, an initially biomedical risk that is followed by risks of contagion — literally — for the entire supply side of the manufacturing and service sectors.

In 2008, a blitz from the Fed calmed markets because the great financial crisis was what its name signifies: financial. A central bank can infuse liquidity into a market starved of liquidity or, in gentler times, nudge demand by lowering interest rates to spur borrowing and, then, buying. But when the populace heads for the hills, no amount of extra-accommodative policy can coax it down.

Further, when central banks intervene to cushion disruptions in supply chains, they cease to be central banks and become fiscal-policy tsars. Coronavirus’ macroeconomic risk comes not from lack of money but lack of treatment and cure. The pandemic’s second-order effect — supply-chain disruption — also has nothing to do with lack of cheap funds.

Instead, the problem is fear: fear that a lower interest rate cannot calm. Long-established fiscal policy recognises that fear of supply-chain shortages is best solved with supply-chain infusions. Historically, nations have thus solved for panic-driven commodity shortages with sovereign stockpiles such as the US Strategic Petroleum Reserve, a network of huge underground salt caverns at four sites along the coastline of the Gulf of Mexico.

The lack of any comparable facilities for empty hotel rooms, missing auto parts, and essential medicines cannot be solved by any amount of monetary-policy stimulus.

The Fed could of course go into the helicopter-money business, buying tonnes of copper or other commodities or even buying out Disneyland for a day or two. That might work, at least for a while. Even so, pandemic quantitative easing is a novel concept replete with problematic consequences.

A precipitous rate cut, new-style QE, or some other market intervention of the Fed’s devising, share two common flaws. First, they will not work for long if coronavirus lingers, because the crisis has nothing to do with money, the Fed’s stock in trade. Second, even if the Fed finds a way to put a lasting floor under equity prices that restores market confidence and then miraculously eases fears of a pandemic, US equity markets will have been irreparably changed — and for the worse.

After the financial crisis, central banks talked a good game about ending too-big-to-fail financial institutions. If the Fed exercises its equity-pricing “put” yet again, it will validate those pressing for a rate cut, secure in the belief that moral hazard is the defining market principle of the post-crisis era. Too-big-to-fail banks will be succeeded by equity prices that are too high to fall. That is a sure-fire way to create crises yet unknown.