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Business

New suppliers race to plug in to electric car market

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WOKING, England, Jan 23 (Reuters) – The global auto industry has committed $1.2 trillion to developing electric vehicles (EVs), providing a golden opportunity for new suppliers to grab contracts providing everything from battery packs to motors and inverters.

Startups specialising in batteries and coatings to protect EV parts, and suppliers traditionally focused on niche motorsports or Formula One (F1) racing, have been chasing EV contracts. Carmakers design platforms to last a decade, so high-volume models can generate large revenues for years.

The next generation of EVs is due to hit around 2025 and many carmakers have sought help plugging gaps in their expertise, providing a window of opportunity for new suppliers.

“We’ve gone back to the days of Henry Ford where everyone is asking ‘how do you make these things work properly?’,” says Nick Fry, CEO of F1 engineering and technology firm McLaren Applied.

“That’s a huge opportunity for companies like us.”

Bought from McLaren by private equity firm Greybull Capital in 2021, McLaren Applied has adapted an efficient inverter developed for F1 racing for EVs. An inverter helps control the flow of electricity to and from the battery pack.

The silicon carbide IPG5 inverter weighs just 5.5 kg (12 lb) and can extend an EV’s range by over 7%. Fry says McLaren Applied is working with around 20 carmakers and suppliers, and the inverter will appear in high-volume luxury EV models starting January 2025.

Mass-market carmakers often prefer to develop EV components in-house and own the technology themselves. After years of pandemic-related parts shortages, they are wary of over-reliance on suppliers.

“We just can’t afford to be reliant on third parties making those investments for us,” said Tim Slatter, head of Ford (F.N) in Britain.

Traditional suppliers, such as German heavyweights Bosch and Continental (CONG.DE), are also investing heavily in EVs and other technologies to stay ahead in a fast-changing industry.

But smaller companies say there are still opportunities, particularly with low-volume manufacturers that cannot afford huge EV investments, or luxury and high-performance carmakers seeking an edge.

Croatia’s Rimac, an electric hypercar maker part-owned by Germany’s Porsche AG (P911_p.DE) that also supplies battery systems and powertrain components to other automakers, says an undisclosed German carmaker will use a Rimac battery system in a high-performance model – with annual production of around 40,000 units – starting this year, with more signed up.

“We need to be 20%, 30% better than what they can do and then they work with us,” CEO Mate Rimac says. “If they can make a 100-kilowatt hour battery pack, we must make a 130-kilowatt pack in the same dimensions for the same cost.”

NO TIME TO LOSE

Some suppliers like Cambridge, Massachusetts-based Actnano have had long relationships with EV pioneer Tesla (TSLA.O). Actnano has developed a coating that protects EV parts from condensation and its business has spread to advanced driver-assistance systems (ADAS), as well as other carmakers including Volvo (VOLCARb.ST), Ford, BMW (BMWG.DE) and Porsche.

California-based startup CelLink has developed an entirely automated, flat and easy-to-install “flex harness”, instead of a wire harness to group and guide cables in a vehicle. CEO Kevin Coakley would not identify customers but said CelLink’s harnesses had been installed in around a million EVs. Only Tesla has that scale.

Coakley said CelLink was working with U.S. and European carmakers, and with a European battery maker on battery wiring.

Others are focused on low-volume manufacturers, like UK startup Ionetic, which develops battery packs that would be too expensive for smaller companies to make themselves.

“Currently it costs just too much to electrify, which is why you see some manufacturers delaying their electrification launch,” CEO James Eaton said.

Since 1971, Swindon Powertrain has developed powerful motorsports engines. But it has now also developed battery packs, electric powertrains, e-axles and is working with around 20 customers, including carmakers and an electric vertical take-off and landing (eVTOL) aircraft maker.

“I realized if we don’t embrace this, we’re going to end up working for museums,” said managing director Raphael Caille.

But time may be running out.

Mate Rimac says major carmakers scrambled in the last three years to roll out EVs and now have strategies largely in place.

“For those who haven’t signed projects, I’m not sure how long the window of opportunity will remain open,” he said.

($1 = 0.8226 pounds)

Reporting by Nick Carey
Editing by Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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Business

Startups spring from ashes of Big Tech purge

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  • Mass tech layoffs spawn new wave of startups
  • Early-stage VC funding at around record levels
  • Echoes of dotcom crash that fueled Facebook, others

Jan 3 (Reuters) – Nic Szerman lost his job at Meta Platforms (META.O) in November, just two months after joining full-time, falling victim to a sweeping 13% reduction of its workforce as the advertising market cratered.

Days later he was back working, seeking investment for his own company Nulink, a blockchain-based payment company, and sent pitches to startup accelerator Y Combinator and Andreessen Horowitz’s cryptocurrency fund.

“As counterintuitive as it may sound, this layoff left me in a really good position,” the 24-year-old said. “Because I don’t have to pay back the sign-on bonus, I get four months of pay, and now I have time to focus on my own project.”

Szerman is part of a wave of would-be entrepreneurs who are emerging from the ashes of the mass job losses seen in Silicon Valley in the second half of 2022, according to venture capitalists.

U.S. tech giants including Meta, Microsoft (MSFT.O), Twitter and Snap (SNAP.N) have purged more than 150,000 staff, according to Layoff.fyi, which tracks technology job losses.

While overall venture capital (VC) financing fell 33% globally to about $483 billion in 2022, early-stage funding was robust, with $37.4 billion raised in so-called angel or seed rounds, in line with the record level seen in 2021, according to data from research firm PitchBook.

Day One Ventures, an early stage venture fund in San Francisco, launched a new initiative in November to fund startups founded by people who had been laid off from their tech jobs, touting the slogan “Funded, not Fired”.

The program aims to cut 20 checks for $100,000 by the end of 2022. Day One said it had received over 1,000 applications, most of them from people who were cut loose by Meta, Stripe and Twitter.

“We’re investing $2 million in 20 companies – if we just find one unicorn it almost returns the fund, which I think is a really unique opportunity for us as fund managers,” said Masha Bucher, co-founder at Day One Ventures.

“Looking at the last economic cycle, companies like Stripe, Airbnb, Dropbox have been created in crisis.”

HOT: GAMING AND AI

Also in November, multi-stage fund Index Ventures, which has bankrolled Facebook, Etsy and Skype, launched its second Origins fund, which will invest $300 million in early-stage startups.

Silicon Valley investor U.S. Venture Partners and Austrian VC firm Speedinvest have meanwhile earmarked a similar amount for newly founded companies.

Investors highlighted gaming and artificial intelligence among hot areas of interest.

“With advances in game design, new innovations like cloud gaming, and the emergence of social networking in this sphere, gaming has really transcended into mainstream culture,” said Sofia Dolfe, partner at Index Ventures.

“In every period of economic uncertainty, there is opportunity – to reset, re-prioritize and re-focus energy and resources.”

DOTCOM BUBBLE 2.0

Szerman said his project was rejected by Y Combinator, while he hasn’t heard back from Andreessen Horowitz yet, though he added that other early-stage venture capitalists had expressed interest.

“I told the investors we’ll chat in two or three months,” he added. “I’ll focus on scaling the system now.”

Some investors compared the 2022 downturn to the dotcom crash of the early 2000s, when dozens of overvalued startups went bust, flooding the market with talent and helping to spark a wave of new companies such as Facebook and YouTube.

“Many great companies have been created in relatively dark times,” said Harry Nelis, partner at investment firm Accel, who sees a new generation of risk takers emerge among the swathe of people left unemployed.

Some industry players say former Big Tech employees are uniquely placed to start their own companies, having seen first-hand how some of the biggest firms in the world operate, and enjoying ongoing access to their network of highly skilled colleagues.

One former Googler has sought to help others like him looking for life after technology giants. In 2015, Christopher Fong, who spent almost a decade working for the tech titan in California, launched Xoogler, a project designed to help former employees hoping to start their own companies. Since then, the group’s membership has since swelled to more than 11,000.

Fong told Reuters that experience in Big Tech firm gave founders a “strong brand that can be leveraged to meet investors, potential customers, and recruit team members”.

(This story has been refiled to correct Harry Nelis’ designation to partner from managing partner in paragraph 19)

Reporting by Martin Coulter in London, Supantha Mukherjee in Stockholm and Krystal Hu in New York; Editing by Pravin Char

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Business

Tesla used car price bubble pops, weighs on new car demand

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SAN FRANCISCO, Dec 27 (Reuters) – Tesla buyers who waited months for their new car have had an unusual choice for much of the past two years: keep the new electric vehicle, or sell it at a profit to someone with less patience.

But the days of the Tesla flip are numbered – a potential threat to new car prices that are already getting cut.

Prices of used Teslas are falling faster than those of other carmakers and the clean-energy status symbols are languishing in dealer lots longer, industry data provided to Reuters showed.

The average price for a used Tesla in November was $55,754, down 17% from a July peak of $67,297. The overall used car market posted a 4% drop during that period, according to Edmunds data. The used Teslas were in dealer inventory for 50 days on average in November, compared with 38 days for all used cars.

Rising gasoline prices, an effect of the Ukraine war, boosted demand for Teslas, one of few long-range electric vehicles in the market. Tesla Inc (TSLA.O) itself raised prices faster than prices for other cars, building its profit margins. And buyers of some new Teslas took advantage of the booming market to sell their relatively new cars for a profit, then order new ones, driving demand for Tesla’s new cars.

Now fuel prices are easing, interest rates are rising, Tesla output is increasing, and EV competition is growing, leading used Tesla prices to fall faster than the market, and creating a cascading effect on prices of new Teslas.

Tesla last week doubled a U.S. new-car price cut to $7,500 for Model Ys and Model 3s delivered this year, adding to investor jitters about softening demand.

Nearly a third of used Teslas for sale in August were 2022 models up for resale, a sign that original buyers were aiming to flip, analysts said. That compares with about 5% of other brands on the used market, research firm Edmunds said.

Reuters Graphics
Reuters Graphics
Reuters Graphics

“You can’t sell your current Tesla for more money than you paid for it, which was true for a lot of the past two years,” said Karl Brauer, executive analyst at car sales website iSeeCars.com. “That would reduce demand for new Teslas.”

On Thursday Musk said that the “radical interest rate changes” have increased the prices of all cars, new and used, and that Tesla potentially could lower pricing to sustain volume growth, which would result in lower profit.

Tesla, which has disbanded its media relations department, did not respond to Reuters’ emailed questions.

Indeed, Tesla is hardly alone: the U.S. used car market thrived as global vehicle manufacturing hit snags, but it now is facing a “used vehicle recession,” one analyst said, after used car seller CarMax last week reported an 86% drop in third-quarter profit.

But Tesla is leading the retreat: the factors that pushed up prices of its vehicles were exaggerated compared with other brands because Teslas were “basically for a long time really the only viable product when it came to used EVs,” said Ivan Drury, director of Insights at Edmunds.com.

EVs such as the Ford F-150 Lightning and the Hyundai Ioniq 5 are coming to market with a lot of buzz, said Liz Najman, content marketing manager at EV researcher Recurrent.

Software engineer Greg Profitt bought a new Model Y last year for $49,000 and sold it three months later for $12,000 more. He ordered a new one – but has just bought a used Tesla at a discount.

“The economy kind of scares me to buy new ” he said, adding that the new $7,500 discount would be too little to sustain demand.

Reporting by Hyunjoo Jin in San Francisco and Nivedita Balu in Bengaluru
Editing by Peter Henderson, Anna Driver and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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Business

CarMax results hit by ‘used-vehicle recession’; buyback paused

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Dec 22 (Reuters) – Used-car retailer CarMax Inc (KMX.N) said on Thursday it was pausing some hiring, halting share buybacks and cutting expenses after reporting an 86% drop in third-quarter profit as the industry struggles to offload inventory amid waning demand.

The company’s shares fell as much as 12% to $52.10 and were at more than a two-and-a-half year low, dragging other auto retailers down with it.

The used-car industry, which minted money during the pandemic, is now struggling to sell cars at or above the prices it bought them as consistent rate hikes and decades-high inflation take a toll on demand.

“CarMax is battling a used-vehicle recession,” Evercore ISI analyst Michael Montani said, adding that pressure on wholesale sales intensified from the second quarter.

Reuters Graphics

In response to challenging industry conditions, CarMax said it slowed car buying in the third quarter and cut marketing and capital expenditures.

CarMax is also lowering its staffing “from an attrition basis” and paused hiring in its corporate office to cut costs, Chief Financial Officer Enrique Mayor-Mora said during an investor call, adding that some actions may carry into the next year.

The company also halted share buybacks, CarMax said but added it remains committed to returning capital back to shareholders over time.

“Given third-quarter performance and continued market uncertainties, we are taking a conservative approach to our capital structure,” CarMax said.

CarMax reported retail and wholesale used-vehicle unit sales were 298,807 in the quarter through November, down 28% from a year earlier. It also bought about 40% fewer vehicles in the third quarter.

The company reported net income of 24 cents per share, compared with estimates of 70 cents, according to Refinitiv data.

CarMax’s revenue fell about 24% to $6.51 billion, below estimates of $7.29 billion.

Shares of other car retailers such as AutoNation Inc (AN.N) and Carvana Co (CVNA.N) were down between 1% and 2%.

Reporting by Priyamvada C and Kannaki Deka in Bengaluru; Editing by Shounak Dasgupta and Maju Samuel

Our Standards: The Thomson Reuters Trust Principles.

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Business

Tesla sends Shanghai boss and aides to jumpstart U.S. output

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SHANGHAI/SAN FRANCISCO, Dec 21 (Reuters) – Tesla Inc’s (TSLA.O) China chief Tom Zhu and a team of his reports has been brought in to troubleshoot production issues in the United States, fueling talk among colleagues he is being groomed for a bigger role at a time when Chief Executive Elon Musk has been distracted by Twitter.

Zhu, who heads Tesla’s Asia operations, has been traveling with a team including Shanghai gigafactory manager, Song Gang, to Tesla’s plants in California and Texas, and was there as recently as last week, according to two people with knowledge of the matter. Both asked not to be named because they were not authorized to speak to the media.

Tesla did not respond to written requests for comment from Reuters sent to its Shanghai and global media relations accounts. Musk did not respond to a Reuters’ email seeking comments for the story. Zhu and Song could not be reached for comment.

Under Zhu, Tesla Shanghai rebounded strongly from lockdowns this year to bring Tesla close to its growth target for 2022 of 50% production growth. Analysts expect output to fall short at closer to 45%, based on forecasts for the just-concluding fourth quarter.

Zhu and others made their first trip to the United States for Tesla this year in August, one of the people said, at a time when the company has some key management roles there unfilled.

Among the projects the Shanghai team have worked on is Tesla’s long-delayed Cybertruck, its next new model, a third person said.

Tesla’s Austin plant is ramping up production of the Model Y and readying the Cybertruck. The Fremont plant is preparing to launch a new version of the Model 3, which will start production in Shanghai next year, Reuters has reported.

Some Tesla investors and analysts have voiced concerns about Musk’s distraction following his acquisition of Twitter in October and the depth of the executive bench at the electric-car company.

Bloomberg reported this month that Zhu was helping to run the Austin plant. However, Zhu’s colleagues in Shanghai believe he is in line for a more senior and wider-ranging role at Tesla, the two people said.

A close aide to Zhu in Shanghai circulated a farewell poem for the China boss in recent weeks on social media, anticipating his new assignment, according to the message reviewed by Reuters.

SHANGHAI TEAM ON THE ROAD

At the Austin factory, Chinese engineers were seen by people at the plant working in the area reserved for development of the Cybertruck and batteries, a third person with knowledge of operations there said. Tesla has targeted production of the Cybertruck next year.

At Fremont California, Chinese staff have been working on Model Y underbody assemblies, according to another person with knowledge of their work there.

When Tesla posted a picture on Twitter on Friday to celebrate Austin hitting a new production milestone of 3,000 Model Ys in a week — still less than a third of the weekly output of Shanghai last quarter — Zhu was shown smiling with hundreds of people on the factory floor.

Zhu, who was born in China but now holds a New Zealand passport, is a no-fuss manager who favors Tesla-branded fleece jackets and lives in a government-subsidized apartment a 10-minute drive from the Shanghai Gigafactory, according to people who work with him and his comments to Chinese media.

When Musk sent a memo in early June warning he had a “super bad feeling” about the economy, Shanghai was on track to end the quarter down 36% from the quarter before because of COVID lockdowns, data released later showed.

With help from Shanghai officials, Zhu restarted operations by asking thousands of workers and suppliers to stay at the factory for more than six weeks. Zhu himself opted to stay longer, sleeping at the factory as Musk had in 2018 when Fremont was struggling to ramp production, two people with knowledge of the events told Reuters.

Shanghai, a complex that employs some 20,000 workers, came roaring back in the third quarter, with output of the Model Y and Model 3 up over 70% on the quarter.

Through September, Shanghai accounted for more than half of Tesla’s output.

The plant has excelled in applying cost-saving, factory-floor innovations for Tesla, including the use of massive casting machines to simplify production.

“The manufacturing people who led that push are obvious choices to spread the production gospel into the other new plants,” said Sam Fiorani, who tracks production trends Auto Forecast Solutions.

Tesla board member James Murdoch said last month the company had recently identified a potential successor to Musk without naming the person. Murdoch did not immediately respond to a request for comment.

Reuters has no evidence that Zhu is the possible candidate.

“With Elon Musk’s attention currently being pulled in a number of directions, finding someone to help guide Tesla is important, especially someone with the manufacturing know-how that Tom Zhu has,” Fiorani said.

Some investors are skeptical that Zhu alone could turn things around: “In America, doing business is very, very different than running a factory in China,” Ross Gerber, a Tesla investor and CEO of Gerber Kawasaki Wealth and Investment Management said on Twitter Spaces on Tuesday. “So I think Elon needs to be at Tesla.”

Reporting by Zhang Yan in Shanghai and Hyunjoo Jin in San Francisco; editing by Kevin Krolicki and Daniel Flynn

Our Standards: The Thomson Reuters Trust Principles.



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World

German car giants and Asian battery kings: a match made in Hungary

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  • German, Chinese and S.Koreans head to Hungary
  • They dominate auto investment and subsidies
  • Orban’s Hungary keen to court foreign business

BERLIN/BUDAPEST, Dec 13 (Reuters) – German automakers and Asian battery suppliers are getting together in Hungary in a multi-billion-dollar marriage of convenience to drive their electric ambitions.

The companies are flocking to central Europe, where Viktor Orban’s government is defying Western wariness of China and offering generous benefits to host foreign operations and stake Hungary’s claim as a global centre for electric vehicles (EVs).

Investment in the Hungarian auto industry is being dominated by three countries – Germany, a champion carmaker, plus China and South Korea, EV battery leaders way ahead of European rivals.

Companies from those three countries have accounted for 29 out of the 31 cash subsidies handed out by Hungary for major investments in its auto and battery sector over the past decade, according to a Reuters analysis of government data that shows the scale of German, Chinese and Korean convergence there.

“Cathodes, anodes, separators, assembly lines, the full battery supply chain is here,” said Dirk Woelfer of the German-Hungarian Chamber of Commerce in Budapest. “This is a foot in the door to Europe.”

Recipients of such subsidies included the likes of German automakers BMW (BMWG.DE) and Mercedes-Benz (MBGn.DE), and battery makers such as China’s BYD and Korean rival Samsung SDI (006400.KS). The median subsidy level has been 15% of investment.

In total, Hungary has received over 14 billion euros ($15 billion) in foreign direct investment into its battery sector alone in the past six years, according to government figures.

Major investments are broadly classed as those worth over 5-10 million euros, varying with factors such as jobs created.

State incentives and the opportunity for automakers and battery suppliers to work next door to each other is proving a strong pull, according to interviews with about 20 industry players and consultants in Germany, Hungary, China and South Korea.

China’s CATL (300750.SZ), the world’s No. 1 EV battery maker, and Korean battery giants SK Innovation (096770.KS) and Samsung SDI, all told Reuters that the planned proximity to German carmakers was a key factor in their decisions to invest in Hungary, as well as being able to source separators and other components there.

CATL is investing $7.6 billion to build Europe’s largest battery plant in Hungary. This plant and the $2.1 billion BMW factory will both be sited in the city of Debrecen, which is attracting an ecosystem of suppliers, ranging from makers of brakes and battery cathodes to industrial machinery.

Mercedes-Benz is converting its factory in Kecskemet to produce electric cars, while Volkswagen’s (VOWG_p.DE) Audi is making cars and electric motors in Gyor.

Such big business could present a boon for Prime Minister Orban’s government as the country faces its toughest economic environment in more than a decade, with inflation running above 20%, the economy slowing and EU funds in limbo.

Yet the Hungarian EVs project also faces stiff obstacles, according to many of the industry insiders.

One key concern is the huge demands that massive battery plants will place on the electricity grid, which needs to shift away from fossil fuels towards renewables to meet the net-zero emissions targets of much of the auto industry, the people said.

A lack of specialised workers in Hungary to work in battery cell manufacturing could also drag on capacity, they added.

HIPA, the Hungarian Foreign Ministry agency responsible for attracting investments in areas ranging from batteries and cars to logistics, did not respond to Reuters queries about the EV industry.

‘CHINA’S MADE GOOD STEPS’

Hungary’s welcome to Asian battery makers might jar with concerns expressed by Brussels and Berlin about the perils of Europe becoming too dependent on China and other foreign powers, particularly in technologies central to the green transition.

Still, for now, the need to ramp up EV output leaves the European auto industry little choice but to source from Asian players, said Csaba Kilian of Hungary’s automotive association.

“I absolutely agree that European manufacturers should have their own sources … but it’s a competition, and China has made good steps,” he added. “There is a learning curve.”

Europe should have a EV battery manufacturing capacity of 1,200 gigawatt hours (GWh) by 2031 if current plans come to fruition, outstripping expected demand of 875 GWh, Benchmark Mineral Intelligence (BMI) estimates. But of that 1,200 GWh, 44% will be provided by Asian companies with factories in Europe, ahead of homegrown firms on 43% and U.S. pioneer Tesla (TSLA.O) with 13%, according to a Reuters calculation based on BMI data.

The prospects for developing a battery sector in Germany have been set back by record energy there as a result of the loss of Russian gas, according to autos consultants at Boston Consulting Group and Berylls Strategy Advisors.

Hungary offers a comparatively stable energy system bolstered by nuclear energy, as well as high subsidies and Europe’s lowest corporate tax rate of 9%.

The entire battery supply chain has come to the country, said Ilka von Dalwigk, policy manager at the European Battery Alliance, launched by the European Union in 2017 to kick-start a homegrown industry.

“Everything is located there. When we look at the forecast for 2025 and 2030, it looks like it will have one of the largest production capacities in Europe,” she added.

“It might very well be that Hungary is in fact the next big battery production cluster in Europe.”

Asked about concerns about reliance on Asia for technology, an EU official said the bloc – which must approve member state subsidies to investors – had a system in place to cooperate and exchange information on investments from non-EU countries that may affect security.

The European Commission is currently in talks with Hungary over the size of the subsidy the country will offer to CATL for building the Debrecen plant, the official added.

‘SENDING THE WRONG SIGNAL’

For some Western companies, setting up shop in Hungary is a tough decision.

German autos supplier Schaeffler said it was on the verge of setting up its primary electric motor plant in Hungary rather than Germany in August because of the appeal of Hungary’s incentives, but decided on Germany for fear of sending “the wrong signal” to Germans who fear a loss of jobs to overseas.

Other industry players expressed a range of concerns over potential pitfalls for the burgeoning Hungarian auto industry as factories ramped up, including the power grid issue.

Batteries, in particular, are highly energy-intensive parts of EVs to produce, requiring high amounts of power for the drying the materials and machine operation.

Hungary’s sources of energy in 2021 comprised 80% fossil fuels, 14.5% nuclear and 3.6% solar, according to a Reuters calculation of data from the BP Statistical Review of World Energy.

The mix spells trouble for carmakers who will soon need to showcase carbon-free credentials across their supply chains under new German and European legislation.

Hungarian Foreign Minister Peter Szijjarto met senior executives from BMW and auto suppliers including Schaeffler and Knorr-Bremse in Munich last month, ahead of the German carmaker announcing it was beefing up its investment in the country.

Topics discussed included plans to improve logistics infrastructure in Hungary and increasing the amount of renewables energy used for the power grid, according to one of the companies that attended.

When BMW first announced its plan to build its Debrecen plant, in 2018, the government committed to spending around 135 billion forints on improving local infrastructure, according to calculations by the German-Hungarian Chamber of Commerce.

On the battery side, CATL told Reuters it was considering developing solar power with local partners in Hungary.

Despite the risks, Alexander Timmer, a partner at Munich-based consultants Berylls Strategy Advisors who has worked on several autos and battery projects in Hungary, said the country presented an appealing package.

“The combination of cost advantages, state subsidies, and closeness to automakers’ plants makes Hungary increasingly attractive to battery producers, he added.

($1 = 397.54 forints; $1 = 0.9483 euros)

Reporting by Victoria Waldersee in Berlin, Gergely Szakacs in Budapest; Additional reporting by Heekyong Yang, Zhang Yan; Editing by Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

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Business

Europe’s debt market strains force some governments to rework trading rules

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Oct 31 (Reuters) – Some euro zone countries have eased rules for the banks that manage the trading of their government debt to help them cope with some of the most challenging market conditions in years, officials told Reuters.

Out of 11 major euro area debt agencies Reuters contacted, officials in the Netherlands and Belgium told Reuters they have loosened various market-making obligations dictating how actively these banks should trade their debt.

France, Spain and Finland said their rules are already structured to automatically take account of market tensions. Germany and Austria said they do not set such rules.

As the European Central Bank unwinds years of buying the region’s debt, while the war in Ukraine, an energy shock and turmoil in Britain are making investors wary of loading up on government bonds, debt managers are adjusting to a less liquid, more volatile market.

That in turn, could raise borrowing costs for governments, already squeezed by climbing interest rates and energy-related spending, and bring more uncertainty for institutions, such as pension funds, which seek in government debt safety and stability.

Euro zone government debt bid-ask spreads, the difference between what buyers are offering and sellers are willing to accept and a measure of how smooth the trading is, have risen up to four-fold since the summer of 2021, data compiled by MarketAxess (MKTX.O) for Reuters showed. The data tracked German, Italian, French, Spanish and Dutch bonds, markets which account for the vast majority of euro zone debt with nearly 8 trillion euros outstanding.

Bond bid-ask spreads soar

LOOSENED OBLIGATIONS

Wider spreads mean more volatility and higher transaction costs. So governments expect, and some formally require their primary dealers – banks that buy government debt at auctions and then sell to investors and manage its trading – to keep those tight.

In markets with formal requirements, they also face other “quoting obligations” to ensure the best possible liquidity. Those obligations have been loosened in some countries to account for heightened market stress.

Jaap Teerhuis, head of dealing room at the Dutch State Treasury, said several of its quoting obligations, including bid-ask spreads, had been loosened.

“Volatility is still significantly higher compared to before the (Ukraine) war and also ECB uncertainty has also led to more volatility and more volatility makes it harder for primary dealers to comply,” he said.

Liquidity has been declining since late 2021 as traders started anticipating ECB rate hikes, Teerhuis said. The Netherlands then loosened its quoting obligations following the invasion of Ukraine.

Belgium’s quoting obligations also move with changes in trading conditions. But it has relaxed since March the rules on how many times per month dealers are allowed to fail to comply with them and has also reduced how much dealers are required to quote on trading platforms, its debt agency chief Maric Post said.

The two countries also loosened rules during the COVID-19 pandemic. Belgium’s Post said that lasted only four months in 2020, but it has kept obligations looser for much longer this time.

Finland said it has not changed its rules, but could not rule out acting if conditions persist or worsen.

Outside the bloc, Norway has also allowed dealers to set wider bid-ask spreads.

In Italy, debt management chief Davide Iacovoni said on Tuesday it was considering adjusting the way it ranks primary dealers each year to encourage them to quote tight spreads. Such rankings can affect which banks get to take part in lucrative syndicated debt sales.

Debt offices where obligations adapt automatically said attempts to enforce pre-determined bid-ask spreads in volatile markets would discourage primary dealers from providing liquidity and cause more volatility.

“If the market is too volatile, if it’s too risky, if it’s too costly, it’s better to adjust the bid-offer to what is the reality of the market than to force liquidity,” France’s debt chief Cyril Rousseau told an event on Tuesday.

Britain’s September sell-off highlighted how liquidity can evaporate fast in markets that are already volatile when a shock hits. In that case, the government’s big spending plans triggered large moves in debt prices, forcing pension funds to resort to fire sales of assets to meet collateral calls.

‘FRAGMENTED MARKET’

Allianz senior economist Patrick Krizan said with bond volatility nearing 2008 levels, a fragmented market for safe assets was a concern.

The euro zone is roughly 60% the size of the U.S. economy but it relies on Germany’s 1.6 trillion euro bond market as a safe haven – a fraction of the $23-trillion U.S. Treasury market.

In the case of a volatility shock “you can very easily fall into a situation where some markets are really drying up,” Krizan said. “For us it’s one of the biggest risks for the euro area.”

For example, the Netherlands like Germany has a top, triple A rating. But like other smaller euro zone markets it does not offer futures, a key hedging instrument, and so far this year the premium it pays over German debt has doubled to around 30 basis points.

Smaller governments pay premium over bigger rating peers

Efforts by debt officials are welcomed by European primary dealers, whose numbers have dwindled in recent years because of shrinking profit margins and tougher regulation.

Two officials at primary dealer banks said that fulfilling the quoting obligations in current conditions would force them to take on more risk.

“If (issuers) want private sector market-making, it needs to be profitable, or why would anyone do it? And it can’t be if rates move around 10-15 basis points a day,” one said of moves of a scale that had rarely been seen in these markets in recent years.

($1 = 0.9970 euros)

Reporting by Yoruk Bahceli and Dhara Ranasinghe; additional reporting by Belen Carreno in MADRID, Lefteris Papadimas in ATHENS and Padraic Halpin in DUBLIN; editing by Tomasz Janowski

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Health

Addiction drug shows promise lifting long COVID brain fog, fatigue

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CHICAGO, Oct 18 (Reuters) – Lauren Nichols, a 34-year-old logistics expert for the U.S. Department of Transportation in Boston, has been suffering from impaired thinking and focus, fatigue, seizures, headache and pain since her COVID-19 infection in the spring of 2020.

Last June, her doctor suggested low doses of naltrexone, a generic drug typically used to treat alcohol and opioid addiction.

After more than two years of living in “a thick, foggy cloud,” she said, “I can actually think clearly.”

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Researchers chasing long COVID cures are eager to learn whether the drug can offer similar benefits to millions suffering from pain, fatigue and brain fog months after a coronavirus infection.

The drug has been used with some success to treat a similar complex, post-infectious syndrome marked by cognitive deficits and overwhelming fatigue called myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS).

Drawing on its use in ME/CFS and a handful of long COVID pilot studies, there are now at least four clinical trials planned to test naltrexone in hundreds of patients with long COVID, according to a Reuters review of Clinicaltrials.gov and interviews with 12 ME/CFS and long COVID researchers.

It is also on the short list of treatments to be tested in the U.S. National Institutes of Health’s $1 billion RECOVER Initiative, which aims to uncover underlying causes and find treatments for long COVID, advisers to the trial told Reuters.

Unlike treatments aimed at addressing specific symptoms caused by COVID damage to organs, such as the lungs, low-dose naltrexone (LDN) may reverse some of the underlying pathology driving symptoms, they said.

Naltrexone has anti-inflammatory properties and has been used at low doses for years to treat conditions such as fibromyalgia, Crohn’s disease and multiple sclerosis, said Dr. Jarred Younger, director of the Neuro-inflammation, Pain and Fatigue Laboratory at the University of Alabama at Birmingham.

At 50 milligrams – 10 times the low dose – naltrexone is approved to treat opioid and alcohol addiction. Several generic manufacturers sell 50mg pills, but low-dose naltrexone must be purchased through a compounding pharmacy.

Younger, author of a scientific review of the drug as a novel anti-inflammatory, in September submitted a grant application to study LDN for long COVID. “It should be at the top of everyone’s list for clinical trials,” he said.

Still, the drug is unlikely to help all patients with long COVID, a collection of some 200 symptoms ranging from pain and heart palpitations to insomnia and cognitive impairment. One 218-patient ME/CFS study found 74% had improvements in sleep, reduced pain and neurological disturbances.

“It’s not a panacea,” said Jaime Seltzer, a Stanford researcher and head of scientific outreach for the advocacy group MEAction. “These people weren’t cured, but they were helped.”

‘HUMAN AGAIN’ Dr. Jack Lambert, an infectious disease expert at University College Dublin School of Medicine, had used LDN to treat pain and fatigue associated with chronic Lyme disease.

During the pandemic, Lambert recommended LDN to colleagues treating patients with lingering symptoms after bouts of COVID.

It worked so well that he ran a pilot study among 38 long COVID patients. They reported improvements in energy, pain, concentration, insomnia and overall recovery from COVID-19 after two months, according to findings published in July.

Lambert, who is planning a larger trial to confirm those results, said he believes LDN may repair damage of the disease rather than mask its symptoms.

Other planned LDN trials include one by the University of British Columbia in Vancouver and a pilot study by Ann Arbor, Michigan-based startup AgelessRx. That study of 36 volunteers should have results by year-end, said company co-founder Sajad Zalzala.

Scientists are still working on explaining the mechanism for how LDN might work.

Experiments by Dr. Sonya Marshall-Gradisnik of the National Centre for Neuroimmunology and Emerging Diseases in Australia suggest ME/CFS and long COVID symptoms arise from a significant reduction in function of natural killer cells in the immune system. In laboratory experiments, LDN may have helped restore their normal function, a theory that must still be confirmed.

Others believe infections trigger immune cells in the central nervous system called microglia to produce cytokines, inflammatory molecules that cause fatigue and other symptoms associated with ME/CFS and long COVID. Younger believes naltrexone calms these hypersensitized immune cells.

Dr. Zach Porterfield, a virologist at the University of Kentucky who co-chairs a RECOVER task force looking at commonalities with other post-infectious syndromes, said it has recommended LDN be included in RECOVER’s treatment trials.

Other therapies under consideration, sources said, were antivirals, such as Pfizer Inc’s (PFE.N) Paxlovid, anti-clotting agents, steroids and nutritional supplements. RECOVER officials said they have received dozens of proposals and could not comment on which drugs will be tested until trials are finalized.

Dr. Hector Bonilla, co-director of the Stanford Post-Acute COVID-19 Clinic and a RECOVER adviser, has used LDN in 500 ME/CFS patients, with about half reporting benefits.

He studied LDN in 18 long COVID patients, with 11 showing improvements, and said he believes larger, formal trials could determine whether LDN offers a true benefit.

Nichols, a patient adviser to RECOVER, was “ecstatic” when she learned LDN was being considered for the government-funded trials.

While LDN has not fixed all her COVID-related problems, Nichols can now work all day without breaks and have a social life at home.

“It has made me feel like a human again.”

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Reporting by Julie Steenhuysen in Chicago; Editing by Caroline Humer and Bill Berkrot

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Business

Elon Musk set to showcase Tesla’s humanoid robot after delay

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SAN FRANCISCO, Sept 30 (Reuters) – Tesla (TSLA.O) CEO Elon Musk has said a robot business will be worth more than its cars, and on Friday investors, customers and potential workers expect to see a prototype at Tesla’s “AI Day” that could prove whether the bot named “Optimus” is ready for work.

The robot will be the star of the AI show, but Musk is also expected to discuss Tesla’s long-delayed self-driving technology. In May, Musk said that the world’s most valuable carmaker would be “worth basically zero” without achieving full self-driving capability, and it faces growing regulatory probes, as well as technological hurdles.

“There will be lots of technical detail & cool hardware demos,” Musk wrote on Twitter late on Wednesday, adding the event was aimed at recruiting engineers.

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Tesla’s live demonstration record is mixed. Launches typically draw cheers, but in 2019 when Musk had an employee hurl a steel ball at the armored window of a new electric pickup truck, the glass cracked.

The key test for the robot is whether it can handle unexpected situations. read more read more

Musk announced Tesla’s plan for humanoid robots at its AI day in August last year and delayed this year’s event from August to have its robot prototype working, with a plan to start production possibly next year. read more

Tesla teased the unveiling of the bot on social media with an image of metallic robotic hands making a heart shape. But building human-like, versatile hands that can manipulate different objects is extremely challenging, said Heni Ben Amor, a robotics professor at Arizona State University.

Initially, Optimus, an allusion to the powerful and benevolent leader of the Autobots in the Transformers media franchise, would perform boring or dangerous jobs, including moving parts around Tesla factories or attaching a bolt to a car with a wrench, according to Musk.

“There’s so much about what people can do dexterously that’s very, very hard for robots. And that’s not going to change whether the robot is a robot arm or whether it’s in the shape of a humanoid,” Jonathan Hurst, chief technology officer at Agility Robotics, a humanoid robot firm, told Reuters.

Musk has said that in the future robots could be used in homes, making dinners, mowing the lawn and caring for the elderly, and even becoming a “buddy” for humans or a sex partner.

He is due at Friday’s event to give updates on Tesla’s much-delayed plan to launch self-driving cars, and on its high-speed computer, Dojo, which was unveiled last year and the company has said is integral to its development of self-driving technology.

Musk has said he expects Tesla will achieve full self-driving this year and mass produce a robotaxi with no steering wheel or pedal by 2024.

At an “Autonomy” event in 2019, Musk promised 1 million robotaxis by 2020 but has yet to deliver such a car.

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Reporting by Hyunjoo Jin; Additional reporting by Akash Sriram; Editing by Peter Henderson and Daniel Wallis

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Business

How a cheap component could help kill off combustion cars

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LONDON/BERLIN, May 30 (Reuters) – The humble wire harness, a cheap component that bundles cables together, has become an unlikely scourge of the auto industry. Some predict it could hasten the downfall of combustion cars.

Supplies of the auto part were choked by the war in Ukraine, which is home to a significant chunk of the world’s production, with wire harnesses made there fitted in hundreds of thousands of new vehicles every year.

These low-tech and low-margin parts – made from wire, plastic and rubber with lots of low-cost manual labour – may not command the kudos of microchips and motors, yet cars can’t be built without them.

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The supply crunch could accelerate the plans of some legacy auto firms to switch to a new generation of lighter, machine-made harnesses designed for electric vehicles, according to interviews with more than a dozen industry players and experts.

“This is just one more rationale for the industry to make the transition to electric quicker,” said Sam Fiorani, head of production forecasting firm AutoForecast Solutions.

Gasoline cars still account for the bulk of new car sales globally; EVs doubled to 4 million last year, but still only comprised 6% of vehicle sales, according to data from JATO Dynamics.

Nissan (7201.T) CEO Makoto Uchida told Reuters that supply-chain disruptions such as the Ukraine crisis had prompted his company to talk to suppliers about shifting away from the cheap-labour wire harness model.

In the immediate term, though, automakers and suppliers have shifted harness production to other lower-cost countries.

Mercedes-Benz (MBGn.DE) was able to fly in harnesses from Mexico to plug a brief supply gap, according to a person familiar with its operations. Some Japanese suppliers are adding capacity in Morocco, while others have sought new production lines in countries including Tunisia, Poland, Serbia and Romania.

THE TESLA MODEL

Harnesses for fossil-fuel cars bundle together cables stretching up to 5 km (3.1 miles) in the average vehicle, connecting everything from seat heaters to windows. They are labour-intensive to make, and almost every model’s is unique, so shifting production is hard to do quickly.

The supply disruptions in Ukraine were a rude awakening for the auto industry. Carmakers and suppliers said that early in the war, plants remained open only thanks to the determination of workers there, who kept a reduced flow of parts moving in the face of power cuts, air-raid warnings and curfews.

Adrian Hallmark, CEO of Bentley, said the British luxury carmaker had initially feared losing 30-40% of its car production for 2022 due to a harness shortage.

“The Ukraine crisis threatened to close our factory fully for several months, much longer than we did for COVID.”

Hallmark said finding alternative production sources was complicated by the fact the conventional harnesses themselves had 10 different parts from 10 different suppliers in Ukraine.

He added that the supply problems had sharpened Bentley’s focus and investment on developing a simple harness for EVs that will be run by a central computer. The carmaker, a division of Volkswagen (VOWG_p.DE), plans a fully-electric lineup by 2030.

“The Tesla model, which is a completely different concept of wiring, we couldn’t change to that overnight,” Hallmark added. “It’s a fundamental change in the way that we design cars.”

The new generation of wire harnesses, used by electric natives like Tesla, can be made in sections on automated production lines and are lighter, a key factor because reducing an EV’s weight is crucial for extending range.

Many of the executives and experts interviewed said fossil-fuel cars, which face looming bans in Europe and China, would not be around long enough to justify redesigns to allow them to use next-generation harnesses.

“I wouldn’t put a penny into internal combustion engines now,” said Michigan-based auto consultant Sandy Munro, who estimates EVs will make up half of global new car sales by 2028.

“The future is coming up awful fast.”

‘CHANGE OF PARADIGM’

Walter Glück, head of Leoni’s harness business, said the supplier was working with carmakers on new, automated solutions for wire harnesses in EVs.

Leoni is focusing on zonal or modular harnesses, which would be split into six to eight parts, short enough for automation in assembly and reducing complexity.

“It’s a change of paradigm,” Glück said. “If you want to reduce production time in your car factory, a modular wire harness helps.”

Among automakers, BMW is also looking at using modular wire harnesses, requiring fewer semiconductors and less cable, which would save space and make them lighter, according to a person with knowledge of the matter.

The person, who declined to be named as they not authorized to speak publicly, said the new harnesses would also make it easier to upgrade vehicles wirelessly – an area Tesla now dominates.

CelLink, a Californian-based startup, has developed an entirely automated, flat and easy-to-install “flex harness”, and raised $250 million earlier this year from companies including BMW and auto suppliers Lear Corp (LEA.N) and Robert Bosch (ROBG.UL). read more

CEO Kevin Coakley would not identify customers but said CelLink’s harnesses had been installed in close to a million EVs.

Only Tesla has that scale, but the carmaker did not respond to a request for comment.

Coakley said CelLink’s new $125 million factory under construction in Texas will have 25 automated production lines which will be able switch different designs in around 10 minutes because the components are produced from digital files.

The company is working on EVs with a number of carmakers and looking at building another plant in Europe, he said.

While the lead time for changing a conventional wire harness can be up to 26 weeks, Coakley said his company could ship redesigned products in two weeks.

That kind speed is what legacy carmakers are looking for as they go electric, said Dan Ratliff, a principal at Detroit-based venture capital firm Fontinalis Partners, which was founded by Ford (F.N) Chairman Bill Ford and has invested in CelLink.

For decades, the industry has not needed to move fast to rethink a part like the wire harness, but Tesla has changed that, Ratliff added.

“On the EV side, it’s just go, go, go.”

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Reporting by Nick Carey in London and Christina Amann in Berlin; Additional reporting by Satoshi Sugiyama in Tokyo; Editing by Pravin Char

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