Tag Archives: Pricing/Prices

Business

Rising Power Prices in Europe Are Making EV Ownership More Expensive

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BERLIN—Rocketing electricity prices are increasing the cost of driving electric vehicles in Europe, in some cases making them more expensive to run than gas-powered models—a change that could threaten the continent’s electric transition.  

Electricity prices have soared in the wake of Russia’s invasion of Ukraine, in some cases eliminating the cost advantage at the pump that EVs have enjoyed. In some cases, the cost difference between driving both types of cars 100 miles has become negligible. In others, EVs have become more expensive to fuel than equivalent gasoline-powered cars.

The price rises for power, which economists expect to last for years, remove a powerful incentive for consumers who were contemplating a switch to EVs, which used to be much cheaper to run than combustion engines. 

Coming just as some governments are removing subsidies for EV buyers, this change could slow down EV sales, threaten the region’s greenhouse-gas emission targets, and make it hard for European car makers to recoup the high costs of their electric transition.

In Germany,

Tesla

has raised supercharger prices several times this year, most recently to 0.71 euros in September before falling somewhat, according to reports from Tesla owners on industry forums. There is no public source to track prices on Tesla superchargers. 

At that price, drivers of Tesla’s Model 3, the most efficient all-electric vehicle in the Environment Protection Agency’s fuel guide in the midsize vehicle category, would pay €18.46 at a Tesla supercharger station in Europe for a charge sufficient to drive 100 miles. 

By comparison, drivers in Germany would pay €18.31 for gasoline to drive the same distance in a Honda Civic 4-door, the equivalent combustion-engine model in the EPA’s ranking. 

Tesla didn’t immediately respond to requests for comment.

The change has been particularly notable in Germany, Europe’s largest car market, where household electricity cost €0.43 per kWh on average in December. This puts it well ahead of France, where consumers paid €0.21 per kWh in the first half of the year, but behind Denmark, where a kWh cost €0.46, according to the German statistics office.

Would you choose an electric car that charges faster even if it meant a more-limited driving range? WSJ tech columnist Christopher Mims joins host Zoe Thomas to discuss the latest research into fast-charging EV batteries and the trade-offs they may come with. Plus, we visit a high-performance EV race to see what these kinds of batteries can really do. Photo: ABB FIA Formula E World Championship

The cost of electricity isn’t the only factor that can make an EV cheaper or more expensive to run than a gas-powered car. The price of the car, including potential subsidies, the cost of insurance and the price of maintenance all play a role in the cost equation over a car’s lifetime. 

Maria Bengtsson, a partner at Ernst & Young responsible for the company’s EV business in the U.K., said studies of the total cost of owning an EV now show that with much higher electricity prices, it will take longer for EVs to become more affordable than conventional vehicles.

“When we looked at this before the energy crisis, we were looking at a tipping point of around 2023 to 2024. But if you assume you have a tariff going forward of $0.55, the tipping point then moves to 2026.”

If costs for operating EVs rise again, the tipping point would be pushed even further into the future, she said.

So far, there is no sign that the higher costs to charge electric cars has affected EV sales. Sales of all-electric cars totaled 259,449 vehicles in the three months to the end of September, up 11% from the previous quarter and 22% from the year earlier, according to the European Automobile Manufacturers’ Association. In the third quarter, all-electric cars accounted for 11.9% of total new vehicle sales in the EU. 

There is no relief in sight for EV users. In Germany, power prices have risen by a third from €0.33 per kWh in the first half of this year, according to Germany’s federal statistics office, and some power companies have announced prices will increase to more than €0.50 per kWh in January.  

The German government’s independent panel of economic experts forecast that in the medium term these prices are likely to decline but won’t return to precrisis levels, meaning that higher costs for EV owners are here to stay. 

Rheinenergie, a municipal utility in Cologne, said in November that it would raise its prices to €0.55 per kWh in January. In October, EnBW, a Stuttgart-based regional power company, raised its prices for a kWh of electricity to €0.37, up 37% from the previous month. 

The most expensive way to charge an EV in Europe is on one of the fast-charging networks. Operators such as Tesla, Allego and Ionity have built roadside charging stations along major highways, where EV owners can drive up, plug in, and charge their batteries in as little as 15 minutes.

Fuel-economy estimates calculated by the EPA and current charging and gas prices in Europe show that some conventional vehicles are now cheaper to fuel with gasoline than equivalent electric models using fast-charging stations.

In the subcompact segment of the EPA’s 2023 Fuel Economy Guide, the Mini Cooper Hardtop was the most efficient model among EVs and gasoline-powered cars. 

A 100-mile ride cost the Mini EV owner €26.35 at the Allego fast-charging network, which charges €0.85 per kWh. The conventional Mini cost €20.35 to pump enough fuel to accomplish the same journey. 

Mini and its owner,

Bayerische Motoren Werke AG

, didn’t immediately respond to a request for comment. 

In the small two-door SUV category, the gasoline-powered Nissan Rogue handily beats the Hyundai Kona Electric, at a cost difference of €19.97 to €22.95. The Subaru Ascent standard SUV with four-wheel drive costs less to drive 100 miles than the Tesla Model X.

If an EV owner only charges their vehicle at home, they are generally still paying less for driving than conventional car users, although this gap has narrowed considerably. 

Analysts say about 80% of EV charging takes place at home or at work, so if an electric vehicle is only used close to home it generally remains the least expensive option. But once the vehicle is used for longer road trips, drivers are more likely to use fast-charging stations because other options would take too long to charge the battery.

Charging a Tesla on 120V AC power—the power that comes from a standard U.S. wall socket—would take days. In Europe, 230V is the AC standard, according to Germany’s ZVEI electronics-industry association. European chargers installed on street corners, at supermarkets, places of work and in home garages can charge a powered down Tesla battery overnight. 

The supercharger networks run on DC power, requiring at least 480 volts of power, and can charge up to around 200 miles of range within 15 minutes. 

Write to William Boston at william.boston@wsj.com

Corrections & Amplifications
Standard household power is 120 volts in the U.S. An earlier version of this article incorrectly said 120 volts is the standard in Europe. (Corrected on Dec. 25)

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Technology

FTC’s Tussle With Microsoft Puts Spotlight on Cloud Gaming

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Cloud gaming is an emerging technology that allows people to stream videogames to nearly any internet-connected device, similar to how movies and shows are viewed on

Netflix,

Hulu and other streaming platforms.

The business model being developed alongside cloud gaming is a subscription service, where consumers get to play a catalog of games for a flat monthly or annual fee. With cloud gaming, players can avoid downloading games to their devices, which takes up memory, and they don’t need to invest in hardware such as a console or high-end computer. 

The FTC and videogame industry participants anticipate cloud gaming will become a much larger part of the market in years to come. With its lawsuit, the FTC says it is protecting the videogame-distribution market—as it is today and how it is expected to evolve—from being dominated by a few companies.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service. The company’s $75 billion deal for Activision would bolster its content library, adding several blockbuster franchises including “Call of Duty,” “World of Warcraft” and “Candy Crush Saga.”

Microsoft, which has pledged to fight the FTC’s suit, has said it is an underdog in the existing console market, with Xbox’s position trailing

Sony Group Corp.’s

PlayStation and

Nintendo Co.

’s Switch. The company doesn’t disclose Xbox sales by volume.

Shoppers are seeing more out-of-stock messages than ever, but inventory tracking websites like HotStock and Zoolert are giving people a better chance of finding the hot-ticket products they’re looking for. Here’s how those websites work. Illustration: Sebastian Vega

The technology giant has also said that it has no meaningful presence in mobile, the biggest corner of the overall videogame industry by revenue.

Apple Inc.

and

Alphabet Inc.’s

Google, makers of the predominant smartphone operating systems, play a critical role in how people access mobile games, and they take a cut of developers’ in-app and subscription sales.

Xbox Game Pass, which Microsoft launched in 2017, offers a library of hundreds of games for subscribers to play starting at $9.99 a month. The basic plan allows subscribers to download individual games on their Xbox or PC to play whenever they want. For $14.99 a month, subscribers can play some of those games via the cloud, all part of Microsoft’s ambitions to build a “Netflix of gaming.” The company in January said Game Pass had 25 million subscribers.

Global consumer spending on cloud-gaming services and games streamed via the cloud will reach a combined $2.4 billion by the end of this year, according to an estimate from Newzoo BV. That is a tiny fraction—1.4%—of the $184.4 billion in overall spending on videogame software.

Sony, which has aggressively lobbied governments around the world to oppose the Microsoft-Activision tie-up, and others have attempted to grow their own cloud-gaming subscription services. Microsoft, for now, is the dominant player, accounting for 60% of the overall cloud-gaming business last year, according to an estimate from research firm Omdia.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service.



Photo:

etienne laurent/Shutterstock

The FTC appears concerned that it “can’t see the unintended consequences even just a few years down the road for an acquisition like this,” said

Paul Swanson,

a Denver-based antitrust lawyer at Holland & Hart LLP. “What they’re saying here is we’re going to err on the side of preserving as many independent competitors as we can.”

Over the past decade, Microsoft has poured billions into its cloud operations primarily for selling software and infrastructure for enterprise customers. It is now building out a separate cloud infrastructure to power its videogaming ambitions, which have been under development since it launched its first Xbox console in 2001.

Cloud gaming hasn’t been an easy business to navigate. The technology is difficult for companies to execute smoothly because games need to support multiple players with minimal delay regardless of where players are located. Earlier this year, Google shut down its game-streaming service, Stadia, after struggling to gain traction with users.

Microsoft remains heavily invested in its Xbox hardware, but cloud gaming gives it an opportunity to reach more gamers. It wants to build its own mobile app store, a move it says would create more competition in mobile videogames, not less. The Redmond, Wash., company has argued that Apple and Google’s app marketplaces have policies that pose technical and financial barriers to its goals.

Representatives for Apple and Google didn’t respond to requests for comment. Apple has said that it doesn’t prevent cloud-gaming apps from appearing in the App Store and that it isn’t trying to block their emergence. 

Industry researcher and academic

Joost van Dreunen

said Microsoft’s mobile move would likely benefit the videogame ecosystem by diminishing Apple and Google’s grip.

Microsoft has said it is an underdog in the console market, with Xbox trailing consoles such as Nintendo’s Switch.



Photo:

Guillaume Payen/Zuma Press

“It breaks down the so-called walled-garden strategy that has dominated the game industry for 20 years,” he said.

Since Microsoft announced its deal for Activision, which it values at nearly $69 billion after adjusting for the developers’ net cash, some videogame players have been concerned about what it means for industry competition. 

Steve Schweitzer of State College, Pa., is worried that Microsoft will raise the price of Game Pass over time. He said that it is affordable now but that in a few years, if Microsoft becomes more dominant, it could bump up the price and start cutting back on quality. Mr. Schweitzer, 55 years old, said he remembers back in the 1990s when Microsoft was able to use its market power to capture market share in the browser wars. “I’ve seen this game before,” he said.

Before its lawsuit, the FTC had been reviewing the deal for months. Regulators in other jurisdictions, including the European Union and the United Kingdom, are doing the same. The company has gained approval for the deal in smaller markets such as Brazil and Saudi Arabia.

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Aaron Tilley at aaron.tilley@wsj.com

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Business

OPEC+ Eyes Output Increase Ahead of Restrictions on Russian Oil

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Saudi Arabia and other OPEC oil producers are discussing an output increase, the group’s delegates said, a move that could help heal a rift with the Biden administration and keep energy flowing amid new attempts to blunt Russia’s oil industry over the Ukraine war.

A production increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said. The move would come a day before the European Union is set to impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking Moscow’s petroleum supplies off the market. 

After The Wall Street Journal and other news organizations reported on the discussions Monday, Saudi energy minister Prince

Abdulaziz bin Salman

denied the reports and said a production cut was possible instead.

Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting of the Organization of the Petroleum Exporting Countries and their Russia-led allies, a group known collectively as OPEC+. 

The White House said the production cut undermined global efforts to blunt Russia’s war in Ukraine. It was also viewed as a political slap in the face to President Biden, coming before the congressional midterm elections at a time of high inflation. Saudi-U.S. relations have hit a low point over oil-production disagreements this year, though U.S. officials had said they were looking to the Dec. 4 OPEC+ meeting with some hope.

Talk of a production increase has emerged after the Biden administration told a federal court judge that Saudi Crown

Prince Mohammed

bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Prince Mohammed, bolstering his standing as the kingdom’s de facto ruler after the Biden administration tried for months to isolate him. 

It is an unusual time for OPEC+ to consider a production increase, with global oil prices falling more than 10% since the first week of November. Oil prices fell 5% after reports of the increase and then pared those losses after

Prince Abdulaziz

‘s comments. Brent crude traded at $86.25 on Monday afternoon, down more than 1%. 

Ostensibly, delegates said, a production increase would be in response to expectations that oil consumption will rise in the winter, as it normally does. Oil demand is expected to increase by 1.69 million barrels a day to 101.3 million barrels a day in the first quarter next year, compared with the average level in 2022. 

Saudi energy minister Abdulaziz bin Salman has said the kingdom would supply oil to ‘all who need it.’



Photo:

AHMED YOSRI/REUTERS

OPEC and its allies say they have been carefully studying the G-7 plans to impose a price cap on Russian oil, conceding privately that they see any such move by crude consumers to control the market as a threat. Russia has said it wouldn’t sell oil to any country participating in the price cap, potentially resulting in another effective production cut from Moscow—one of the world’s top three oil producers.

Prince Abdulaziz said last month that the kingdom would “supply oil to all who need it from us,” speaking in response to a question about looming Russian oil shortages. OPEC members have signaled to Western countries that they would step up if Russian output fell. 

Talk of a production increase sets up a potential fight between OPEC+’s two heavyweight producers, Saudi Arabia and Russia. The countries have an oil-production alliance that industry officials in both nations have described as a marriage of convenience, and they have clashed before. 

Saudi officials have been adamant that their decision to cut production last month wasn’t designed to support Russia’s war in Ukraine. Instead, they say, the cut was intended to get ahead of flagging demand for oil caused by a global economy showing signs of slowing down. 

Raising oil production ahead of the price cap and EU embargo could give the Saudis another argument that they are acting in their own interests, and not Russia’s. 

Another factor driving discussion around raising output: Two big OPEC members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily-production ceiling, delegates said, a change that, if granted, could account for more oil production. 

Under OPEC’s complex quota system, the U.A.E. is obligated to hold its crude production to no more than 3.018 million barrels a day. State-owned Abu Dhabi National Oil Co., which produces most of the U.A.E.’s output, has an output capacity of 4.45 million barrels a day and plans to accelerate its goal of reaching 5 million barrels of daily capacity by 2025. Abu Dhabi has long pushed for a higher OPEC quota, only to be rebuffed by the Saudis, OPEC delegates have said.

Last year, the country was the lone holdout on a deal to boost crude output in OPEC+, saying it would agree only if allowed to boost its own production much more than other members. The public standoff inside OPEC was the first sign that the U.A.E. has adopted a new strategy: Sell as much crude as possible before demand dries up.

Earlier this month, Iraqi Prime Minister Mohammed Shia’ al-Sudani said that his country, which is the second-largest crude oil producer in OPEC, would discuss a new quota with other members at its next meeting.

A discussion of OPEC production quotas has been on hold for months. The idea faces opposition from some OPEC nations because many can’t meet their current targets and watching other countries run up their quotas could cause political problems domestically, delegates said. 

—Michael Amon contributed to this article.

Write to Summer Said at summer.said@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

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Business

Mortgage bankers expect rates to drop to 5.4% in 2023. What will home prices do?

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NASHVILLE, Tenn. — High mortgage rates and recession fears are hurting home prices, so expect growth to be flat this year, one expert says.

“Our forecast is for home-price growth moderation to continue,” Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, said Sunday during the organization’s annual conference in Nashville, Tenn.

Home prices have already begun moderating. According to Case-Shiller, home prices fell month-over-month from June to July for the first time in 20 years. The latest numbers, which will be for August, will be reported on Tuesday morning.

With a recession likely in the cards, on top of mortgage rates near or above 7%, “we’ve already seen a pretty dramatic pullback in housing demand,” Kan said.

Also see: Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%

The 30-year fixed rate averaged 6.94% last week as compared to 3.85% a year ago. The MBA is also expecting rates to come down to 5.4% by the end of next year.

So expect national home-price growth to “flatten out” in 2023 and 2024, he said. This might be a “silver lining” for some, Kan added, as it brings home prices back to more “reasonable levels.”

A flattening of home-price growth should allow households to catch up, in terms of wages and savings, to afford homes that are presently too expensive.

But he also warned that some markets may actually see home prices drop. We’re already seeing home values fall in some markets, from pandemic boomtowns like Austin and Phoenix to well-known expensive ones the San Francisco Bay Area.

Still, even with price drops, don’t expect a surge of inventory as people sit on their ultra-low mortgage rates that they will likely not enjoy again in the near future.

According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of less than or equal to 3%. And the vast majority of owners — 93% — have rates less than 6%.

On top of that, supply is likely to be tight too.

Sellers are said to be “striking” and not selling their homes as they see others forced to cut list prices to woo buyers. Builders are also getting spooked, signaling intent to slow new construction.

Nonetheless, demand for housing should recover eventually, given that there are a lot of people who will soon be in need of a home that they own.

MBA’s Kan estimated that there are 50 million people in the 28-to-38 age demographic, of which some — or many — are likely to become potential homeowners in the future.

For those under 35, the homeownership rate is only 39%, Kan said, while that share increases for people aged 35 to 44, to 61%.

So as people age, “we’re fairly confident if we stick to these trends, you will see a very supportive demographic driver of housing demand for a good number of years,” Kan said.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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Business

‘We’re seeing buyers backing out’: This dramatic chart reveals U-turn in the housing market as sellers slash home prices

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Here’s a chart that speaks a thousand words about the state of the real-estate market right now.

The chart above, part of a new report by real-estate brokerage Redfin
RDFN,
-7.03%
on the property market, reveals how home sellers are adjusting to the new normal of 7% mortgage rates.

The chart says that 7.9% of homes for sale on the market each week had their prices slashed — and that’s a record high.

That’s compared to just 4% of homes having their prices reduced each week over the same period a year ago.

Redfin’s data goes back to 2015. The company averaged out the share of listings which saw a price cut over four weeks, to smoothen out any outliers.

Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices.

“We have never been this high,” Marr told MarketWatch in an interview.

Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are just slow to react to the changes in demand… they set prices based on where they think the market is [and] are often reluctant to set their prices too low,” Marr said.

So for sellers, prices are a little stickier, he added, and slower to come down.

But even if it took a while, it’s finally happening.

After all, mortgage rates are at multi-decade highs, with the 30-year trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that’s likely to go up even more, as the 10-year Treasury note
TMUBMUSD10Y,
4.023%,
is trending above 4%.

Meanwhile, Redfin said that the median home on the market was listed at over $367,000, up 7% over last year.

The monthly mortgage for that home at the current interest rate of 6.92%, according to Freddie Mac, is $2,559.

A year ago, when rates were at 3.05%, that monthly payment would’ve been just $1,698.

Two tips for home buyers struggling with high mortgage rates

Sellers are dropping their prices by 4 to 5% on average, Marr said.

“You would almost expect it to be a lot worse,” he added, given how quickly rates rose and eroded buying power.

But buyers and sellers are also using two different tactics to get some relief on mortgage rates, Marr said.

One, sellers are reaching out to buyers and offering concessions to buy mortgage rates down.

In other words, sellers are asking buyers to pay the full asking price, but proposing to use part of that as a concession to get buyers a lower interest rate on their mortgage.

“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the magnitude of how this is playing out, he added.

How it works is as such, Marr explained: If a buyer is putting down $100,000 for a 20% downpayment on their home at a 6.5% interest rate, they can instead allocate 10% for the downpayment, and spend the rest of the $50,000 buying down the mortgage rate to 5%.

“5% isn’t very bad, and it might seem like a lot of money, but … chances are you’re going to be incentivized to refinance [in the future] and you’ll have to pay the closing cost on that loan to refinance, which could be upwards of 15 grand,” Marr added.

Buyers are also switching to adjustable-rate mortgages, which offer lower interest rates at the start of the term. ARMs are nearly 12% of overall mortgage applications, the Mortgage Bankers Association noted on Wednesday, which is high.

Where prices are falling

As to where prices are falling, a couple of places stood out to Redfin.

They said that home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco. New Orleans also saw a 2% drop.

“Even in Atlanta, or Orlando, we’re seeing buyers backing out,” Marr observed.

So with the backdrop of sellers finally dropping listing prices, if you’re a buyer right now, don’t be spooked by rising rates and stop looking, he advised.

“There have been opportunities when rates really came down and gave buyers the moment to jump back in and get some good deals on homes that did drop their prices,” he said.

Plus, “it doesn’t hurt to make a low ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.”

But if you need to rent for a year and wait for things to calm down, then do that, Marr said, and bulk up those savings for that dream home.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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Business

European Gas Prices Surge on Nord Stream Shut Down

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European energy prices surged after Russia shut down natural-gas flows through a major pipeline, threatening to add to economic woes for businesses and households across the continent.

Natural-gas futures in northwest Europe, which reflect the cost of fuel in the wholesale market, jumped more than 30% in early trading Monday. They remain below the all-time high recorded in late August.

State-controlled Gazprom PJSC extended a halt to flows through Nord Stream late Friday. Moscow blamed the suspension on technical problems. European governments described it as an economic attack in retaliation for their support of Ukraine.

Over the weekend, governments in Sweden and Finland offered billions of dollars of guarantees to utilities to prevent a meltdown in energy trading. Officials fear the loss of imports through Nord Stream could lead to a further leap in power prices and saddle utilities with cash payments to energy trading exchanges that they may struggle to meet. A wave of failed payments could undermine financial stability, officials said.

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finland’s Economic Affairs Minister

Mika Lintilä

said Sunday. 

Swedish and Finnish government officials worked through the weekend on programs designed to make sure electricity producers can meet exchange payments known as margin calls. Stockholm is home to

Nasdaq

Clearing AB, a subsidiary of

Nasdaq Inc.

that processes most derivative trades in the Nordic power market, which includes Finland and the Baltic countries.

Under the Swedish plan, the government would provide guarantees to eligible companies, which could then use the guarantees to borrow from banks and pay the exchange clearinghouse. The Swedish government would have license to extend up to 250 billion kroner, or $23 billion, in guarantees, said a finance-ministry official.

The Finnish government plans to offer 10 billion euros, or $10 billion, in guarantees. 

Nasdaq Clearing spokesman David Augustsson said the measures would help the power market act in an orderly manner Monday. “This is an extreme time of uncertainty and the addition of government liquidity guarantees will add an extra layer of stability,” he said.

Last week, European Energy Exchange AG, the main European venue for power trading outside the Nordics, said Germany and other European Union members should help companies fund margin payments. A spokesperson didn’t respond to requests for comment on Sunday.

Russia’s state-controlled Gazprom PJSC extended a halt to flows through the Nord Stream pipeline late Friday.



Photo:

HANNIBAL HANSCHKE/REUTERS

Armed with the guarantees, utilities and other energy companies would find banks more willing to lend money to cover margin payments, the Swedish official said. The Swedish parliament will vote on the program Monday and it would take effect the same day if approved. One concern is that the clearinghouse itself might default, the official said.

“This threatens our financial stability. If we don’t act soon it could lead to serious disruptions in the Nordics and Baltics,“ Swedish Prime Minister Magdalena Andersson said Saturday at a news conference outlining the plan. “In the worst-case scenario we could fall into a financial crisis,” Ms. Andersson added.

When utilities agree to deliver gas or power, they lock in prices by selling futures contracts. Exchanges charge one payment, known as initial margin, when trades are placed to collect collateral. They then call for or return money each day depending on whether the position gains or loses value.

As prices rise, utilities’ short positions shed value and the companies pay the exchange. They recoup the money when they deliver gas or power, but the difference in timing has led to massive outflows of cash that some firms have struggled to fund. At times a vicious cycle has emerged in which extreme price moves boost margin calls, prompting companies to bail out of trades and sparking more volatility.

“No one’s got the money to pay to trade,” said Justin Colley, an analyst at Argus Media. “Putting up these margin payments every day is just causing problems for everyone—not just the small companies, but also the big companies, the national utilities.”

The guarantees could add to the mounting cost for governments of aiding households and businesses through a historic rise in energy prices largely caused by Moscow’s move to cut gas exports. On Sunday, Germany unveiled its third energy relief package this year, worth €65 billion, to shield consumers.

European energy ministers are due to hold an emergency meeting Friday to discuss options for dealing with skyrocketing electricity prices, such as a possible price cap for non-gas sources of power generation.

They will also consider energy companies’ cash concerns. The Czech Republic, which holds the EU’s rotating presidency, is expected to put forward several options for ministers to consider, including the temporary suspension of power derivatives markets and a European credit line for energy market participants, an EU diplomat said.

European gas and power prices have been wildly volatile. They shot to records in late August before slumping last week after the European Union said it would change the structure of the power market to bring down prices for consumers and businesses. Nordic and Baltic prices have been especially turbulent, in part because a drought curbed hydropower generation in Norway.

Tom Marzec-Manser, gas analyst at ICIS, said he expected gas and electricity prices to rise again Monday in response to Gazprom’s shut-off. “Meeting demand, whatever that might turn out to be, is going to be that much harder,” he said.

To a certain extent, energy markets were already girding for Russia to completely cut off gas supplies. Gazprom had reduced Nord Stream flows to 20% capacity in the weeks before the shutdown.

Some factors could act to bring prices down after an initial leap, traders and analysts said—including the action taken by Nordic governments. Weather forecasts suggest there might be greater power generation from wind farms, reducing demand for gas. 

Uniper,

one of the two biggest buyers of Russian gas in Europe until recently, said last week it had fully drawn down a €9 billion credit line from German state lender KfW. The company said it had asked to borrow an extra €4 billion to make margin payments and buy gas to make up for lost deliveries from Gazprom.

—Kim Mackrael contributed to this article.

Write to Joe Wallace at joe.wallace@wsj.com

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Business

Target’s Profit Sinks as Retailer Unloads Unwanted Inventory

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A glut of inventory sank profit at

Target Corp.

further than it expected, sparking investor concerns about the company’s response to an oversupply problem haunting retailers from

Walmart Inc.

to the parent of T.J. Maxx.

Like many other retailers, Target didn’t foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, shifted more spending to travel and cut back on patio furniture, small electronics and other items that were in high demand for much of the Covid-19 pandemic. Target took a more aggressive approach than some of its competitors, slashing prices and canceling orders to clear out the glut as quickly as possible.

The decision to quickly move through excess inventory “had a meaningful short-term impact on our financial results,” Target Chief Executive

Brian Cornell

said on a call with reporters. He said the company didn’t want to deal with excess inventory for years, potentially degrading the customer and worker experience.

“Today the vast majority of the financial impact of these inventory actions is now behind us,” he said. In the current quarter the company expects a roughly $200 million impact from its effort to reduce inventory, Chief Financial Officer

Michael Fiddelke

said on a conference call Wednesday. The company expects operating margin to rise to 6% in the second half of the year.

About 75% of the U.S. population can find a Target store within a 10-mile radius. WSJ’s Sarah Nassauer explains how the retailer leverages its physical stores to expand services such as in-store pickup and same-day shipping. Photo Illustration: Ryan Trefes

Target shares were off 2.6% at $175.46 at midday Wednesday.

T.J. Maxx parent

TJX

TJX 4.43%

Cos. said Wednesday that inventory rose 39% in the most recent quarter, while sales fell 1.9%. The company said it is comfortable with its inventory levels and that lower gasoline prices could boost consumer spending for its goods.

Large retail chains including Walmart and

Home Depot Inc.

have reported higher sales for the most recent quarter driven by consumers’ willingness to absorb price increases. The results so far indicate Americans continue to spend even as they shift purchases away from nonfood items to offset the effects of inflation.

Overall retail sales—a measure of spending at stores, online and in restaurants—were flat in July as gasoline prices fell, compared with an increase of 0.8% in June, the Commerce Department said Wednesday. Stripping out gasoline and auto sales, retail sales rose 0.7% in July.

Walmart, like Target, has discounted goods to pare excess inventory. Those efforts ate into last quarter’s profit and will continue in the current quarter, executives said Tuesday.

Target executives said traffic gains and the overall spending strength among its core shoppers are evidence that the retailer can put the inventory issues behind it. The retailer believes it is gaining market share by unit sales in all major categories, executives said. Target shoppers are buying fewer discretionary items as prices rise, but “we’ve got a guest that is still out shopping,” Mr. Cornell said.

Target’s inventory challenge rippled through its business over the past quarter, company executives said on a call with analysts Wednesday. In June inventory in Target’s warehouse network peaked at more than 90% of capacity, before dropping to below 80% by the end of the period, Chief Operating Officer

John Mulligan

said. The company aims to keep capacity at or below 85% to reduce cost and operational difficulties, he said.

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To dispose of the excess inventory Target offered discounts, canceled orders and adjusted how it ordered products for the second half of the year, favoring items such as food that shoppers are now buying more of, executives said on the call. Target used store space typically reserved for seasonal goods to highlight deals, stopped selling outdoor products earlier than usual and brought in back-to-school items ahead of schedule. The company canceled $1.5 billion in fall discretionary product orders, executives said.

The company continues to import goods earlier than it did before the pandemic to make sure seasonal merchandise arrives on time, but believes supply-chain snarls have peaked, Mr. Mulligan said. Target’s inventory rose nearly 10% in the second quarter to $15.3 billion as the retailer prepares for fall and holiday shopping, he said.

Target’s net earnings were $183 million, compared with $1.8 billion during the same period last year.

The company’s revenue rose, boosted by strong sales of food-and-beverage, beauty and household items as well as more shopper visits. Comparable sales, those from stores and digital channels operating at least 12 months, rose 2.6% in the quarter compared with the same period last year. Shopper traffic increased 2.7% in the quarter. Shoppers spent slightly more for fewer items per transaction during the quarter.

Home Depot said Tuesday that its sales rose, in part because of higher prices, while traffic fell in the most recent quarter. Walmart said its sales rose, also helped by higher prices, and traffic increased 1% in the quarter.

Target revenue rose 3.5% during the quarter to $26 billion. It maintained previous estimates for the full year of revenue growth in the low- to mid-single-digit percentage range.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

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Business

Disney+ Price Increase Shows Limits of Subscriber-Growth Push

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The growth-at-all-costs phase of the streaming wars is over; now, profits are the priority.

Faced with slowing subscriber growth in their core domestic markets, some streaming services are shifting their focus from adding users to increasing their bottom line. The result is that streamers such as

Walt Disney Co.

DIS 4.68%

,

Netflix Inc.

NFLX -0.58%

and

Warner Bros. Discovery Inc.

WBD 4.43%

are each doing some combination of reducing costs, raising prices and creating new ad-supported tiers that offer content at lower prices to consumers but also establish a new revenue stream for the companies.

The streaming providers said the price increases are warranted because of the amount of content offered. “We have plenty of room on price value,” Disney Chief Executive Officer

Bob Chapek

said Wednesday.

The price increases come as growth has stalled domestically, usually the most-profitable market for streamers. Just 100,000 of the 14.4 million net new subscriptions to its flagship Disney+ service in the most recent quarter came from the U.S. and Canada. Of the rest, about eight million came from India, while about six million came from other countries, including 52 new markets where Disney+ has launched since May.

“Domestically, Disney+ is tapped out,” said analyst Rich Greenfield of LightShed Partners. “Disney is operating under the belief that, just as in their theme parks, they can raise prices dramatically and count on customers not dropping the service.”

Disney said that in early December it will raise the price of its ad-free, stand-alone Disney+ service in the U.S., to $10.99 a month from $7.99, and the company will begin offering an ad-supported tier for Disney+, starting at $7.99. The company also announced increases to one of its bundle packages.

In addition, the company scaled back its projections for total global subscribers to Disney+, largely in response to lower anticipated growth in India, where Disney recently was outbid for the right to stream matches from a popular cricket league.

Markets welcomed news of the price increases and the company’s better-than-expected quarterly results. Shares of Disney rose 4.7% on Thursday to close at $117.69.

Investors and analysts expect higher subscription costs and the introduction of ads to Disney+ to result in higher profits from the streaming segment, but add that price increases risk alienating some customers and increasing the platform’s churn rate, or the percentage of users who cancel the service each month. The U.S. churn rate for Disney+ is already on the rise, increasing to 4% in the second quarter from 3.1% a year earlier, according to the media analytics firm Antenna.

“We do not believe that there’s going to be any meaningful long-term impact on our churn,” Mr. Chapek said about the price increases. He said Disney+ was one of the lowest-priced streaming services when it launched, and has become more valuable over time as it has added more popular shows and movies.

Other companies that focus on streaming video are making similar moves. Warner Bros. Discovery, the newly formed media giant that owns the premium television service HBO and the streaming services HBO Max and Discovery+, reported last week that it had added 1.7 million new subscriptions. As with Disney, about all of Warner Bros. Discovery’s subscription growth came from overseas—its direct-to-consumer segment lost 300,000 domestic subscribers in the quarter.

David Zaslav,

the newly formed company’s CEO, has taken an ax to Warner Bros. Discovery’s spending, scrapping multiple high-budget movies that were in production or near completion and destined for release on HBO Max, including “Batgirl” and “Wonder Twins,” after deciding that the best return on capital for them was a tax writeoff.

“Our focus is on shaping a real business with significant global ambition but not one that solely chases the subscribers at any cost or blindly seeks to win the content spending wars,” said JB Perrette, Warner Bros. Discovery’s head of streaming, on a call with analysts last week.

Warner Bros. Discovery said it expects losses in its streaming business to peak this year, and expects profitability for the segment in 2024. Similarly, Disney, whose direct-to-consumer segment has lost more than $7 billion since Disney+ launched in late 2019, predicts that Disney+ will achieve profitability by September 2024.

Warner Bros. Discovery has signaled it will launch an ad-supported tier of HBO Max next year. The company has alluded to a new pricing strategy focused on the goal of streaming profitability, but it hasn’t revealed pricing details.

“We will shift away from heavily discounted promotions,” Mr. Perrette said.

At Netflix, customer defections jumped after it raised the price of U.S. plans by $1 to $2 a month earlier this year. In the U.S. and Canada, the company lost 1.3 million subscribers during the second quarter, more than twice the 640,000 it lost in the region in the first quarter. Like Disney+, Netflix is now looking to increase the revenue per user that they draw by selling ads.

Doing so helps streaming services make more money from their existing customer bases, while offering an alternative to price hikes, according to industry analysts.

Existing subscribers to Disney+ will be automatically put into the ad-supported tier unless they elect the higher-priced ad-free version, and some shows, such as “Dancing with the Stars,” will stream with no ads on any tier, a Disney executive said. Disney said that in general, the ad load on Disney+ will be lighter than that of other services, and will benefit from consumers who cancel cable subscriptions and replace them with streaming services.

Netflix said in July that it expected some loss of customers following a price hike and that customer departures are returning to the levels where they were before the increase.

The Los Gatos, Calif.-based company has said its coming ad-supported tier of service is likely to appeal to more-price-conscious customers who are willing to pay less in exchange for viewing ads. Netflix hasn’t said how much its ad-backed tier will cost, but it is expected to charge less than the most basic plan that is currently available, which costs $9.99 a month for a single viewer with the lowest video-resolution quality.

While there has been an overall slowdown in net subscriber growth in the U.S. and more consumers jumping between streaming services, the amount of time people spend watching streaming content continues to grow, said Marc DeBevoise, CEO of the video technology company

Brightcove.

That trend makes selling ads a more attractive strategy for streaming services, he said.

“There aren’t more people to get to subscribe, but there are more hours to capture,” he said. “It is still a growing pie of total viewership.”

Write to Robbie Whelan at robbie.whelan@wsj.com and Sarah Krouse at sarah.krouse+1@wsj.com

Corrections & Amplifications
JB Perrette is Warner Bros. Discovery’s head of streaming. An earlier version of this article incorrectly said J.B. Perette. (Corrected on Aug. 11)

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