Car makers close to the edge in electrification race

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Herbert Diess, chief executive of Volkswagen, said the company’s bet on expanding its electric car output was justified. (AFP)
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Mercedes’ EQ Silver Arrow electric concept car on show at Frankfurt, as automakers display their new technology. (AFP)
Updated 11 September 2019

Car makers close to the edge in electrification race

  • Manufacturers hope new models on display in Frankfurt will cut CO2 emissions

FRANKFURT: Time is running out for European car makers, which have waited until the last minute to try to meet ambitious EU emissions targets and face billions in fines if they fail to comply. Manufacturers from PSA Group to Volkswagen will use this week’s Frankfurt auto show to reveal the new models and strategies they hope can slash carbon dioxide emissions within months.
But it is a challenge fraught with danger, as the cost of pushing pricey technology on unconvinced consumers could hurt profits in an industry already suffering a downturn in sales.
“You have cars that cost an extra €10,000 ($11,000) to build, fleet-emissions targets requiring a certain sales volume and consumers who may or may not want them,” said one PSA executive. “All the ingredients are there for a powerful explosive.”
By next year, CO2 must be cut to 95 grams per kilometer for 95 percent of cars from the current 120.5g average — a figure that has risen as consumers spurn fuel-efficient diesels and embrace SUVs. All new cars in the EU must be compliant in 2021.
Another 37.5 percent cut in CO2 fumes is required between 2021 and 2030 in addition to the 40 percent cut in emissions between 2007 and 2021.
The timing could hardly be worse, with the world’s main auto markets in decline and the sector braced for a chaotic British exit from the EU, as well as a protracted U.S-China trade war.
The industry has long since given up pushing for the goals to be relaxed — a political impossibility underlined by a resurgent climate protest movement that has added the Frankfurt show to its target list.
Volkswagen’s chief executive, Herbert Diess, said the regulatory crunch and growing support for green causes proves that his company’s €80 billion bet on becoming the world’s largest manufacturer of electric cars is right.
“Even Toyota and some other competitors, which were slow to bring EV’s, are now also betting on electric. So we are right,” Diess said.
New electric cars wheeled out at the show on Tuesday include PSA Group’s Opel Corsa-e mini and the ID.3 compact from Volkswagen. The German car maker is also making hybrid power standard-issue in its Golf bestseller.

HIGHLIGHTS

• EU goals require massive CO2 cut within months. • Vast product overhaul will weaken profitability.

• Fallout seen increasing threat to auto jobs.

Fiat Chrysler, which lacks adequate green technology, has agreed to pay Tesla hundreds of millions of euros to pool emissions scores with its electric cars and escape penalties.
For years, image-conscious mass automakers have placed electrified models at the center of their show stands but near the margins of their commercial offerings. Only now will they be forced to sell them in large numbers, challenging profitability.
To meet the targets, sales of electric cars would need to triple to 6 pecent of the market by 2021, and rechargeable hybrids surge fivefold to a 5 percent market share, German engineering firm FEV Consulting estimates. In the first half of 2019, combined sales of plug-in cars rose 35 percent year-on-year.
Fines of €95 per car, per excess gram of CO2 quickly add up to hundreds of millions of euros.
“Market acceptance of a lot of this tech and exactly what people are willing to pay remains very, very unclear,” said Max Warburton, an analyst at brokerage Sanford C. Bernstein.
“It’s going to require the industry to force quite a lot of cars into the market,” he said in a recent note, predicting that car makers will lean on heavily discounted sales to fleet customers and even their own employees.
Rather than incur fines that could total €25 billion in 2021 if current lineups were left unchanged, car makers are engaged in a huge product overhaul likely to wipe more than half that amount from combined profits, Bernstein projects.
Many electrified offerings are arriving just in time — or in many cases too late — for deliveries to begin in January, when less efficient models will also become more scarce.
Hard on the heels of VW’s electric ID.3, the Golf 8 to be unveiled next month heralds a mass deployment of 48-volt hybrid technology at the very heart of Europe’s auto market.
Such mild hybrids add less cost, starting at €500 per car, but bring more modest emissions cuts than plug-in hybrids or pure electrics costing an extra €5,000-€10,000, by comparison with an equivalent gasoline model.
French car makers face a bigger hit to margins than German rivals, analysts say, because they lack significant US and Chinese earnings to soften the blow.
Renault, heavily reliant on its aging Zoe electric car, is rushing to add hybrid versions of its Clio and Captur subcompacts now expected in the second quarter of 2020.
PSA, whose 48-volt hybrids arrive two years later, is counting on pricier plug-ins and electric versions of its DS3, Peugeot 208 and Opel Corsa to claim 7 percent of its total sales.
The group has scrapped several less-efficient Opel cars and is preparing to halt sportier model versions including the Peugeot 208 GTi and 308 GT.
Industry executives expect the cull to be replicated by other car makers, hitting European automotive jobs already threatened by the shift to electrification.
“It will cost them less to stop selling some vehicles than to sell them and pay the fines,” said Georgeric Legros, Paris-based director at consulting firm AlixPartners. “During the year we’re likely to see models dropped and some layoffs.”
With regulatory softening off- limits, the downturn and jobs threat may instead prompt new government sales incentives to limit losses and help steer demand to greener cars, some executives believe.
“The move to new energy vehicles compounded by a difficult market will undoubtedly hit bottom lines,” said Andy Palmer, chief executive of Aston Martin, which is exempt from the EU goals as a low-volume sports car maker.
“As industry profits get tight, you start to lose people,” Palmer told Reuters. “And that’s when governments begin thinking about ways to stimulate the market.”


Escalating violence ups pressure for Myanmar sanctions

Updated 07 March 2021

Escalating violence ups pressure for Myanmar sanctions

  • The UN special envoy urged the Security Council to act to quell junta violence that this week killed about 50 demonstrators
BANGKOK: The escalation of violence in Myanmar as authorities crack down on protests against the Feb. 1 coup is raising pressure for more sanctions against the junta, even as countries struggle over how to best sway military leaders inured to global condemnation.
The challenge is made doubly difficult by fears of harming ordinary citizens who were already suffering from an economic slump worsened by the pandemic but are braving risks of arrest and injury to voice outrage over the military takeover. Still, activists and experts say there are ways to ramp up pressure on the regime, especially by cutting off sources of funding and access to the tools of repression.
The UN special envoy on Friday urged the Security Council to act to quell junta violence that this week killed about 50 demonstrators and injured scores more.
“There is an urgency for collective action,” Christine Schraner Burgener told the meeting. “How much more can we allow the Myanmar military to get away with?“
Coordinated UN action is difficult, however, since permanent Security Council members China and Russia would almost certainly veto it. Myanmar’s neighbors, its biggest trading partners and sources of investment, are likewise reluctant to resort to sanctions.
Some piecemeal actions have already been taken. The US, Britain and Canada have tightened various restrictions on Myanmar’s army, their family members and other top leaders of the junta. The US blocked an attempt by the military to access more than $1 billion in Myanmar central bank funds being held in the US, the State Department confirmed Friday.
But most economic interests of the military remain “largely unchallenged,” Thomas Andrews, the UN special rapporteur on the rights situation in Myanmar, said in a report issued last week. Some governments have halted aid and the World Bank said it suspended funding and was reviewing its programs.
Its unclear whether the sanctions imposed so far, although symbolically important, will have much ímpact. Schraner Burgener told UN correspondents that the army shrugged off a warning of possible “huge strong measures” against the coup with the reply that, “‘We are used to sanctions and we survived those sanctions in the past.’”
Andrews and other experts and human rights activists are calling for a ban on dealings with the many Myanmar companies associated with the military and an embargo on arms and technology, products and services that can be used by the authorities for surveillance and violence.
The activist group Justice for Myanmar issued a list of dozens of foreign companies that it says have supplied such potential tools of repression to the government, which is now entirely under military control.
It cited budget documents for the Ministry of Home Affairs and Ministry of Transport and Communications that show purchases of forensic data, tracking, password recovery, drones and other equipment from the US, Israel, EU, Japan and other countries. Such technologies can have benign or even beneficial uses, such as fighting human trafficking. But they also are being used to track down protesters, both online and offline.
Restricting dealings with military-dominated conglomerates including Myanmar Economic Corp., Myanmar Economic Holdings Ltd. and Myanmar Oil and Gas Enterprise might also pack more punch, with a minimal impact on small, private companies and individuals.
One idea gaining support is to prevent the junta from accessing vital oil and gas revenues paid into and held in banks outside the country, Chris Sidoti, a former member of the UN Independent International Fact-Finding Mission on Myanmar, said in a news conference on Thursday.
Oil and gas are Myanmar’s biggest exports and a crucial source of foreign exchange needed to pay for imports. The country’s $1.4 billion oil and gas and mining industries account for more than a third of exports and a large share of tax revenue.
“The money supply has to be cut off. That’s the most urgent priority and the most direct step that can be taken,” said Sidoti, one of the founding members of a newly established international group called the Special Advisory Council for Myanmar.
Unfortunately, such measures can take commitment and time, and “time is not on the side of the people of Myanmar at a time when these atrocities are being committed,” he said.
Myanmar’s economy languished in isolation after a coup in 1962. Many of the sanctions imposed by Western governments in the decades that followed were lifted after the country began its troubled transition toward democracy in 2011. Some of those restrictions were restored after the army’s brutal operations in 2017 against the Rohingya Muslim minority in Myanmar’s northwest Rakhine state.
The European Union has said it is reviewing its policies and stands ready to adopt restrictive measures against those directly responsible for the coup. Japan, likewise, has said it is considering what to do.
The Association of Southeast Asian Nations, or ASEAN, convened a virtual meeting on March 2 to discuss Myanmar. Its chairman later issued a statement calling for an end to violence and for talks to try to reach a peaceful settlement.
But ASEAN admitted Myanmar as a member in 1997, long before the military, known as the Tatmadaw, initiated reforms that helped elect a quasi-civilian government led by Aung San Suu Kyi. Most ASEAN governments have authoritarian leaders or one-party rule. By tradition, they are committed to consensus and non interference in each others’ internal affairs.
While they lack an appetite for sanctions, some ASEAN governments have vehemently condemned the coup and the ensuing arrests and killings.
Marzuki Darusman, an Indonesian lawyer and former chair of the Fact-Finding Mission that Sidoti joined, said he believes the spiraling, brutal violence against protesters has shaken ASEAN’s stance that the crisis is purely an internal matter.
“ASEAN considers it imperative that it play a role in resolving the crisis in Myanmar,” Darusman said.
Thailand, with a 2,400 kilometer (1,500-mile)-long border with Myanmar and more than 2 million Myanmar migrant workers, does not want more to flee into its territory, especially at a time when it is still battling the pandemic.
Kavi Chongkittavorn, a senior fellow at Chulalongkorn University’s Institute of Security and International Studies, also believes ASEAN wants to see a return to a civilian government in Myanmar and would be best off adopting a “carrot and stick” approach.
But the greatest hope, he said, is with the protesters.
On Saturday, some protesters expressed their disdain by pouring Myanmar Beer, a local brand made by a military-linked company whose Japanese partner Kirin Holdings is withdrawing from, on people’s feet — considered a grave insult in some parts of Asia.
“The Myanmar people are very brave. This is the No. 1 pressure on the country,” Chongkittavorn said in a seminar held by the East-West Center in Hawaii. “It’s very clear the junta also knows what they need to do to move ahead, otherwise sanctions will be much more severe.”

China exports soar to highest level in decades after COVID-19 hit

Updated 07 March 2021

China exports soar to highest level in decades after COVID-19 hit

  • Exports were boosted by electronics and mask shipments

BEIJING: China's export growth jumped to the highest in over two decades, official data showed Sunday, with imports also surging in a sharp bounceback from the coronavirus outbreak that had brought activity to a near halt.
Exports spiked 60.6 percent on-year in the January-February period, above analysts' expectations and boosted by electronics and mask shipments, while imports rose 22.2 percent, official data showed Sunday.


California theme parks, stadiums to reopen soon

Updated 07 March 2021

California theme parks, stadiums to reopen soon

  • Parks initially will be open only to state residents amid safety precautions

LOS ANGELES: California health officials on Friday gave Walt Disney Co.’s Disneyland and other theme parks the go-ahead to reopen at limited capacity from April 1, after a closure of almost a year due to the coronavirus disease (COVID-19) pandemic.

Capacity will be limited to between 15 percent and 35 percent, the California Department of Health said in an update. Masks and other safety measures will be required and the parks initially will be open only to state residents.

Outdoor stadiums and ball parks will also be allowed to reopen at reduced capacity, starting April 1.

Ken Potrock, president of the Disneyland Resort, said in a statement that the decision meant “getting thousands of people back to work and greatly helping neighboring businesses and our entire community.”

“With responsible Disney safety protocols already implemented around the world, we can’t wait to welcome our guests back,” Potrock said.

He did not give a date for the reopening of Disneyland in the southern California city of Anaheim.

Disney shares were trading at $195.10 after hours, after closing at $189.99.

Disney in September said it was furloughing some 28,000 workers, mostly across its US theme parks in California and Florida. Walt Disney World in Florida reopened in July last year, with limited capacity.

Friday’s announcement follows a decline in coronavirus disease (COVID-19) cases in California and the rollout of vaccines. A parking lot at Disneyland is currently being used as a mass vaccination site.

Theme parks like Disneyland, Universal Studios, Legoland and Knott’s Berry Farm protested strongly last October when California health officials ruled out any quick reopening of their attractions.

The California Attractions and Parks Association called Friday’s announcement “encouraging news.”

“Parks now have a framework to safely and responsibly reopen ... putting people safely back to work and reinvigorating local economies,” the association said in a statement.


US economy likely to grow between 5-6% in 2021

Updated 07 March 2021

US economy likely to grow between 5-6% in 2021

  • The US economy could grow between 5 percent and 6 percent this year

ATLANTA: The US economy could grow between 5 percent and 6 percent this year, Atlanta Fed President Raphael Bostic said on Friday.

He said the economy is still under “considerable distress” and the Federal Reserve will continue to provide support until the labor market is stronger and average inflation is on track to meet the US central bank’s long-term target.

“We’re ready and able … to support the recovery as long and as strongly as necessary,” Bostic said during a virtual event organized by Stanford University.

The US economy could grow between 5 percent and 6 percent this year, Bostic said. But he cautioned that the labor market could face structural changes as a result of the pandemic that may require some laid-off service-sector workers to train for jobs in new industries.

A decline in business travel and increased use of automation could mean that some of the jobs lost during the pandemic will not return, Bostic said.

“We need to do all we can to minimize the long-term damage from the pandemic crisis and to make sure that the recovery is as broad-based and as inclusive
as possible.”

Asked if he thought the Fed needs to take action to respond to rising bond yields, which could be a sign that investors are raising their inflation expectations, Bostic said high inflation is not a concern right now.

“Inflation has not been a real stress point in terms of the economic performance for quite a long time,” Bostic said, adding that the Fed will continue to monitor for signs of stronger price growth.


How can Saudi firms move on from COVID-19 survival mode?

Updated 06 March 2021

How can Saudi firms move on from COVID-19 survival mode?

  • Alvarez and Marsal has been advising companies in the Kingdom on how best to pivot out of the tough times

JEDDAH: Alvarez and Marsal (A&M) is a New York-headquartered global professional services firm known in the industry as “the turnaround guys.” Legend has it that co-founder Bryan Marsal was one of the first people called when Lehman Brothers looked set to become the first major casualty of the global financial crisis in 2008.

A&M was founded in 1983 and now has representatives in 25 countries, including Dubai, from where it is now attempting to help Middle Eastern clients restructure their businesses after the challenges of 2020. As demand for its services grows, the company is aiming to increase its staff in the Middle East to 150 over the next five years, from 10 in 2015.

According to Paul Gilbert, head of A&M’s Turnaround and Restructuring practice in the Middle East, two of the most important steps management can take to overcome crises are to take total control over cash flow and to put in place a 12-month contingency plan to help the business stay afloat. Gilbert is currently working on the restructuring of Abu Dhabi’s NMC Health and has previously advised on rescue proceedings for South African Airways.

“Continue with cash preservation and cost control. Talk to your suppliers and landlords — those guys are suffering too, but they still want your business to come out of the other end,” Gilbert told Arab News. “These guys want to talk to you because they want to know that you’re going to be around at the end of it to help them rebuild their own businesses.”

According to Dr. Saeeda Jaffar, managing director and head of the Middle East at A&M, the pandemic has impacted companies in three major ways. There were companies that understood what was going on immediately and took “advantage of discontinuity” to find ways to succeed. Those companies already had a digital business model that supported their shift to digital, or had reacted nimbly to acquire a digital solution, so the transition was not as drastic as it has been for others.

The second group went into what Jaffar calls “hibernation mode,” by opting to minimize losses by decreasing costs, conserving cash, restricting loans and balances and generally steering away from bold decisions until the uncertainty passes.

The companies in the third group, Jaffar said, had weak business models and were unattractive to investors, so were bound to face difficulties.

One of the sectors that has suffered most has been retailers, according to Gilbert. “We’ve helped them across Europe with negotiations with landlords, with other creditors and helped them pivot from bricks-and-mortar stores to digital, and concentrated on helping them retain their customer base for when they come out,” he said. “Many of them are coming out of that period with a balance sheet that is either extremely stretched or has been restructured in a way that a number of lenders have now had to take equity back.”

Other sectors, including travel, tourism, aviation and real estate, have suffered tremendous losses during the pandemic as well.

In Saudi Arabia, Jaffar said that domestic tourism numbers exceeded expectations at the end of 2020.

“I think that’s a trend that will continue. That’s very much in line with the Vision 2030. We continuously see that there is a lot of development happening in the Kingdom, new resorts, new places, new developments that help continue to grow the tourism sector,” she said.

Jaffar believes it will take longer for aviation to recover than many industries, perhaps three to four years, she said.

On the other hand, technology — which Jaffar said has been the “backbone” for many other sectors — and healthcare — which has witnessed considerable investment in pharma consumables — have both prospered during the pandemic, a trend that Jaffar expects to continue in the near future.

Both A&M consultants suggest that as companies emerge from the pandemic, many will be looking at potential consolidation. Therefore, they said, mergers and acquisition activity will see a spike in 2021.

“There are a lot of strategic investors from the region that have learned over the last few cycles that investing now, when the valuations are more affordable, is probably a good time in terms of financial attractiveness,” said Jaffar.

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