48 K1 Saturday April 30 2022 | the times
Business
weeks. The plant is Tesla’s largest and
produces thousands of cars for export
worldwide. Even before the shutdown,
Musk acknowledged that the quarter
had been “exceptionally difficult”
because of supply interruptions and
China’s zero-Covid policy. Second-
quarter production is expected to be
largely flat.
Other companies — such as Semi-
conductor Manufacturing Inter-
national Corp, China’s largest chip
producer — are operating as closed
loops, where workers live on site. This
allows production to continue, but can-
not compensate for disrupted supply
lines or transport delays.
Shanghai is also the world’s largest
port. It has stayed open, also operating
as a closed loop, but logjams are build-
ing and volumes are falling. According
to research by Vincent Stamer, an
analyst at the Kiel Institute for the
World Economy in Germany, cargo
volumes are 30 per cent below expected
levels. “At the beginning of the lock-
down, we were told that Shanghai port
was operational and goods were flow-
ing through,” he said, “but since then wetronics, because of the massive shorta-
ges of chips; that precedes the lock-
down but has been exacerbated by it.
The international supply chain is under
real stress.”
In the longer term, Forgione expects
the present crisis to prompt companies
to reassess their logistics. “Having an
over-reliance on just one country, or
on a just-in-time model, is going to
have to shift. But that’s not a short-term
solution.”
Until then, delays and shortages look
inevitable — and could leave British
shelves a little less full this Christmas.There are shortages of food in many1
The biggest high street banks
are cashing in as the Bank of
England base rate has risen
from 0.1 per cent in December to
0.75 per cent by refusing to pass it
on to savers. Banks including
Barclays, HSBC, Lloyds and
Santander have enjoyed larger
margins between what they
charge on loans and what they pay
to customers on savings accounts,
figures for the first three months
of this year show. Page 202
House prices rose for a ninth
consecutive month in April,
but growth appears to have
peaked. Prices increased by 0.3 per
cent between March and April to
an average of £267,620, according
to the Nationwide house price
index, which showed demand
among would-be movers remains
strong at the moment. Page 413
Elon Musk has sold shares
worth $8.5 billion in Tesla,
whose market value has fallen
by more than $150 billion after the
billionaire’s bid for Twitter. The
social media giant agreed to a
$44 billion takeover by the world’s
richest man on Monday. Filings
show that Musk, 50, has sold
9.6 million shares this week, about
5.6 per of his stake in the
carmaker. Page 474
Ping An, a Chinese insurer
that is the biggest investor in
HSBC with a 9.2 per cent
stake in the FTSE 100 lender, has
urged the Asia-focused British
bank to pursue a break-up. Page 475
City traders are betting that
Johnson Matthey, one of
Britain’s leading players in the
green industrial revolution, could
fall to a takeover by Standard
Industries, a privately owned
American conglomerate, pushing
its shares up by nearly 20 per cent.
Page 476
The pound is on course for its
worst month in six years amid
fears of a recession in Britain
and under pressure from a
resurgent dollar pushed up by
higher interest rates in the United
States. Sterling has fallen 4.2 per
cent against the dollar this month
to $1.25, its biggest monthly decline
since October 2016.7
Alvarez & Marsal, the joint
administrator of NMC Health,
has filed a claim of at least
$2.5 billion in the High Court
against EY, the former auditor of
the collapsed private healthcare
company.8
Pascal Soriot, the chief
executive of AstraZeneca,
believes that the drugs
company’s Covid vaccine still has
an important global role, despite
expecting a decline in sales and
worldwide “oversupply” as the
pandemic wanes. Page 509
The pandemic pushed the rate
of sickness absence among
workers last year to its highest
level since 2010. The Office for
National Statistics said that the
rate had risen to 2.2 per cent, up
from 1.8 per cent in 2020. Page 5110
Nick Varney is to retire as
chief executive of Merlin
Entertainments after 23
years running the theme parks
and visitor attractions group,
which operates Legoland and
Madame Tussauds. Page 53Need to know
Pound has worst month in six years
The pound is on course for its worst
month in six years amid fears of a reces-
sion in Britain and under pressure from
a resurgent dollar pushed up by higher
interest rates in the United States.
Sterling has fallen 4.2 per cent against
the dollar this month to $1.25, its biggest
monthly decline since October 2016.
Investors have sold the pound despite
expectations that the Bank of England
will raise interest rates next week.
Higher interest rates should support
the currency, but there is a growing gap
between the aggressive rate rises
signalled by the US Federal Reserve
and messages from the Bank after the
outbreak of war in Ukraine. This has
supercharged the value of the dollar
against most global currencies.
Investors are also concerned about
Britain’s growth prospects, with con-sumer confidence falling to a point that
would suggest a recession.
“Growth ultimately is key for
sterling,” Bruna Skarica, an economist
at Morgan Stanley, the investment
bank, said. “A hawkish Bank of
England, determined to lean aggres-
sively against inflation, could further
stoke recession fears, which would
again be a dampener on the currency. A
different policy mix of tight monetary
and loose fiscal policy potentially
would benefit sterling, but at the
moment the Treasury seems keen not
to add to the inflation problem.”
The pound has fallen by more than
7 per cent against the dollar this year
and is at its weakest since July 2020. It
has remained flat against the euro in
2022 as the eurozone’s economy is
more heavily exposed to the war in
Ukraine. The European Central Bank is
expected to raise interest rates onlyonce this year. The Fed, meanwhile, has
signalled a further six rate rises in 2022,
pushing the dollar this week to 20-year
highs against other currencies.
Markets are pricing in a 0.25 percent-
age-point interest rise from the Bank
next week, lifting the main rate to 1 per
cent. Ruth Gregory, at Capital Econo-
mics, the consultancy, said she expect-
ed rates to rise as high as 3 per cent next
year. Capital Economics expects the
pound to weaken to $1.22 by December.
Next week the Bank also will produce
its first set of growth and inflation pro-
jections since the war began in Ukraine.
Sanjay Raja, an economist at Deutsche
Bank, said that Andrew Bailey, the
Bank’s governor, was likely to move
away from talk of monetary policy
“normalisation” after the end of pan-
demic restrictions and instead would
“highlight the intensifying trade-off
between growth and inflation”.Mehreen KhanImpact of China’s
Covid lockdowns
being felt in West
Makers of cars and
mobile phones are
suffering with parts in
short supply, reports
Abigail Townsend
For the residents of Shanghai, lock-
down conditions verge on the brutal.
Unable to leave their homes, even for
food, residents in China’s largest city
who test positive for Covid-19 are
removed to isolation centres. Drones
order people off balconies and back
indoors. Only when there are no cases
for 14 consecutive days are residential
compounds released.
Yet the cost of China’s strict zero-
Covid policy is not merely personal.
The province of Shanghai is a vast
manufacturing hub, home to 25 million
people and with GDP similar to
Poland’s. Such is its contribution to
global trade that most sectors and
markets are likely to experience delays
or shortages in the months to come as
factories are closed and workers are
confined to home. Arguably those hit
hardest will be the myriad industries
that use semiconductors.
On Thursday, Apple revealed its
strongest ever start to the year, with
sales ahead by 8.6 per cent at $97.3 bil-
lion and net income up 5.8 per cent at
$25 billion. Yet shares in the giant
technology group fell after it said that it
could take a hit of between $4 billion
and $8 billion in the second quarter,
substantially more than it had expected
previously, because of Covid-related
disruptions, including supply shortages
and factory shutdowns in Shanghai.
Foxconn, one of Apple’s biggest
suppliers, has had to close factories,
while recent analysis by Nikkei Asia
found that half of the American com-
pany’s top 200 suppliers had facilities in
or around Shanghai.
Tesla, Elon Musk’s electric car manu-
facturer, shut its Shanghai factory at
the end of March for nearly threehave seen drops in the volumes leaving
the port. We’ve still got goods flowing
out, but the factories that are producing
those goods are now in lockdown.”
Stamer believes that Europe could
experience 6 per cent fewer goods
arriving from China as a result. “We will
definitely see some goods that will be
missing. We have inventories in Europe
that we can draw down, but at some
point there will be goods missing —
maybe that cellphone you wanted is no
longer available, or will take longer to
arrive.”
Further complicating the supply
chain is the war in Ukraine. Europe
depends on Russia, Belarus and
Ukraine for energy, chemicals, iron
and steel, palladium and nickel, among
other things. As Berenberg, the
German bank, acknowledged in a
recent note: “A sustained recovery in
global supply seems unlikely until these
two obstacles fade materially.
“Computer chips, fossil fuels, paper,
plastic and metal — virtually all con-
sumer durables and machine goods
require at least one of these inputs at
some point in their manufacturing and
distribution chain.”
Last week, the Society of Motor
Manufacturers and Traders reported a
32.4 per cent decline in UK car pro-
duction in the first quarter, much of
which was attributed to the global chip
shortage. Onsemi, an American chip-
maker that supplies some of the world’s
biggest car companies, including Ford
and Audi, has had to close its Shanghai
distribution centre temporarily.
While the rest of the world shifts to
living with Covid, Beijing looks wedded
to a policy of zero tolerance. As a result,
rolling lockdowns are likely to continue
throughout the year.
According to Marco Forgione,
director-general at the Institute of
Export and International Trade:
“We’re seeing shortages now, but if you
look forward, Christmas orders are not
far away and if rolling lockdowns
continue, there will be implications.
“One of the guaranteed sectors that
will face difficulties is consumer elec-Buildings in China are disinfected, with
their residents under strict lockdowncent, to close at $870.76 in New York.
They were above $1,000 at the end of
last week.
Most of Musk’s net worth — $268 bil-
lion, according to Forbes — is tied up in
the shares of companies he is involved
with. He is chief executive of Tesla and
SpaceX, founder of The Boring Com-
pany and co-founder of Neuralink.
Dan Ives, at Wedbush Securities, be-
lieves the market is concerned Musk
will be “pulled in too many directions”
if he adds Twitter to his list of ventures.
“Musk is the heart and lungs of the
Tesla story and the Twitter saga now
unfortunately becomes an overhang
for Tesla shares in the near-term,” the
analyst said.
“The Twitter deal brings another X
variable into the mix for Musk.”
Yesterday it was reported that Musk
may sharply cut board and executive
pay at Twitter in an effort to cut costs at
the social media group.continued from page 47
Tesla value plummets