13th January 2020
Written by Juan Palenzuela, Associate
Edited by David Gaffney, Partner
We are not even halfway through the first month of 2020 but already one company seems poised to dominate business headlines for the rest of the year.
Tesla, and in particular its enigmatic chief executive Elon Musk, has not always played the most strategic form of communications. But this appears to be changing. The company has recently stuck to a rather simple yet reliable formula: to under promise and over deliver on its targets. At the same time, it has continued to set the pace for the manufacture of electric vehicles. It concluded 2019 delivering 367,500 units, up by 50% from the previous year. It also built a new Gigafactory in China in less than a year – making Tesla the first foreign car manufacturer to enter the country – and is set to open a similar factory in Germany in the coming months.
This has excited investors, who now back the company en masse, taking Tesla’s valuation to record highs. It currently sits at £86.1bn, which is more than the combined value of Ford and General Motors, despite Tesla producing nearly 40 times fewer cars.
Tesla, it seems, has convinced investors that it is not just capable of delivering the best electric cars, but the best cars overall.
Yet the road to continued success is not completely clear for the company. Tax breaks have boosted demand for their cars since 2009, but those incentives are now gone. Add to that a weakening demand and stagnant wages expected in the United States in 2020, and you start to get a sense of the challenges that remain for a business that is yet to turn an annual profit. Musk’s and Tesla’s entwined fortunes look certain to keep business watchers glued to their seats throughout 2020 and beyond.
Protests in Iran have escalated in their second day as rallies emerge beyond the capital Tehran. The protests began after the Iranian military admitted to “unintentionally” having shot down a civilian passenger aircraft with 176 people inside, killing all of them, a claim they initially denied. Meanwhile, the British ambassador was detained for a few hours on Saturday after he attended a vigil for the victims.
Labour leadership candidates spent the weekend making their last pitches ahead of the deadline for nominations. Each candidate must receive the backing of 22 MPs and MEPs before 2.30pm today to qualify. Sir Keir Starmer, Rebecca Long-Bailey, Jess Phillips and Lisa Nandy have so far reached the threshold, while Emily Thornberry and Clive Lewis still have work to do if they are to proceed to the next round.
The British Government is preparing to hand over up to £2 billion to support the new Northern Ireland executive. A deal was struck between Sinn Fein and the DUP on Saturday which effectively returned the devolved government to Northern Ireland after three years of deadlock. The prime minister, Boris Johnson, is due to arrive in Belfast today to hold talks with the two party leaders at Stormont alongside Irish premier Leo Varadkar.
Business and economy
Flybe, Britain’s biggest regional airline, is reported to be on the brink of bankruptcy as it tries to secure additional funding, with accountancy firm EY on standby to handle the possible administration of the group. With most of Flybe’s costs in dollars, but the vast majority of its earnings in sterling, the post-referendum slump in the value of the pound has hit the company hard. Brexit uncertainty has also decreased demand, while competition with other regional airlines such as Loganair and low-cost carriers like Easyjet have decreased margins over the past few years.
Documents disclosed to American regulators and congressional committees investigating the causes of the two 737 Max crashes describe dire comments by Boeing employees about the aeroplane, sparking new questions about the company’s values and governance. The documents show how some Boeing employees actively discussed attempts to mislead aviation regulators, while others worried about “a culture of ‘good enough’” or choosing “the lowest ranking and most unproven supplier... solely because of bottom dollar”. Other employees are reported to have said that they would never put their own families on the 737 Max.
Nissan is said to be preparing a contingency plan for a potential split with Renault as the downfall of its previous CEO Carlos Ghosn has continued to affect the automotive alliance between the two manufacturers. The plan is said to include a comprehensive division of engineering and manufacturing, as well as changes to Nissan’s board, according to the FT.
Columns of note
Andrew Hill, writing for the FT, says Carlos Ghosn’s reputation may well be beyond repair, despite the executive’s best efforts to clear his name. Ghosn was known to Hill, who interviewed him repeatedly in the past and struck him as a measured, progressive looking businessman who always cared for a controlled and confident relationship with the press. Yet Ghosn’s latest actions seem in stark contrast to these principles, Hill argues, and goes on to suggest that the task of clearing his name may well be beyond Ghosn’s reach or that of any PR consultant.
Also in the FT, Nick Butler says that a radical revision of energy policy is more important now than it has ever been. The main strands of current energy policy date back to 2013, and they have not changed since. The result is that while energy prices have fallen (oil and natural gas are both down by almost 40% since 2013; and wind and solar by 43% and 57% respectively) consumers are paying more than is necessary, with even bigger bills to come. There is a good case for the new government to renegotiate energy deals such as Hinkley Point, as well as many of the early renewables contracts. But above all, new energy policies are needed to close the gap, argues Butler.
The week ahead
It will be an important week in terms of economic data. Today, the Bank of England will release growth figures for November. These will have added importance given that an influential member of the Bank of England’s monetary policy committee has said he would vote for a cut in interest rates later this month if key data do not show a bounce in the economy following the general election in December. Little growth is expected in this release. The UK also has inflation data on Wednesday and retail sales on Friday.
Meanwhile, American president Donald Trump is due to sign phase one of a new trade deal with China at the White House on Wednesday. Details of the 86-page agreement have not been made public and are still being reviewed by both sides. It may well sit down with markets around the world.
Elsewhere, three of the top five US banks are set to announce double-digit increases in their fourth-quarter earnings this week, but investors and analysts still fear a slowdown this year.
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Did you know?
Each year, humanity produces a thousand times more transistors than grains of rice and wheat combined.
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