Tesla shines despite production disruptions

This is an audio transcript of the FT News Briefing podcast episode: Tesla shines despite production disruptions

Marc Filippino
Good morning from the Financial Times. Today is Thursday, July 21st, and this is your FT News Briefing.

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Tesla’s looking pretty resilient these days. Meanwhile, Italy’s political drama continues and Ukraine is getting some debt relief. But Sri Lanka’s debt troubles are adding to fears of a broader crisis in emerging markets. I’m Marc Filippino and here’s the news you need to start your day.

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Tesla said yesterday its second quarter revenue rose 42 per cent over last year. The electric vehicle maker also announced a nearly 60 per cent jump in adjusted earnings per share. These numbers come despite production disruptions in China because of Covid lockdowns and high costs associated with new plants in Texas and Germany. Here’s the FT’s Richard Waters.

Richard Waters
Tesla is really holding it together very well in an incredibly difficult time. Not only was its biggest plant, which is in Shanghai, shut down for much of the quarter because of local Covid restrictions. But it’s facing all the same supply chain pressures that all other manufacturers have. Even despite all that, it’s still churning out, as you say, this kind of massive growth. But, and this is a big but, you know, there are such high expectations around this company. They’ve essentially got to grow their production about 70 per cent in the second half just to kind of make up the numbers that people are hoping for, to get back to the kind of 1.5mn deliveries that Wall Street’s hoping for this year. 

Marc Filippino
Well, that seems like a really tall order there, Richard. Is this something they can actually do?

Richard Waters
You know, it’s a really tough climb. And Elon Musk was sounding uncharacteristically cautious, I felt. He didn’t throw any numbers out. He didn’t give any predictions. You know, he said by the end of the year, he was hoping, you know, Tesla’s plans say they should reach full production. But between now and then, he didn’t stick his neck out and didn’t say they would they would hit this goal. So I think it’s gonna be, you know, a couple of very tough quarters of sliding ahead.

Marc Filippino
What are these numbers from Tesla say more broadly about the electric vehicle industry, if anything?

Richard Waters
You know, we do know that demand is just incredibly strong and Tesla’s orders go out through next year. Tesla has actually been putting up its prices and I think one of the concerns right now on Wall Street is very much that as prices go up and as the economy looks more difficult, you know, are we gonna start to see demand for electric cars weaken? For Tesla, the answer is really no right now. They’ve got so much excess demand that, you know, even though Musk is saying, well, maybe at the margin, maybe at the margin, there’s a little less coming in. Nonetheless, you know, they’ve got so much of an overhang here that it doesn’t really matter. Now, for other electric carmakers, that might become more of an issue. So, you know, I think we’re looking ahead now to a nervous second half of the year for the industry as a whole.

Marc Filippino
Richard Waters is our west coast editor. He covers all things tech.

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Ukraine may soon get some more financial relief. A group of foreign government creditors said yesterday they’ll support Kyiv’s request for a debt moratorium. Ukraine has insisted on making its debt payments ever since Russia invaded nearly five months ago. It’s wanted to stay on good terms with international creditors. But in a major U-turn, Kyiv pleaded for a moratorium. The government creditors who are backing Ukraine’s request include the US, Japan and European allies. They said they’ll suspend debt servicing from this August through the end of next year. The group also said it will encourage private bondholders to agree to a pause on Ukraine’s debt payments.

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Yesterday, lawmakers in Sri Lanka took a step to address the country’s economic crisis. They chose a new president. The last one was ousted by protesters and had to flee the country. The problem is the new president, Ranil Wickremesinghe, is the former prime minister and he’s so unpopular, there are fears there will be more unrest. Sri Lanka is not the only country dealing with a debt crisis, though. Other developing countries are in trouble too, from Laos to Pakistan to Zambia to Argentina. There’s talk about the potential for a broader emerging market debt crisis. I’m joined by the FT’s Jonathan Wheatley. Hi, Jonathan.

Jonathan Wheatley
Hi there, Marc.

Marc Filippino
So, Jonathan, Sri Lanka has its own unique history of government corruption and mismanagement. What do people see in Sri Lanka that sparks fears of a broader crisis in emerging markets? I spoke to someone last week who described it as the canary in the coal mine.

Jonathan Wheatley
It’s unlikely that any other country will do the same exactly as Sri Lanka, but other countries do have their own homemade problems. But what’s really bringing all those problems into focus is the multiple crises that are battering the world at the moment. The war in Ukraine, for emerging markets the strengthening dollar and rising inflation and interest rates. All the disruption that was caused by the pandemic and in many cases is still going on and the long-term growth malaise among developing countries. And it’s all come together as a really unpleasant toxic mix.

Marc Filippino
So, Jonathan, I’ll admit I am not an economist, but this all seems really bad. All these emerging markets potentially defaulting on loans at the same time, we have these recessionary fears floating around. If a whole bunch of countries go bust or default at the same time, what are we looking at here?

Jonathan Wheatley
Well, fingers crossed. We hope things won’t all go bust at the same time. I think what’s happening at the moment is that an awful lot of countries, for example, one thing that people look at is how much a country has to pay in order to borrow. And an indication of that is the yields that those countries bonds demand on secondary markets. There are well over a dozen developing countries now where the bonds are trading at levels that suggest investors think a default is imminent. But really, you have to go country by country and pick out where the problems are. So the pandemic and the war in Ukraine and rising rates of inflation, they’re all horrible for very many countries, but they won’t necessarily tip people into default. It’s countries that had pre-existing problems that are gonna be most at risk.

Marc Filippino
Jonathan, how are the International Monetary Fund and the World Bank handling all this?

Jonathan Wheatley
Well, those institutions and others like them, the other development banks - right now, they’re having to deal with multiple crises. And it’s not just the rising dollar and inflation and the war in Ukraine. We’ve got climate change and we’ve got the long-term problems that were already there before those came along. Of chronically low growth, underperformance in emerging markets, the fact that they’ve kind of lost their growth mojo over the past ten years or so. And those institutions are not used to having to deal with multiple crises in multiple places at once. So that’s a huge strain.

Marc Filippino
So, Jonathan, I gotta ask about China. Beijing has become a major lender to developing countries. What is China doing about its loans to these emerging markets?

Jonathan Wheatley
Well, what is next is how China reacts, probably next in regard to Sri Lanka. We already know that China has agreed to co-chair the official creditor committee for the bilateral lenders to Zambia. That was a big step, but we don’t know how that’s gonna go. And we certainly don’t know whether China is going to agree to take a similar role in other creditor committees. That is really crucial because before the IMF will agree to any deal with any country whose debts need restructuring, they need assurances from that country’s creditors that they will do what is necessary to get that country back into debt sustainability. China has been willing to extend to give borrowers more time. It’s been very reluctant in the past to accept a reduction in the amount of money that its borrowers owe it. So that’s what everybody is watching, really. Will China sign up to a collegiate approach or will it carry on doing deals behind closed doors on a one-to-one basis, which it has always done in the past?

Marc Filippino
Jonathan Wheatley is the FT’s emerging markets correspondent. Thanks so much, Jonathan.

Jonathan Wheatley
Thank you very much.

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Marc Filippino
Italy’s prime minister, Mario Draghi, watched his government unravel yesterday. After a bitter debate, members of Draghi’s national unity coalition walked out of parliament and refused to take part in a confidence vote on his leadership. Draghi had demanded yesterday that members of his coalition recommit themselves to his reforms. But his gamble backfired. Draghi is expected to once again submit his resignation. He tried last week, but President Sergio Mattarella rejected it. Now, if Mattarella accepts Draghi’s resignation this time around, it would trigger early elections in Italy and add even more political uncertainty to already jittery financial markets. So you can be sure that Italy will be on the minds of the folks over at the European Central Bank, which meets today. 

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Before we go, the UK is looking for a new leader, too. Right now bookmakers and opinion polls are betting on foreign secretary Liz Truss as the favourite to replace Prime Minister Boris Johnson. The other frontrunner is former chancellor Rishi Sunak. Truss and Sunak will battle it out over the next month or so. The results are set to be announced in September.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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