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VW shares electric dreams with Rivian – Industry roundup: 27 June

VW invests US$5 billion, forms j-v with US electric vehicle start-up Rivian

Stock in US electric vehicle (EV) maker Rivian rose sharply on Wednesday after the US start-up announced a joint venture deal including a US$5 billion cash injection with Germany’s Volkswagen (VW).

The German auto giant announced that it plans to work with Rivian to create “next generation software-defined vehicle (SDV) architecturesʺ to be used in both companies’ future EVs. The j-v will use Rivian’s “zonal hardware design” and platform as the foundation for future vehicles, as well as Rivian’s electrical architecture expertise for the vehicles. Rivian will license its intellectual property (IP) rights to the j-v.

In exchange, Volkswagen will invest an initial US$1 billion in Rivian through an “unsecured convertible note that will convert into Rivian’s common stock,” with up to US$4 billion in additional investment staged through 2026 for a total contribution of US$5 billion.

Susannah Streeter, head of money and markets at Hargreaves Lansdown said the deal reflected Volkswagen diversifying and using its financial firepower to build up its position in the US EV market via its tie-up with Rivian.

ʺIt’s investing up to US$5 billion in the electric vehicle maker, which is still loss-making but has been restructuring and cutting costs to become more efficient, and this strategy has shown signs of progress,ʺ she commented.

ʺIt’s a big vote of confidence in the EV maker’s prospects. For VW it’s a way of tapping into EV demand in the world’s largest economy, which has been slower than hoped but is expected to accelerate. It gives it access, in particular, to a slice of the pick-up truck market and will boost its share of the sport utility vehicle (SUV) business.

ʺBut it’s Rivian’s software which may be the bigger draw, with plans to integrate it into VW’s off-road EV brand, Scout. Its own software division, Cariad, has hit a series of bumps in the road, from budgetary overspend to technological difficulties with the EV architecture, and it’s hoped this new partnership will help speed up software innovation for VW and Rivian. Joining forces in this way may also help lower the cost-per-vehicles and bolster defences against the growing might of Chinese EV makers.ʺ

 

US big banks pass annual Federal Reserve stress test

All 31 of the biggest US banks have passed the Federal Reserve’s annual stress tests, demonstrating that they could endure the theoretical scenario of a “severe recession” in which unemployment rose to 10%.

The central bank published the results of its yearly tests, which formally began in 2011 after the 2007-09 financial crisis, on banks including Goldman Sachs, JP Morgan Chase, Citigroup and Bank of America, based on the potential rapid rise in joblessness as well as a 40% drop in commercial real estate values and a 36% fall in house prices.

In the latest Fed stress test scenario banks would lose nearly US$685 billion and take the biggest hit to their capital in six years but would still meet regulatory minimum standards. The total projected losses included US$175 billion in credit card losses, US$142 billion in losses from commercial and industrial loans, and nearly US$80 billion in losses from commercial real estate.

The results dictate how much capital those banks need to be deemed healthy and how much they can return to shareholders via share buybacks and dividends.

“This year’s stress test shows that large banks have sufficient capital to withstand a highly stressful scenario and meet their minimum capital ratios,” said Michael Barr, vice-chairman of supervision at the Fed.

“While the severity of this year’s stress test is similar to last year’s, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher. The goal of our test is to help to ensure that banks have enough capital to absorb losses in a highly stressful scenario. This test shows that they do.”

 

ECB rejects potential new members for the euro

None of the countries that have yet to join the euro meet all accession criteria and many have even diverged from the long-set rules for membership of the single currency, the European Central Bank (ECB) says in a report on prospective members.

All European Union (EU) members except for Denmark are required to adapt the common currency but non-compliance is not penalised, so only a few are actively working on joining, with most others preferring to retain the leverage yielded by independent monetary policy.

“Reflecting challenging economic conditions, limited progress has been made as regards compliance with the convergence criteria,” the ECB said in a biennial progress report on Bulgaria, the Czech Republic, Hungary, Poland, Romania and Sweden.

But the issues are far deeper than just meeting economic criteria, the ECB added. “The quality of institutions and governance is relatively weak in all the central and eastern European countries under review – especially in Bulgaria, Romania and Hungary,” it said.

The divergence from euro criteria was due in great part to the economic fallout of Russia’s war in Ukraine, since most prospective euro members have long depended on Russia for their energy needs.

Hungary appeared to be among the weakest performers. It was deemed to fall short of meeting rules on inflation, debt, the budget deficit and long-term borrowing costs, while its currency was highly volatile and it also failed to comply with rules on central bank independence and the prohibition on monetary financing, the ECB said.

Poland and Romania were judged little better either as they all missed the inflation, deficit and long-term borrowing costs criteria, even if their debt levels were well below the reference rates.

Poland and Romania also do not comply with rules on central bank independence and the prohibition of monetary financing of the government, the ECB added.

Bulgaria, which is actively trying to adapt the euro and still hopes to get in next year, failed on the inflation criteria and the ECB said it was worried about the outlook further out.

“Over the longer term there are concerns about the sustainability of inflation convergence in Bulgaria,” the ECB said. “Sustainable convergence in Bulgaria requires stability-oriented economic policies and wide-ranging structural reforms.”

 

‘Great Resignation’ into third year, reports PwC

The proportion of workers who expect to switch employers in the next 12 months is higher than that from the "Great Resignation" period of 2022, a PwC survey of the global workforce found.

Around 28% of more than 56,000 workers surveyed by PwC said they were ʺvery or extremely likelyʺ to move from their current companies, compared to 19% in 2022, and 26% in 2023.

PwC’s 2024 Global Workforce Hopes and Fears survey also showed workers are embracing emerging technologies such as generative artificial intelligence (GenAI) and prioritising upskilling amid rising workloads and heightened workplace uncertainty.

Pete Brown, global workforce leader at PwC UK, said employees are placing an “increased premium” on organisations that invest in their skills growth, and so, businesses must prioritise upskilling and employee experience.

About 45% of the workers surveyed said they have experienced rising workloads and an accelerating pace of workplace change in the past 12 months, with 62% saying they have seen more change at work in the past year than over the previous 12 months.

Among employees who use GenAI daily, 82% said they expect it to increase their efficiency in the next 12 months.

Reflecting confidence that GenAI opportunities would support their career growth, nearly half of those surveyed by PwC expected GenAI to generate higher salaries, with almost two-thirds hoping these emerging tools will improve the quality of their work.

Carol Stubbings, global markets and tax and legal services leader at PwC UK, said employers must invest in staff and tech platforms to mitigate pressures and retain talent. “The findings suggest that job satisfaction is no longer enough,” she added.

 

Australia’s stubborn inflation raises risk of further interest rate hike

Australia’s inflation accelerated faster than expected for a third successive month in May, sending its currency higher as traders boosted bets that the Reserve Bank of Australia (RBA) could resume raising interest rates at its next meeting.

The monthly consumer price indicator (CPI) climbed 4% from a year earlier, exceeding economists’ estimate of 3.8%, government data showed. The trimmed mean core measure, which smooths out volatile items, advanced to 4.4% versus 4.1% a month earlier.

The CPI report showed:

  • The most significant contributors were housing, food – led by takeaway meals – and transport.
  • Rents increased 7.4 % for the year, reflecting a tight rental market across the country
  • Energy Bill Relief Fund rebates from July 2023 mostly offset electricity price rises. Excluding the rebates, prices would have risen 14.5% in the 12 months to May 2024.

The Australian dollar rose on the data as traders priced a greater chance of a rate hike at the RBA’s 5-6 August meeting. Yields on policy sensitive three-year bonds also gained.

Wednesday’s results come after RBA governor Michele Bullock restated last week that the rate-setting board is not ruling out a rate hike after leaving the benchmark at a 12-year high of 4.35%. She added that policymakers remain vigilant to upside risks for inflation.

In the US, Federal Reserve officials have said that while they are encouraged by an improvement in price data, they will need to see months of such progress before reducing rates. A healthy job market is providing them with some flexibility.

 

Brazil joins countries with aims to be major rare earths supplier

Brazil has announced that it plans to become a major producer of rare earth metals as Western countries push to gain supplies needed to manufacture high technology devices.

Rare earth metals are 17 elements that are important to electronic equipment and to batteries, electricity storage devices.

South America’s largest country could become a competitor to China, which currently produces much of the world’s supply of the metals. Brazilian officials hope to move the country into the world’s top five suppliers.

Supporters of Brazil’s push say low labour costs, existing rules and being close to markets in Latin America will support its ambitions, although current low prices for rare earth metals, technical difficulties and concerns from possible lenders present problems.

Brazil is believed to have the world’s third-largest supply, or reserves, of rare earth metals. Serra Verde is the country's first rare earth mine and started operations in January this year.

Commenting on Brazil’s potential rare earth supplies Daniel Morgan, a mining equity analyst with Australian investment bank Barrenjoey, said “There have been some very meaningful discoveries made in the past couple of years. I do think outside of China, Brazil’s projects are the most economic greenfield projects available.”

Currently, the United States and its allies depend almost completely on China for rare earth metals. However, the US aims to develop its own supply chain for rare earths by 2027 and to provide enough materials to meet the needs of the defence industry.

China produced 240,000 metric tons of rare earth-related materials in 2023, or five times more than the US, the next biggest producer. China processes about 90% of the world’s supply to make permanent magnets, which are used in equipment such as wind turbines, electric vehicles and missiles.

Countries including Australia, Vietnam and Brazil aim to increase production, but their efforts have been slow. In Brazil, Serra Verde has taken 15 years to develop. It is expected to produce 5,000 tons of rare earths once production starts.

The company’s chief, Thras Moraitis says production could double by 2030 and that his company’s mine and Brazil have “competitive advantages” that could aid development of the rare earths industry. These include geological qualities, electricity supplies and a skilled workforce. But development “will require continued support to establish itself in a highly competitive market. Key processing technologies are controlled by a small number of players.”

Reg Spencer, an expert with investment bank Canaccord said the country could have two or three more mines by 2030.

 

India’s digital rupee loses momentum after initial surge

India’s central bank digital currency (CBDC), the digital rupee, has experienced a significant decline in usage, decreasing to a tenth of its peak last December, report sources involved in the pilot project.

The Reserve Bank of India (RBI) initially reached one million daily retail transactions with the digital rupee by incentivising banks and distributing portions of salaries through the digital currency. However, when these incentives ended, daily transactions fell to approximately 100,000, revealing a lack of organic demand. The RBI is now concentrating on testing technology and developing use cases, with no immediate plans for rapid expansion

To reach its initial objective, banks gave incentives to users and partially paid staff salaries and benefits using the digital currency. The lack of choice angered some bank employees. Despite this, banks continue to pay benefits using this method resulting in spikes in daily transaction volumes to 250,000 to 300,000 at the end of the month.

Reports surfaced in April that the central bank was in discussions with banks about how to reinvigorate both its retail and wholesale CBDC pilots. Some analysts believe the fall-off was predictable  In September and October last year the RBI governor and an executive at the Indian Ministry of Finance spoke separately about how they did not expect the CBDC being capable of competing with India’s faster payment system Unified Payments Interface (UPI)) in the eyes of consumers. Both viewed the “killer app” as cross border payments.

India’s experience to date with digital currency mirrors that of other nations. China, for instance, last shared the full usage statistics for its digital yuan a year ago, with reports suggesting that ʺred envelopeʺ promotions only spurred temporary usage. Chinese consumers are already well served by WeChat Pay and AliPay, further highlighting the challenges digital currencies face in gaining widespread adoption.

 

China’s AI firms woo OpenAI users as US company plans restrictions

Chinese artificial intelligence (AI) companies are reported to be moving swiftly to attract users of OpenAI’s technology, following reports that the US firm plans to restrict access to its application programming interface (AP)I in China.

Chinese state-owned newspaper Securities Times claims that ChatGPT maker OpenAI plans to block access to technology used to build AI products for entities in China and some other countries,

ChatGPT is not available in mainland China but many Chinese startups have been able to access OpenAI’s API platform and use it to build their own applications, Securities Times added.

According to the paper, since late Monday Chinese users of the platform have received emails warning they are in a “region that OpenAI does not currently support” and that additional measures to block API traffic from some regions would be taken from 9 July.

In response, Baidu, China’s leading AI developer, said it would launch an “inclusive program” offering new users free migration to its Ernie platform. For OpenAI users, Baidu will provide additional Ernie 3.5 flagship model tokens, matching the scale of their OpenAI usage, Baidu’s cloud unit said in a statement. Tokens are units of text processed by AI models.

Alibaba Cloud also joined in, offering free tokens and migration services for OpenAI API users through its AI platform. The company’s Qwen-plus model is priced significantly lower than GPT-4, according to Alibaba.

Zhipu AI, another major player in China’s AI sector, announced a “Special Migration Program” for OpenAI API users.

“Our GLM model fully benchmarks against OpenAI’s product ecosystem,” Zhipu AI said in a statement to developers seen by Reuters. “With our entirely self-developed technology, we ensure security and controllability.”

Numerous Chinese companies have released chatbots powered by their own AI models over the past year.

 

Trovata launches embedded banking solution for corporates

US open banking platform Trovata has introduced an embedded banking solution designed for corporate bank accounts.

Multibank Connector includes an extensive library of direct-to-bank application programming interfaces (APIs) to power financial services worldwide, according to a company prress release..

“APIs are the modern building blocks for digital transformation, and yet corporate treasury globally still runs on legacy secure File Transfer Protocol (sFTP) services with file formats from the ’80s,” commented Brett Turner, founder and CEO of Trovata.

Trovata has used its platform to help mid-market and enterprise customers manage cash and liquidity since 2018. The company is making its APIs available to banks, enterprise resource planning systems (ERPs), treasury management systems (TMSs) and other financial software providers, according to the release.

The company’s connectivity experience for corporate bank accounts is low-code, embeddable and self-service, the release said.

The Multibank Connector handles client onboarding and consent; ensures data quality, accuracy, completeness and security; and can process billions of bank transactions in milliseconds, per the release.

With these APIs, commercial and corporate banking clients can access account balances and transactions and move money in real time, according to the release.

 

Ecommpay announces partnership with BigCommerce

Ecommpay, the UK-based end-to-end payments platform for e-commerce, has added BigCommerce to its list of integrations with popular content management system (CMS) and e-commerce platforms, offering an advanced payment ecosystem built for optimum conversion and growth.

BigCommerce is a leading open software-as-a-service (SaaS) composable e-commerce platform powering tens of thousands of stores in over 150 countries around the world.

A rrelease said that the partnership would ʺempower UK and EMEA merchants with a cutting-edge payment solution that helps them save on the costs associated with payment processing via intelligent routing and cascading, as well as increase approval rates, enhance the checkout experience, and ensure secure payments.

ʺThe new ready-to-use plugin will allow customers to upgrade their payment systems with no downtime, using a simplified integration process. Via one single integration, customers can now enable a wide range of global and local payment methods, including PayPal, Apple Pay, Google Pay, and Ecommpay’s own in-house Open Banking solution, as well as Buy Now, Pay Later (BNPL) options like Klarna and PayPal Credit, and Direct Debit.

ʺThe configurable BigCommerce payment app plugin requires no coding, and there is an Ecommpay hosted payment page that has the capacity to source card details. Customers will have access to human support 24/7.ʺ

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