Airpods Maker Races To Divest From China As Clients Push For India Expansion

 Rising geopolitical tensions and Covid uncertainty has forced Apple to reevaluate its manufacturing supply chain of iPhones, AirPods, HomePods, and MacBooks in China. Momentum has been building behind the scenes as Apple suppliers shift production capacity out of the country to friendlier shores in Southeast Asia. 

Apple suppliers rarely comment on supply chain shifts due to secrecy, but a new report via Bloomberg reveals AirPods maker GoerTek Inc.'s view of the shifting world and how it plans to diversify out of China. 

GoerTek is one of Apple's many suppliers and is exploring new production facilities outside China. The company assembles AirPods and other consumer electronic products, such as drones, speakers, Bluetooth products, 3D electronic glasses, and LED series products.

GoerTek Deputy Chairman Kazuyoshi Yoshinaga told Bloomberg the company is investing $280 million in a new production facility in Vietnam and considering an India expansion. 

"Starting from last month, so many people from the client side are visiting us almost every day," Yoshinaga said from his offices in Hanoi, Vietnam. He said the topic that dominates client discussions is "When can you move out" of China?

The uncertainty around China started around 2018 after President Trump launched a trade war. Then supply chain snarls at manufacturing facilities during Covid spooked many multinationals that had high exposure to the second largest economy in the world. And now, rising Sino-US tensions have fueled the fire to push companies to diversify out of China. 

Readers have been well aware of this trend over the last year:

• "Friendshoring" Trend Sees Companies Moving Ops To Dodge Tensions And Trade Wars
• "Confidence Shaken:" US Firms In China Look Elsewhere As 'Friendshoring' Gathers Steam

From The Wall Street Journal to Bloomberg to other Western financial outlets, there have been countless stories about Apple exploring ways to shift production outside of China but never came from the company, instead from "sources" with direct knowledge. Chief Executive Officer Tim Cook has been very careful not to upset Beijing by announcing plans to divest from China because that could impact the company's entire ecosystem centered in China, which employs millions. 

Bloomberg Intelligence estimated it would take Apple nearly a decade to shift 10% of its manufacturing capacity out of China. However, the GoerTek executive said it would happen much quicker. 

Yoshinaga said many Chinese tech manufacturers are experiencing the same discussions with clients as the need to divest from China. 

 "I would say currently 90% of them, they're looking at that," he added. "It's the brand companies' decisions."

Yoshinaga said many clients had asked him to shift production to India:

"We get requests from our clients almost every month. 'Do you have any plans to expand to India?'" he said. "If they decide to build up the production lines in India, we may have to think about it seriously. Currently we are focusing on developing our Vietnam production facilities."

This interview is one of the first shared with the public that offers an insider point of view of the global economy fracturing and supply chains needing to be rejiggered. 

Michael Every, the global strategist at Rabobank, recently outlined in a note to clients which countries will benefit from friend-shoring... 

Every expects a lot of low-tech manufacturing jobs will go to India. 

France, Japan, Italy, and Canada could be the top beneficiaries of high-tech jobs. 

This decade could be one of the greatest global supply chain resets ever.

https://www.zerohedge.com/geopolitical/airpods-maker-races-divest-china-clients-push-india-expansion

Amazon Employees Can Now Borrow Against Their Stock To Buy Homes

 Amazon employees will soon be able to pledge company shares when purchasing a home, under a new deal with digital lender Better.com, according to WSJ. 

Better announced a new program for Amazon employees called "Equity Locker," allowing them to use stock as collateral for a down payment without selling. Previously, Amazon employees had to sell their equity to purchase a home. 

"At Better, our mission is to make homeownership cheaper, faster and easier for all Americans.

"Today, we are very excited to announce that we have created Equity Unlocker to help Amazon employees unlock their equity, their homes and their futures," Better CEO and founder Vishal Garg said in a statement. 

Equity Locker is open to current and former Amazon employees in Florida, New York, and Washington state.

Garg said the homeownership process is "opaque and stressful." Homeownership is challenging for many people with student debt, maxed-out credit cards, and limited savings. He said many companies provide their employees with equity over cash, adding to this problem.

"The status quo is broken.

 "Even though equity is a valuable asset, it is considered ineligible by most banks and financial institutions when calculating the necessary down payment on a home," Garg said.

Better said, Equity Unlocker is non-mark-to-market and non-recourse, meaning the loan terms aren't impacted by stock market volatility.

To account for the risk of the Amazon stock price falling, Better is going to charge between 25 and 250 basis points over the market rate for mortgages, depending on how a person's down payment is structured. 

Nick Taylor, head of real estate at Better, said: 

"What we then do is we look at that pledge and we value the equity at 50% of the current share price. We look at the date that an offer is made on the home and we calculate what the share price is for Amazon that day." 

... and what does this remind us of? Well, the return of "creative financing." 

Recall high-net-worth individuals leveraging their stocks for personal loans when interest rates were at the zero lower bound. And in some cases, that was a bad idea. 

Take, for example, John Foley, the co-founder and former CEO of Peloton, who pledged his stock as collateral for personal loans during the Covid stock mania. As soon as the Federal Reserve lifted rates last year, growth stocks crashed, and Foley was slapped with repeated margin calls by Goldman Sachs. 

Lenders accepting stock as collateral for purchasing a home isn't exactly what the Fed wants to see while trying to cool the housing market. 

https://www.zerohedge.com/markets/amazon-employees-able-pledge-stock-collateral-buy-homes

UK's Rolls-Royce small nuclear program to run out of cash by end-2024

 

Britain's Rolls-Royce said its 500-million-pound small modular nuclear reactor programme will run out of cash by the end of 2024, risking development of technology the government has said could boost energy security and reach climate targets.

Britain is aiming to replace ageing nuclear plants as all but one of its sites, which generate around 13% of the country's electricity, are due to close by 2030.

The country, along with others in Europe, also needs to boost energy independence after Russia's invasion of Ukraine led to record electricity prices.

New large-scale nuclear projects with huge up-front costs have struggled to attract investment, putting the focus on smaller, cheaper reactors which the government said have export potential.

Rolls-Royce's small modular reactor (SMR) development business received a commitment of 210 million pounds from the government in 2021 but talks on how the projects would be funded are yet to start.

"We aren't asking the government to make an order (for the nuclear units) today but we need to start negotiations on a deployment plan by the middle of this year," Alastair Evans, government and corporate affairs director at Rolls-Royce SMR, told Reuters.

"We are facing a cliff edge, by December 2024 the money will have run out," he said.

Rolls-Royce's new CEO Tufan Erginbilgic said last week there was a sense of urgency in its engagement with government.

"We built a capable team (and) without any project, sustaining that team will be a big challenge," he told reporters after the group published full-year results.

With rivals working on similar technology, it was vital to move quickly, he said.

"It is important that we engage therefore with the UK government urgently, and for a project that we can deploy as soon as possible," he said. 

Rolls Royce and shareholders in the SMR business, advisory firm BNF Resources Ltd, U.S. Energy company Constellation and Qatar Investment Authority have invested around 280 million pounds in total.

This and the government money have been used to build the business, which employs some 600 staff across Derby, Warrington and Manchester.

The funds have enabled it to start the regulatory process to approve the reactor design and identify sites for plants and factories.

Rolls-Royce hopes to build the reactors in British factories and has identified possible sites in Sunderland and South Tyneside and Teeside in the north of England and Deeside in Wales.

https://www.marketscreener.com/news/latest/Exclusive-UK-s-Rolls-Royce-small-nuclear-program-to-run-out-of-cash-by-end-2024--43111471/

US to require companies winning chipmaking subsidies to share excess profits

 The Biden administration on Tuesday said it will require companies winning funds from its $52 billion U.S. semiconductor manufacturing and research program to share excess profits and explain how they plan to provide affordable childcare.

The Commerce Department on Tuesday is releasing its plans to begin accepting applications in late June for a $39 billion manufacturing subsidy program. The law also creates a 25% investment tax credit for building chip plants estimated to be worth $24 billion.

The CHIPS Act plays a central role in the Biden administration's effort to bring semiconductor manufacturing back to the United States. Its success is vital to U.S. ambitions to keep ahead of China in global markets.

Recipients who receive more than $150 million in direct funding "will be required to share with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold," the department said.

Companies winning funding are also prohibited from using chips funds for dividends or stock buybacks, and must provide details of any plans to buy back their own shares over five years.

The department will consider an "applicant’s commitments to refrain from stock buybacks in the application review process" in a five-step application.

Democratic lawmakers have noted the largest U.S. semiconductor companies have poured hundreds of billions into stock buybacks in recent years, with Intel spending more than $100 billion on buybacks since 2005. Intel also pays a dividend.

Commerce Secretary Gina Raimondo said companies must submit a workforce plan that includes an outline of workforce needs. Applicants seeking more than $150 million in direct funding must submit "a plan for how they will provide affordable and accessible childcare for their workers."

Applicants must address six program priority areas including plans "to commit to future investment in the U.S. semiconductor industry, including to build R&D facilities in the United States."

https://www.yahoo.com/now/us-require-companies-winning-chipmaking-100420284.html

No easy fix to Midtown’s post-COVID half-empty offices

 Is the Midtown office building half empty or half full?

With white-collar workers viewing the five-days-in-person week as optional, property investors terrified of losing billions are trying to persuade the city to let them do something else with their real estate, from casinos to housing. But a half-occupied office building may be worth more to New York.

As the city approaches the third anniversary of COVID lockdowns, Manhattan’s skyscrapers hover around the 50% occupancy mark.

Steven Roth, chief of Vornado, the commercial landlord, told investors this month that as far as the workweek goes, “Friday is dead forever. . . . Monday is touch and go.” 

And with some smaller tenants giving up their office space altogether, or taking less space as leases expire, vacancy levels are high and rising. The amount of office space available for rent has increased by half since 2019.

The vacancy rate is a record 22.2%, twice the pre-COVID average, Cushman & Wakefield says. (The city comptroller has taken to calling this the “availability rate,” which sounds nicer.) 

Major landlords are giving “the keys back to the bank” on some buildings, particularly mid-aged buildings, as RXR’s Scott Rechler puts it. 

Manhattan skyscrapers hover around 50 percent occupancy with white-collar workers seeing in-person as optional.

Getty Images

Property owners and the investors that lent them money are eager not to lose their shirts, so they want to shrink the office market: less supply of office space, higher prices for what’s left. 

At the same time, Manhattan CEOs who walk around their offices and see empty desks are annoyed at having to pay for empty space.

Meanwhile, we need housing and, apparently, casinos.

Not so fast. This is one of those cases where the city’s inertia works in its favor.

First, half empty is not a failure. Getting office workers into Manhattan two or three days a week is a major accomplishment, compared with no days a week.

It’s good for both employers and workers. People benefit from teamwork and in-person meetings on the days they go in and from greater concentration on solitary tasks on the days they stay home. 

Cheaper office space is good, from this perspective. If employers respond to people coming in less often by shrinking the square footage each worker has, they’ll just make a miserable office environment. People will go back to staying home when they can or simply be less productive.

With lower office rents, employers face less temptation to do this. 

Second, having a core office hub, though dismissed as old-fashioned by urban theorists, is good for New York City.

Office properties paid about $7 billion in annual taxes in fiscal year 2021, mostly property taxes, per the state comptroller. That’s about 11% of total taxes. 

That does not include the state and city income taxes and sales taxes commuters pay.

A worker who commutes to Manhattan two or three days a week is still legally a New York taxpayer. A worker who stays home and lives in New Jersey or Connecticut at some point will not be.

Plus, converting too much older office space into houses, or casinos, or multi-story roller-skating rinks also drives smaller employers away.

Meanwhile, it’s large banks and law firms, the companies with the ability to rent class-A+ space, that are requiring workers to come in four or five days a week.

If we drive away smaller employers, though, we become more dependent on large financial firms, meaning we’re more vulnerable to mass-scale layoffs in a recession. 

Steven Roth said that “Friday is dead forever.”

Misha Friedman/Bloomberg via Getty Images

Finally, the housing part. Office buildings, even smaller ones, don’t convert easily into housing — they have too much windowless internal space.

Developers will need tax breaks to convert units.

But New York already has 60,000 empty rent-regulated apartments available, many because landlords don’t think required renovations for the vacant apartments are worth the rent they can legally collect.

Fixing that problem before spending tens of billions only to lose office space makes a lot of sense. 

Plus, converting an old office building to affordable housing here and there doesn’t create a large-enough community to sustain schools, grocery stores and the like.

It worked downtown because they already had a huge residential community, Battery Park City, nearby. 

Build too much housing, though, and you make an area unattractive to office tenants. 

For now, what we’ve been doing for nearly three years still makes sense: do nothing, and hope that people come back to work more often.

Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.

https://nypost.com/2023/02/27/theres-no-easy-fix-to-midtowns-post-covid-half-empty-offices/

Lithium Industry Reeling After China Shutters 10% Of Global Supply

 That's a nice little EV industry you got over there in the US, it's be a shame if suddenly it found itself without the most important commodity.

That's one way to interpret what just happened in China; another - a less cynical - is the way Bloomberg described it, namely that China’s lithium industry itself is reeling as its top production hub -  responsible for around a 10th of the world’s supply -  faces sweeping closures amid a government probe of environmental infringements.

The crackdown in Yichun, Jiangxi province, also known as the country's "Lithium capital" follows a local lithium frenzy over the past year as miners raced to feed rampant demand for the battery material — and to benefit from record global prices. Now, they’re grappling with a close-up inspection by environment officials sent from Beijing.

According to Yicai newspaper, ore-processing operations in Yichun have been ordered to stop as investigators probe alleged violations at lithium mines. That, Bloomberg notes, threatens somewhere between 8% and 13% of global supply, according to various analyst estimates, although it’s unclear for how long the immediate shutdowns will last.

The sudden probe injects a big dose of uncertainty into a lithium market that has seen  prices drop, bringing some relief to EV manufacturers, as more global output emerges. Jiangxi province was expected to be a big source of extra supply, from a lithium-bearing mineral known as lepidolite.

“This supervision may mean that the inspection and control over lepidolite mining in China will be more stringent in the future,” said Susan Zou, analyst at Rystad Energy. Companies with operations in Yichun include major battery manufacturers Contemporary Amperex Technology Co. and Gotion High-Tech Co., whose shares both fell more than 1% on Monday.

Due to the ongoing probe, all lepidolite mining in Yichun aside from those by a state-owned company have been suspended, but refineries are still operational, Daiwa analysts Dennis Ip and Leo Ho said.

Global lithium prices soared to a record high last year as demand from China’s booming electric-vehicle industry outstripped production. And, as so often happens in commodities, where the cure to high prices is more supply, leading to lower prices, this high-profit, high-demand environment has encouraged miners to skirt regulations.

Some companies had already been targeted for infringements, including incidents of pollution, over the past year. This is a much wider crackdown, and involves officials from central government departments including the Ministry of Natural Resources.

Yucai added that Beijing will mainly look at violations at lithium mines and seek to guide the “healthy development” of the industry; they will largely target those mining without permits or with expired licenses.

Curiously, a recent Goldman report found that the Chinese car industry’s demand for lithium has fallen by more than half in recent months, a dramatic reversal that will drive a further slump in the market. Meanwhile, Chinese prices have dropped more than 30% from last year’s peak.

According to calculations form Citic Securities analyst Bai Junfei, a month-long mining halt in Yichun would reduce lithium output by an amount equivalent to around 13% of the world’s total. Rystad Energy, a consultancy, estimated the amount at 8%.

“At present, the market speculation is that the probe may stop after the two sessions in China next month,” Rystad’s Zou said, referring to the annual parliamentary meetings due early March.

https://www.zerohedge.com/markets/lithium-industry-reeling-after-china-shutters-10-global-supply

WVa bill would give ex-residents $25,000 in tax credits to move back

 West Virginia’s Senate passed a bill Monday that would give $25,000 in tax credits to former residents who move back to the state to work.

The Senate passed the bill unanimously and sent it to the House of Delegates.

Those eligible for the tax credit had to live and work in West Virginia for at least 10 years or were born in the state. They had to live outside of the state for at least 10 consecutive years prior to 2023.

Unused portions of the credit could be applied to future tax years. The credit would expire in 2029.

State officials have tried other cash enticements in the past few years to try to beef up West Virginia’s sagging population. The Department of Tourism is offering $12,000 cash plus free passes for a host of outdoor adventures to remote workers to move to certain areas of the state.

West Virginia lost a greater percentage of its residents than any other state from 2010 to 2020, when the population dropped 3.2 percent, or about 59,000 people. It’s been such a problem due to long-term declines in the coal, steel and other industries that West Virginia is now the only state with fewer residents than it had in 1950.

https://thehill.com/changing-america/respect/poverty/3876188-wva-bill-would-give-ex-residents-25000-in-tax-credits-to-move-back/

Tesla 'Pauses Full Self-Driving Beta' Amid US Recall

 Tesla published a note on its website explaining the rollout of the $15,000 driver-assistance system (Full Self-Driving Beta) has been "paused" until a new software upgrade can be deployed over the air to address the recent recall of 362,758 vehicles equipped with FSD Beta. 

"Until the software version containing the fix is available, we have paused the rollout of FSD Beta to all who have opted-in but have not yet received a software version containing FSD Beta," Tesla said. 

The pause affected Tesla drivers who bought FSD but were being vetted by Tesla for Beta approval. Also, no new customers can add FSD Beta while Tesla works on an update to address the National Highway Traffic Safety Administration's (NHTSA) recall with certain 2016-2023 Model S, Model X, 2017-2023 Model 3, and 2020-2023 Model Y vehicles. 

Here's what NHTSA said earlier this month about the FSD Beta recall:

The FSD Beta system may allow the vehicle to act unsafe around intersections, such as traveling straight through an intersection while in a turn-only lane, entering a stop sign-controlled intersection without coming to a complete stop, or proceeding into an intersection during a steady yellow traffic signal without due caution.

In addition, the system may respond insufficiently to changes in posted speed limits or not adequately account for the driver's adjustment of the vehicle's speed to exceed posted speed limits.

Tesla notes that FSD Beta has features that signal drivers with "visual and audible warnings" to pay attention to the road. Tesla said:

"The driver is responsible for operation of the vehicle whenever the feature is engaged and must constantly supervise the feature and intervene (e.g., steer, brake or accelerate) as needed to maintain safe operation of the vehicle." 

Tesla also said customers with FSD Beta are not required to take any immediate actions.

As of this morning, Tesla users can still purchase the $15,000 driver-assistance system (but won't be cleared for FSD Beta). 

Is FSD Beta worth it? 

https://www.zerohedge.com/technology/tesla-pauses-full-self-driving-beta-amid-us-recall

Subprime Auto Lender And Used Car Retailer Collapses As Distress Cycle Finally Arrives

 One month ago, when discussing the "perfect storm" hitting the US auto market, we showed that according to Fitch "More Americans Can't Afford Their Car Payments Than During The Peak Of Financial Crisis"...

... which was to be expected: after all the latest consumer credit report from the Fed revealed an exponential spike in the amount of new car loans, which increased by more than $2,000 in one quarter, from just over $38,000 (a record), to $40,155 (a new record).

And yet something just didn't click: if so many subprime Americans were saddled with record amounts of auto loans - on average more than $40K - where were the defaults? After all, the average loan rate for new car loans just hit a 13 year high and will soon rise to the highest level this centiry.

Well, after a lengthy period in which nothing seemed to happen, suddenly the dominoes are starting to fall, and as Bloomberg reports, used car retailer and subprime auto loan lender, American Car Center, told employees the business was closing its doors, just one day after the company had hoped to pull off a funding Hail Mary by selling a $222 million bond (it failed).

According to Bloomberg, the used car retailer, which targets consumers regardless of their credit history (and thus targets almost entirely subprime borrowers who can't get a loan elsewhere), said in an email to employees on Friday the firm was ceasing all operations, closing its headquarters in Memphis, Tennessee, and that all employees would be terminated by the end of the business day, the people said. It employed about 288 people at its headquarters.

The closure email came a day after the company sent another message to staff saying management and advisors had been working with lenders to improve liquidity and continue operations. American Car Center, which has more than 40 dealerships across 10 states, is owned by York Capital's private equity group.

The long overdue collapse - the first of many - comes as more Americans are starting to fall behind on their car payments, and the distress cycle is rapidly accelerating.

Think of it as the infamous New Century domino that signaled the collapse of subprime housing... only for cars.

Just before the announcement, American Car Center shelved a bond deal backed by subprime loans citing market conditions despite investors placing orders for the debt. It wasn't clear why ACC backed down in the last moment as the alternative was liquidation. However, since many more auto subprime lenders will now follow in ACC's footsteps, we are confident the answer will emerge. 

Meanwhile, we can't help but be amused by the mindblowing divergence in Wall Street mental models, where on one hand speculation that used car pries are somehow surging has sent risk assets lower driven by fears of a rebound in inflation (remember that spike in the Manheim used car price index?), while on the other companies like ACC and Carvana are either liquidating or on the verge of doing so, simply because the used car auto segment has completely imploded.

https://www.zerohedge.com/markets/subprime-auto-lender-and-used-car-retailer-collapses-distress-cycle-finally-arrives

DeSantis signs bill placing Disney district under state control

 Disney officially has a “new sheriff in town” after Florida Gov. Ron DeSantis signed a bill Monday that placed the Mouse House’s special tax district under state control.

The Republican-backed bill rebrands Disney’s self-governed Reedy Creek Improvement District as the “Central Florida Tourism Oversight District.”

DeSantis gained the authority to appoint the members of a five-person oversight board for the special district — a power that Disney formerly held.

“Today the corporate kingdom finally comes to an end,” DeSantis said at the bill-signing ceremony. “There’s a new sheriff in town, and accountability will be the order of the day.”

Disney will be required to comply with state regulations within the district, where it had previously operated with near-autonomy for decades. The finalized bill keeps the district intact after DeSantis and other Republican officials had initially called for it to be dissolved entirely.

The bill-signing marked the culmination of a months-long feud between DeSantis and Disney after the company and its former CEO Bob Chapek publicly lobbied against Florida’s Parental Rights in Education law, branded by critics as “Don’t Say Gay”, which bars teachers in the state from discussing gender identity or sexual orientation with students below fourth grade.

The Post has reached out to Disney for comment.

The bill left the district’s debt obligations and other financial structures intact. DeSantis vowed at a press conference earlier this month that the changes would not result in any additional tax burden for Floridians.

Disney World will no longer control the special tax district.

Getty Images

The pledge came after some critics had suggested the overhaul would shift Disney’s debt obligations to taxpayers.

“Disney’s going to pay its fair share of taxes and Disney’s going to honor the debt and that’s exactly what this proposed piece of legislation will do,” DeSantis said.

The changes to its special tax district mark another setback for Disney, which is in the midst of a turnaround effort under CEO Bob Iger. The company recently announced a major cost-cutting plan that included 7,000 layoffs.

The Republican-backed bill rebrands the district as the “Central Florida Tourism Oversight District.”

Getty Images
Disney is also facing pushback from its corporate staffers over Iger’s mandate that they return to the office at least four days per week.

https://nypost.com/2023/02/27/florida-gov-desantis-signs-bill-placing-disney-district-under-state-control/