This is an audio transcription of the FT press briefing podcast episode: Tesla shines despite production disruptions

Marc Filipino
Hello from the Financial Times. Today is Thursday, July 21, and it’s your FT News Briefing.

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Tesla seems pretty resilient these days. Meanwhile, Italy’s political drama continues and Ukraine gets debt relief. But Sri Lanka’s debt problems add to fears of a wider 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 that its second-quarter revenue was up 42% from a year ago. The electric vehicle maker also announced a nearly 60% increase in adjusted earnings per share. The numbers come despite production disruptions in China due to Covid lockdowns and high costs associated with new factories in Texas and Germany. This is Richard Waters from the FT.

Richard Waters
Tesla is holding up really well in an incredibly difficult time. Not only was its largest factory, which is in Shanghai, closed for much of the quarter due to local Covid restrictions. But it faces the same supply chain pressures as all other manufacturers. Despite all that, there is still, as you say, this kind of massive growth. But, and it’s a big but, you know, there are such high expectations around this company. They basically have to increase production by about 70% in the second half just to catch up with the numbers that people are hoping for, to get back to the kind of 1.5 million shipments that Wall Street is hoping for this year.

Marc Filipino
Well, that sounds like a tall order, Richard. Is it something they can actually do?

Richard Waters
You know, it’s a very difficult climb. And Elon Musk looked unusually cautious, I could feel it. He didn’t throw out any numbers. He made no predictions. You know, he said by the end of the year, he hoped, you know, Tesla’s plans indicate that they should reach full production. But until then, he didn’t crane his neck and say they would achieve that goal. So I think it’s going to be, you know, a couple of really tough slippery quarters ahead.

Marc Filipino
What, if anything, do these Tesla numbers say about the electric vehicle industry more broadly?

Richard Waters
You know, we know the demand is incredibly strong and Tesla orders are coming in next year. Tesla has actually raised prices and I think one of the concerns right now on Wall Street is that as prices go up and the economy looks tougher, you know, are we going to start to see the demand for electric cars weaken? For Tesla, the answer is really no right now. They have 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 inflow. However, you know, they have so much of an overhang here that it doesn’t really matter. Now, for other electric car makers, it could become more of a problem. So, you know, I think we’re now looking at a nervous second half of the year for the industry as a whole.

Marc Filipino
Richard Waters is our West Coast Editor. It covers everything related to technology.

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Ukraine may soon benefit from additional financial relief. A group of foreign government creditors said yesterday they would support Kyiv’s request for a debt moratorium. Ukraine has insisted on paying off its debt since the Russian invasion nearly five months ago. He wants to stay on good terms with international creditors. But in a major reversal, Kyiv pleaded for a moratorium. Government creditors supporting Ukraine’s claim include the United States, Japan and European allies. They said they would suspend August debt service at the end of next year. The group also said it will encourage private bondholders to accept a break in 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 latter was ousted by protesters and had to flee the country. The problem is that the new president, Ranil Wickremesinghe, is the former prime minister and he is so unpopular that there are fears there will be more unrest. Sri Lanka is not the only country facing a debt crisis, however. Other developing countries are also struggling, from Laos to Pakistan to Zambia and Argentina. There is talk of the possibility of a broader emerging market debt crisis. With me is Jonathan Wheatley from the FT. Hi Jonathan.

Jonathan Wheatley
Hello marc.

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

Jonathan Wheatley
It is unlikely that any other country will do exactly the same as Sri Lanka, but other countries have their own problems. But what really highlights all these issues are the multiple crises hitting the world right now. The war in Ukraine, for emerging markets, the strengthening of the dollar and the rise in inflation and interest rates. All of the disruption caused by the pandemic and in many cases continues and the long-term growth malaise of developing countries. And it all comes together like a really nasty toxic mix.

Marc Filipino
So, Jonathan, I admit I’m no economist, but this all sounds really bad. All these emerging markets potentially defaulting on their loans at the same time, we have these recession fears floating around. If a whole bunch of countries go bankrupt or default at the same time, what are we looking at here?

Jonathan Wheatley
Well, fingers crossed. We hope that everything will not collapse at the same time. I think what’s happening right now is a huge number of countries, for example, one thing that people are looking at is how much a country has to pay to borrow. And an indication of this is the yields that the bonds of these countries demand in the secondary markets. There are now more than a dozen developing countries where bonds are trading at levels that suggest to investors that a default is imminent. But really, you have to go country by country and figure out where the problems are. So the pandemic and the war in Ukraine and rising inflation rates are all horrific for many, many countries, but they won’t necessarily tip people into default. Countries that had pre-existing problems will be most at risk.

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

Jonathan Wheatley
Well, these institutions and others like them, the other development banks – right now they are facing multiple crises. And it’s not just the rising dollar, inflation and the war in Ukraine. We have climate change and we have the long-term problems that were there before they happened. Chronically weak growth, underperformance in emerging markets, the fact that they kind of lost their growth mojo over the last decade or so. And these institutions are not used to having to deal with multiple crises in multiple places at once. So it’s a huge pressure.

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

Jonathan Wheatley
Well, the next step is China’s reaction, probably the next one for Sri Lanka. We already know that China has agreed to co-chair the Official Creditors Committee of Zambia’s bilateral lenders. It was a big step, but we don’t know how it will turn out. And we certainly don’t know if China will agree to play a similar role in other creditors’ committees. This is really crucial because before the IMF agrees to an agreement with a country whose debt needs to be restructured, it needs the assurance of that country’s creditors that it will do what is necessary to bring this country to debt sustainability. China has been willing to extend to give borrowers more time. He has been very reluctant in the past to accept a reduction in the amount of money his borrowers owe him. So that’s what everybody’s looking at, really. Will China take a collegial approach or will it continue to reach deals behind closed doors on an individual basis, which it has always done in the past?

Marc Filipino
Jonathan Wheatley is the FT’s emerging markets correspondent. Thank you very much Jonathan.

Jonathan Wheatley
Thanks a lot.

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Marc Filipino
Italian Prime Minister Mario Draghi watched his government collapse yesterday. After fierce debate, members of Draghi’s national unity coalition walked out of parliament and refused to participate in a vote of confidence in his leadership. Draghi had demanded yesterday that the members of his coalition recommit to his reforms. But his bet backfired. Draghi is expected to resign again. He tried last week, but president Sergio Mattarella rejected him. Now, if Mattarella accepts Draghi’s resignation this time around, it would trigger a snap election in Italy and add even more political uncertainty to already turbulent financial markets. You can therefore be sure that Italy will be on the minds of the people at the European Central Bank, which is meeting today.

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Before leaving, the UK is also looking for a new leader. At present, bookies and opinion polls are betting on Foreign Secretary Liz Truss as the favorite to replace Prime Minister Boris Johnson. The other favorite is former Chancellor Rishi Sunak. Truss and Sunak will face off over the next month. The results are expected to be announced in September.

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You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

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This transcript was generated automatically. If by any chance there is an error, please send the details for a correction to: typo@ft.com. We will do our best to make the change as soon as possible.

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