By Tushar Goenka

BENGALURU – Global fund managers maintained a cautious stance in March, increasing recommended bond holdings and cash reserves and suggesting reduced equities exposure, a Reuters poll found.

The March 21-31 survey captured this defensive strategy many fund managers adopted after the Russia-Ukraine war broke out. The February survey was taken partly before Russia’s Feb. 24 invasion but had still hinted at caution.

Recommended equity allocations were lowered to an average of 48.5% of the model global portfolio of 35 fund managers and chief investment officers in the United States, Europe and Japan, the lowest since end-2020. It was at 49.5% in February.

Equity markets have suffered from speculation the U.S. Federal Reserve would hike interest rates more aggressively than previously thought.

But the S&P 500 has staged a quick rebound, up 11% since March 8, its biggest 15-day percentage gain since June 2020 when the market was recovering from a steep sell-off near the start of the COVID-19 pandemic.

In the last month, asset managers increased their cash buffer to 4.5%, from 4.2%, the highest since November 2020.

“Our view is markets are close to pricing in our central scenario, where the Federal Reserve continues on its policy tightening cycle and in turn reduces inflation without causing a significant growth slowdown,” said Craig Hoyda, senior quantitative analyst at abrdn.

“However, we view risks as skewed to the downside, with risks of a global recession within the next two years as 20%-30%.”

The spread between U.S. 2-year and 10-year Treasuries flashed signs of a recession on Tuesday when it briefly inverted before turning positive again.

This inversion, when sustained, has previously been an accurate predictor of recession.

Not all fund managers were as cautious, especially given the increase in inflation to multi-year highs in nearly every major economy.

“In an inflationary environment, equities are the only large and liquid asset class accessible to all that can generate significant real returns,” said Christopher Rossbach, chief investment officer at J. Stern & Co.

(Reporting and Polling by Tushar Goenka, Arsh Mogre in BENGALURU and Fumika Inoue in TOKYO; editing by Barbara Lewis)

By Marcelo Rochabrun

NUEVO ANDOAS, Peru – Peru’s government wants to ramp up oil production in some of its dormant Amazonian fields as global crude prices soar on supply fears linked to Russia’s invasion of Ukraine.

Among the areas prime for a reboot is Block 192, the Andean country’s largest – and leakiest – field. Located deep in the Amazon jungle in northern Peru, the block for decades was one of the country’s leading oil producers.

It’s also the source of extensive ecological damage to the surrounding forest, a big reason pumping ceased two years ago. Oil from hundreds of previous spills still permeates the tropical topsoil, coats native plants and leaks into streams that flow to the mighty Amazon River.

“Here we all live poisoned,” said Pilar Rengifo, a resident of Nuevo Andoas, a hamlet of about 500 residents on the edge of Block 192. In 2016, state-backed testing of 1,138 people in more than three-dozen communities in this oil patch, including Nuevo Andoas, showed that about half had high levels of lead, arsenic and mercury in their bloodstreams, which the government said was likely caused by oil exposure.

Still, Rengifo and other villagers told Reuters they support oil drilling, a source of steady work, and would favor an even stronger push in Lima to bring it back despite the risks.

Surging energy prices have changed the calculus for Peru and countries across Latin America and beyond looking to reduce dependence on foreign oil. Western sanctions on Russia, a major crude exporter, have taken millions of barrels per day out of an already-tight global market. That’s squeezing drivers at the pump, hurting farmers and merchants, and turbo-charging inflation.

Peru imports 80% of its petroleum, gasoline and diesel, a figure President Pedro Castillo is determined to lower. His administration has steered troubled state-owned oil company Petroperu to restart oil production for the first time in decades, though it remains under 1,000 barrels a day. At its peak in 1980, Petroperu’s output was about 200,000 barrels a day, a figure that plummeted amid privatizations that saw the company halt production to focus on refining and distribution.

Castillo is also looking to boost domestic production of natural gas so that the fuel can “reach every home”. Last year he threatened to nationalize the sector but has since softened his tone.

Late last year, former Energy and Mines Minister Eduardo Gonzalez traveled to Houston on behalf of the government to court potential oil investors, whom he declined to name. He showed Reuters a document summarizing his pitch, which looked to reopen drilling in Block 192 and other parts of the Amazon.

“The ideal situation is to be self-sufficient in oil,” he told Reuters.

‘THE WAR THAT AFFECTS EVERYONE’

That’s a wildly ambitious goal for Peru.

The Andean nation produces just 40,000 barrels of oil per day, putting it among the smallest producers in Latin America.

Block 192 could add another 25,000 barrels a day to the country’s output, according to Peru’s Ministry of Energy and Mines.

Because Peru’s oil fields are small and remote, turning a profit is expensive. Indigenous communities angered by spills have often responded by taking over roads, airports or key oil pipelines.

Petroperu, meanwhile, is in turmoil amid graft allegations that led its external auditor to decline to audit its 2021 financial statements. Credit agencies recently downgraded its credit rating to junk. Former CEO Hugo Chavez has denied wrongdoing at the company. Acting CEO Francisco de la Torre told Reuters his top priority is to return the firm to investment grade..

Financing is also an issue. Many western lenders are increasingly reticent to bankroll oil production in the Amazon, whose preservation is seen by climate scientists as critical to combating climate change. Peru’s part of the rainforest is second in size only to that of Brazil.

However, war in Ukraine has put a spotlight on energy security globally. Leaders across resource-rich Latin American are bent on shoring up home-grown supplies.

Ecuador’s President Guillermo Lasso is pushing state-owned Petroecuador to double oil production. Argentina recently launched plans for a major new natural gas pipeline to increase domestic capacity. And its state energy firm YPF aims to double oil output in five years.

Raising output is critical “especially with the global energy crisis resulting from the war that affects everyone,” Argentina’s Secretary of Energy Darío Martínez said on March 21, when he announced that monthly oil production was at an 11-year high of 571,000 barrels per day.

Petroperu’s de la Torre said Block 192 was key for Peru, as is a $5 billion expansion plan for the firm’s Talara refinery.

“The role of Petroperu today acquires much greater relevance than before the war,” he told Reuters. “Prices are in the clouds and there are problems and shortages in the transport of oil to the southern hemisphere, so imports are more expensive.”

BURIED OIL

Block 192, near Peru’s border with Ecuador, is around 512,000 hectares in size, or roughly 5,100 square kilometers, according to government data.

The block’s most recent operators, Argentina’s Pluspetrol and Houston-based Frontera Energy Corp, were both hit by environmental fines linked to oil leaks there in recent years. Pluspetrol pulled out of Block 192 in 2015 after more than a decade there, though the company remains active elsewhere in Peru. Frontera didn’t renew its contract in 2020 after just five years in operation.

Pluspetrol, Frontera, Peru’s environmental regulator OEFA, and its Energy and Mines Ministry declined to comment.

In 2016, Peru’s government designated Block 192 an environmental emergency zone. Since 1997, Peru has seen some 1,000 oil spills, around a quarter of them in Block 192, according to government data compiled by British charity group Oxfam.

Around Nuevo Andoas, the consequences are visible almost everywhere. Reuters traveled to the village in late February, a journey of 639 miles (1,028 kilometers) northeast from the capital.

The news organization witnessed a fresh spill flowing into a river from an abandoned storage facility. Elsewhere, oil dripped from large plastic bags that had been half buried under the soil, part of haphazard mitigation efforts.

Locals told Reuters that oil companies often hired them to clean up leaks, but without providing much training or protective equipment. One of these former workers, Segundo Saavedra, 50, said that throwing a thin layer of dirt over crude-drenched ground was a common practice.

“If you step on it, you’ll see how your foot comes out black with oil,” he said.

Interviews with nearly two dozen residents revealed a community anxious about health and environmental risks, yet supportive of the jobs and income the industry brings.

Villager Rengifo spends much of her time caring for her 11-year-old daughter, Bianca, who cannot walk nor speak. The mother doesn’t know what ails her child because there are no doctors in town.

The mother said life has gotten worse since Frontera pulled out. Her husband, Marcial Garcia, used to ferry cargo and passengers as part of a community-owned transport service. Such work has grown scarce without oil workers coming in and out of the region.

“It was lovely when the oil firm was here,” she said.

‘OUR DAILY BREAD’

Oil extracted from Block 192 travels more than 1,100 kilometers (684 miles) by pipeline to the Talara refinery on Peru’s Pacific coast to be refined into gasoline and diesel.

Meanwhile, Nuevo Andoas lacks even a gas station. Small variety stores peddle liters to the few people who own vehicles.

The dearth of fuel in an oil town is symbolic of the struggles of resource-rich Peru to lift its poorest citizens. Residents near the country’s prolific copper mines – Peru is the world’s No. 2 producer – have long agitated for a bigger share of this mineral wealth.

In Nuevo Andoas, nurse Augusto Acosta, the town’s most senior medical practitioner, has worked at the lone clinic for 15 years. He said medicines were donated by oil companies, resources that have dwindled since those firms packed up.

Resident Saavedra said he ended up in that clinic in 2016 after being overcome by fumes while cleaning up an oil spill. Despite the risks, Saavedra wants the oil firms back. He needs the work, which paid some 1,600 soles ($430) a month.

“Oil is how we win our daily bread,” Saavedra said.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Lot 192: Oil Curse https://tmsnrt.rs/3HRORue

Lot 192: Oil Curse (Interactive version) https://tmsnrt.rs/35ZMQin

Peru oil spills https://tmsnrt.rs/3sSFw0Y

Peru oil spills (Interactive version) https://tmsnrt.rs/3Cr0hUk

Oil price spike https://tmsnrt.rs/3wk4JTY

Oil price spike (Interactive version) https://tmsnrt.rs/3uaavFf

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(Reporting by Marcelo Rochabrun in Nuevo Andoas, Peru; Additional reporting by Alessandro Cinque in Neuvo Andoas and Marco Aquino in Lima; Editing by Adam Jourdan and Marla Dickerson)

BRUSSELS – Ryanair expects its loss for the just-ending financial year at around the middle of its forecasted range and is well placed for next year depending on traffic recovery and fares, its chief executive said on Thursday.

Asked on the sidelines of an A4E airlines conference about Ryanair’s loss forecast of 250-450 million euros for the year to March 31, CEO Michael O’Leary told Reuters: “we think we’ll be somewhere in the middle of that range”.

Asked whether the year to end-March 2023 could see a return to pre-pandemic profits around 1.5 billion euros, he said: “There’s a chance but it all depends on pricing. I mean, certainly our costs are reasonably robust for the next 12 months.”

(Reporting by Tim Hepher; editing by Jason Neely)

By Balazs Koranyi

FRANKFURT -Inflation continued to surge across Europe’s biggest economies this month while growth took a hit, leaving households poorer as they picked up the bill for soaring energy costs in the wake of Russia’s shock invasion of Ukraine.

Price growth hit multi-decade highs in Italy, France, Germany and Spain in March, intensifying a policy dilemma for the European Central Bank, which needs to fight the price surge but must also avoid choking off already fading growth.

Inflation in Italy hit 7% while prices in France were up 5.1%, driven by soaring fuel and natural gas prices that typically impact poorer households more than others.

The data, along with sky-high readings from Germany and Spain a day earlier, suggest that Friday’s euro zone reading will be well above 7%, with three to four months still left before a likely peak, according to the ECB.

While most of the surge is due to energy prices, Europe’s labour market is also tighter than it has been for decades, suggesting that underlying price pressures are also starting to build and that wages will follow sooner or later.

Euro zone unemployment fell to a record low 6.8% in February, separate data showed on Thursday, and a further drop is projected by the ECB.

The conflict between Ukraine and Russia, which are both major grains producers, is also likely to push up prices of some staple foods.

“Given the rise in inflation is almost exclusively driven by the supply side, the higher inflation gets, the weaker economic growth will be,” ABN Amro analysts said in a note to clients.

“Indeed, economic growth is likely to disappoint ECB projections,” they added. “The ECB will probably balance these forces by tightening policy modestly.”

ECB Vice President Luis de Guindos acknowledged the deterioration, saying on Thursday that the economy would barely grow in the first half of 2022.

“My impression is that growth in the first quarter of this year … will be slightly positive, we’ll have very low growth,” de Guindos said. “In the second quarter of the year, my impression is that growth will be hovering (around) zero.”

RATE HIKES … OR NOT

Markets are pricing in a combined 60 basis points of hikes this year in the ECB’s deposit rate, now minus 0.50%, which would end a nearly decade long experiment with negative rates.

But market analysts are more cautious and even the most conservative policymakers are not calling for rates to move into positive territory quickly, indicating a disconnect between market pricing and the ECB’s own signals.

ECB Chief Economist Philip Lane, among the doves on the rate-setting Governing Council, even cautioned on Thursday that the war could force the ECB to ease, rather than tighten policy.

“We should also be fully prepared to appropriately revise our monetary policy settings if the energy price shock and the Russia-Ukraine war were to result in a significant deterioration in macroeconomic prospects,” Lane said in a speech, calling for readiness to either ease or tighten policy.

The caution is especially warranted as Germany, the biggest of the 19 euro zone economies, may already be skirting a recession and has started drawing up plans for rationing natural gas in case supplies from Russia are disrupted.

Others added that even if high inflation hurts the consumer and weighs on growth, it is increasingly difficult for the ECB to play it down, so talk of rates hikes are bound to intensify.

“Even though high inflation is a drag on growth, the ECB likely has some pain threshold on the inflation data as well,” JPMorgan’s Greg Fuzesi said.

“The bigger the upside surprises on inflation, the smaller the bar for any improving news from Ukraine to intensify a debate on the interest rate outlook.”

(Reporting by Balazs Koranyi; Editing by Catherine Evans)

(Reuters) -Russia’s finance ministry has paid 50.2 billion roubles ($616 million) in coupons on seven OFZ treasury bond issues, data on its website showed.

The payments come as the finance ministry is due to make a $447 million coupon payment on Thursday on a dollar Eurobond that matures in 2030.

Investors are watching closely Moscow’s servicing of its debt after Western sanctions aimed at isolating Russia economically.

The sanctions have led European clearing houses Euroclear and Clearstream to limit their business with Russian clients. This has left foreign OFZ investors cut off from their rouble bond holdings and local sovereign Eurobond holders, in turn, from interest payments in hard currency.

The National Settlement Depository (NSD), a Russian national clearing house, citing a central bank’s order, said this month that foreign OFZ bond holders are barred from receiving coupon payments until further notice.

NSD, which processes OFZ interest payments on behalf of the finance ministry, did not immediately reply to a Reuters request for information on which investors received the coupon payouts.

OFZs are used by the government to finance some of its budget needs. Before a growing standoff between Moscow and the west made the bonds a risky asset, they were popular with foreign investors thanks to their lucrative yields and Russia’s then-strong economic fundamentals.

The share of foreign investors among OFZ holders declined to 17.8% in February, the lowest since late 2012, from 19.1% a month earlier.

This week, Russia has offered to repay in roubles part of a $2 billion Eurobond that matures on April 4, to secure payments for local investors who may not be able to receive dollars.

Investors declining the rouble offer would be paid in U.S. dollars on April 4 when repayment is due, a source has said.

($1 = 81.5000 roubles)

(Reporting by Reuters)

SHANGHAI -Tesla has cancelled plans to resume production at its Shanghai factory on Friday and Saturday, an internal notice seen by Reuters showed, further delaying reopening of the manufacturing hub for its Model 3 and Model Y cars.

The Shanghai factory, located in the Pudong district east of the city’s Huangpu River, suspended production from Monday to Thursday after the city launched a two-stage lockdown to combat a surge in COVID-19 cases.

The lockdown on districts east of the river is scheduled to lift in the early hours of April 1 and the U.S. automaker initially planned to resume production that day. However, the latest notice seen by Reuters said that it has cancelled production plans for April 1 and April 2.

Two people familiar with the matter said Tesla had yet to secure permits from the Shanghai government for its trucks to deliver assembled electric cars outside of Pudong to western parts of the city.

Shanghai is set to lock down areas west of the river from the early hours of Friday morning.

The company may have also opted to extend the suspension because of a shortage of workers, with lockdowns continuing on some housing compounds, one of the sources said.

Tesla did not immediately respond to a request for comment on its plans to delay resumption of production until after April 2.

It told Reuters earlier on Thursday that it strictly implemented China’s epidemic prevention and control requirements and would adjust its work based on the government’s COVID-19 prevention policies.

(Reporting by Zhang Yan and Brenda GohEditing by Jason Neely and David Goodman)

By Jason Xue and Xie Yu

SHANGHAI/Hong Kong – China’s securities regulator said on Thursday both China and the United States have a willingness to solve their audit disputes, and the outcome depends on the wisdom of both parties.

The China Securities Regulatory Commission (CSRC) said whether Chinese companies listed in the United States are delisted in the future depends on the progress and results of the audit and regulatory cooperation between the two countries.

This came as the U.S. Securities and Exchange Commission (SEC) on Wednesday added five companies, including iQIYI Inc and Baidu Inc, into the latest batch of stocks facing delisting risks from the United States.

Baidu and its streaming affiliate iQIYI said on Thursday they have been actively exploring possible solutions, and they will continue to comply with applicable laws and regulations in both China and the United States.

The CSRC chairman Yi Huiman and his counterpart, U.S. Securities and Exchange Commission chair Gary Gensler, have held three virtual meetings since last August to discuss a resolution for the legacy issues in coordinated audit of companies, said a statement issued on CSRC’s website.

China has also held multiple rounds of frank, professional and productive meetings with the Public Company Accounting Oversight Board, the statement said.

The process is smooth in general and will continue. Both sides are willing to solve the disagreements and problems. “But the outcome will depend on wisdom and the original will of both sides,” it said.

The statement came after Gensler pushed back speculation of an imminent deal to be reached between the two sides that would avoid any trading suspension of around 200 Chinese companies listed in the United States.

Gensler said U.S. law gives him little room for compromise, during an interview with Bloomberg on Tuesday, and said the result of the negotiations is “up to the Chinese authorities”.

The long-running Sino-U.S. audit stand-off has put hundreds of billions of dollars of U.S. investments in Chinese companies at stake.

Washington is demanding complete access to the audit papers for U.S.-listed Chinese companies but Beijing bars foreign inspection of local accounting firms’ work.

In December, the U.S. SEC finalised rules to delist Chinese companies under the Holding Foreign Companies Accountable Act (HFCAA), and said it had identified 273 companies that were at risk, without naming them.

By Thursday, 11 U.S. listed Chinese companies had been identified by the U.S. regulator as carrying risks under the HFCAA.

“The U.S. side has made a case that it is treating everybody equally with its Holding Foreign Companies Accountable Act. And it is becoming increasingly clear that China is unlikely to ask for an exception,” said Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co.

Hong Kong shares of Baidu closed down 3.2% on Thursday, while the Hang Seng Tech Index lost 1.4%.

(Reporting by Shanghai Newsroom; Editing by Jacqueline Wong and Raju Gopalakrishnan)

By Leika Kihara and Junko Fujita

TOKYO – Japan’s central bank on Thursday pledged to ramp up scheduled bond purchases in the second quarter, signalling it will continue to aggressively defend its yield cap against the global tide of higher interest rates.

In a closely-watched bond buying schedule for April-June, the Bank of Japan (BOJ) said it will increase purchases for government bonds across the yield curve compared with the current quarter.

The announcement came after the BOJ maintained its offer to buy unlimited amounts of 10-year Japanese government bonds (JGB) at a fixed rate of 0.25% for four straight days this week.

“We decided to increase bond purchases for a wide range of durations, from short- to super-long zones, as the yield curve remained under upward pressure,” a BOJ official told Reuters.

The 10-year JGB yield fell half a basis point to 0.210%, after rising to as high as 0.225% on Thursday.

Longer-term yields retreated sharply, with those for 20-year JGBs falling 9.5 basis points to a two-year low of 0.670%. The 30-year JGB yield fell 8 basis points to 0.920%.

“The central bank boosted the amount of bonds it would buy by a large margin,” said Ataru Okumura, strategist at SMBC Nikko Securities. “Its stance to defend yield curve control is clear.”

Under its yield curve control (YCC) policy, the BOJ pledges to target the 10-year JGB yield around zero and sets an implicit 0.25% cap around it.

“I think JGB yields will stabilise for now. The problem is what happens to U.S. Treasury yields. If U.S. yields spike, that could put upward pressure on Japanese yields again,” said Hiroshi Ugai, chief Japan economist at JPMorgan Securities.

With the economy still weak and inflation modest compared with Western economies, the BOJ has stressed its resolve to keep monetary policy ultra-loose even as the U.S. Federal Reserve eyes a series of rate hikes.

Prospects of widening U.S.-Japan rate differentials have pushed the yen down by around 8% against the dollar this month.

The yen’s decline has exacerbated the rise in cost of fuel and raw material imports triggered by Russia’s invasion of Ukraine.

Japan’s top currency diplomat Masato Kanda on Tuesday hardened his language on sharp yen declines, saying Tokyo and Washington were closely communicating on currency issues.

But Rintaro Tamaki, a former top currency diplomat, said the yen’s weakening was driven partly by Japan’s ultra-low rates and not too far out of line with economic fundamentals.

“The yen is still moving with a range it has been boxed in since 2013, so it can’t be said that (its recent declines) are a sharp deviation from fundamentals,” he told Reuters.

(Reporting by Leika Kihara and Junko Fujita, Additional reporting by Takahiko Wada, Kantaro Komiya, Daniel Leussink and Tetsushi Kajimoto; Editing by Shri Navaratnam, Simon Cameron-Moore and Tomasz Janowski)

By Giulio Piovaccari

TURIN -A Stellantis van plant in Russia will have to close shortly as it is running out of parts, the company’s chief executive Carlos Tavares said on Thursday.

The world’s fourth largest carmaker has previously said it had suspended all exports and imports of vehicles with Russia, where it operates a van-making plant in the city of Kaluga, in partnership with Mitsubishi.

Production in Kaluga remains for the local market at the moment, following last month’s Russian invasion of Ukraine.

Speaking at a news conference, Tavares did not say whether the company was considering a writedown of the value of Kaluga or feared it could be seized by Moscow if operations halted.

Stellantis earlier this month presented its first business plan, just over a year after it was formed through the merger of Fiat Chrysler and Peugeot maker PSA.

Tavares said the group’s focus was on executing the plan and it was not looking at major M&A deals.

“We always look at what is in the market, but don’t need M&A, this is very clear,” he said.

SUPPLY CHAIN

Addressing a supply crisis that has hurt the car industry, Tavares said Stellantis expected to be able to source computer chips from Europe and the United States within 3-4 years.

“We will have to find another way to adapt the supply chain, we have several initiatives to create local sourcing of semiconductors,” added Tavares, the head of a company whose brands include Jeep, Maserati, Citroen and Opel.

Tavares said the technology underpinning the shift to electric mobility was not yet finalised, making it hard for automakers to plan and secure future supplies of raw materials.

“We’re moving down the supply chain, we have sealed a deal to secure lithium for instance, but we need to do more,” he said. “What the ending point is for the chemistry of battery cells is not yet clear. When technology is rather definitive, we’ll be able to lock raw material supply through investments, deals, M&A.”

Tavares said carmakers needed to cut the costs of electric vehicles over the next 4-5 years and called on governments to help with the effort.

(Reporting by Giulio PiovaccariWriting by Keith WeirEditing by Gianluca Semeraro and Mark Potter)

By Victoria Waldersee, Jan Schwartz and Nadine Schimroszik

BERLIN – As Tesla kicks off production at its new German plant this month, Volkswagen is weeks away from finalising plans for a 2 billion euro ($2.2 billion) electric vehicle (EV) factory that it hopes will bring it up to speed with its U.S. rival.

Tesla says it can already churn out a Model Y in 10 hours at its new Giga Berlin-Brandenburg factory in Gruenheide near the German capital, whereas it can take Volkswagen three times as long to make its ID.3 electric car.

The German auto giant now aims to slash production times with its “Trinity” EV plant, which should be up and running in 2026, by using techniques such as large die casting and cutting the number of components in its cars by several hundred.

“Our goal is clear: we want to set the standard with our production,” Volkswagen brand production chief Christian Vollmer told Reuters in an interview. “If we can get to 10 hours, we have achieved something big.”

The carmaker has been improving productivity at a rate of about 5% a year but must take bigger leaps to keep its upper hand in the European market, Vollmer said, without providing a new percentage target.

Volkswagen, the world’s second-biggest carmaker behind Japan’s Toyota with a stable of brands from Skoda, Seat and VW to Audi, Porsche and Bentley has a 25% share of the European EV market, ahead of Tesla on 13%.

But the pressure on German carmakers to both master and ramp up EV production has been intensified by Tesla’s presence in the country and Volkswagen Chief Executive Herbert Diess has warned Germans must speed up to avoid getting beaten on their own turf.

‘IGNITED THE DRIVE’

Volkswagen’s goals align with a wider trend in the industry of simplifying product ranges and streamlining production as carmakers scramble to find the cash to fund the electric transition – and keep up with rivals like Tesla that don’t have to juggle making EVs as well as cars with combustion engines.

“Tesla really ignited the drive for reducing part counts and making simpler products,” Evan Horetsky, a partner at McKinsey who was formerly in charge of engineering at Tesla’s new Brandenburg plant, said. “Legacy manufacturers have a more difficult time because they have to maintain current orders.”

A Tesla spokesperson said one of the reasons it can produce its Model Y vehicles in Germany within a 10-hour time frame is because it is uses two giant casting presses, or giga-presses, applying 6,000 tonnes of pressure to make the rear of the car.

Its Gruenheide press shop can produce 17 components in under six minutes. With six more giga-presses on the way, Tesla will soon be making the front of the car with the giga-press too.

“That’s why we’re so fast,” the spokesperson said.

The giga-casting technique that VW plans to adopt was popularised by Tesla as an alternative to the more labour-intensive method of assembling multiple stamped metal panels with crumple zones to absorb energy during a crash.

German luxury carmaker BMW has rejected large castings in the past on the grounds that the higher costs of repair outweigh the lower manufacturing costs.

But advocates say automated driving technology will reduce the frequency of accidents: “Tesla is designing a vehicle that most likely won’t be in a severe crash,” Cory Steuben, president of manufacturing consulting firm Munro & Associates, said.

‘HUMAN-ROBOT COOPERATION’

While VW can produce certain models such as the Tiguan or Polo in 18 and 14 hours in Germany and Spain respectively, its electric ID.3 – made in a factory juggling six models from three Volkswagen brands – still takes 30 hours to put together.

At the Trinity plant, multiple work steps will be condensed into one through automation, shrinking the size of the body shop and reducing the number of jobs requiring uncomfortable physical labour, Vollmer said, dubbing it an expansion of “human-robot cooperation”.

Volkswagen does not plan to have giga-presses at the new plant in Wolfsburg and will instead use the equipment at its factory in Kassel about 160 km (100 miles) away and transport the products by train.

U.S. investment bank JPMorgan predicts that Tesla’s Gruenheide factory will produce about 54,000 cars in 2022, 280,000 in 2023 and then 500,000 by 2025.

Volkswagen, which delivered some 452,000 battery-electric vehicles globally last year, has not yet set an output target for Trinity, which will use its Scalable Systems Platform.

It aims to build 40 million vehicles worldwide on the new platform – which combines multiple internal combustion engine and electric platforms into one – with half of its global output all-electric by 2030.

Tesla, which produced 936,000 cars last year, has said it aims to put 20 million on the road a year by the end of the decade, or roughly double the current annual production of Toyota, the world’s biggest carmaker now.

Still, Tesla can expect numerous challenges as it expands in Germany, from securing more water supplies to environmental groups angry about light pollution and congestion near the plant to unions worried about a management-heavy works council and wages being driven down by workers coming in from elsewhere.

“Starting production is nice, but volume production is the hard part,” Musk told a cheering audience at a festival at the plant site in October 2021. “It will take longer to reach volume production than it took to build the factory.”

($1 = 0.8985 euros)

(Reporting by Victoria Waldersee, Jan Schwartz, Nadine Schimroszik and Hyun Joo Jin; Editing by David Clarke)