Tesla Inc’s chief financial officer will leave the company as the automaker on Wednesday promised cheaper Model 3 sedans, the launch of Chinese production this year and profits in every quarter in 2019.
The departure of Deepak Ahuja as well as missing Wall Street profit targets for the end of 2018, sent Tesla shares down nearly 6 percent after hours. Zach Kirkhorn, Tesla’s vice president of finance, will replace Ahuja, who is about 56 years old.
Chief Executive Elon Musk touted strong demand for the Model 3, as the company begins to ship the car to Europe and Asia from its Fremont, California factory. But he acknowledged it was paramount to cut costs to lower the price of the vehicle for a wider customer base.
“We have to be relentless about costs in order to make affordable cars and not go bankrupt,” said Musk on a conference call with analysts.
While the company expressed optimism that it could post a profit in the first quarter despite fewer deliveries of its flagship S and X vehicles, Tesla warned of challenges such as logistics and global deliveries of its new Model 3.
Tesla said plans to lower the price of the Model 3 were contingent on quickly building its factory in China. It hopes to produce 500,000 vehicles a year there by the last quarter of 2019 and the second quarter of 2020, a goal it originally expected to meet in 2018.
To start, the Shanghai factory will build 3,000 Model 3s per week, while production at Tesla’s Fremont plant will rise to 7,000 Model 3s per week by year’s end, the company estimated.
“Bottom line is we need the Shanghai factory to achieve that 10,000 rate and have the cars be affordable,” Musk told analysts. “The demand for Model 3 is insanely high. The inhibitor is affordability.”
Musk announced a 7 percent workforce reduction earlier this month, saying it was crucial to cut costs to roll out a lower-priced, yet still profitable, Model 3.
The cheapest today is priced at $44,000. Musk gave a “rough guess” that Tesla would begin building its originally promised $35,000 version around the middle of this year.
Roth Capital Partners analyst Craig Irwin called Tesla’s results “somewhat weak, but largely as expected.”
“We think people have been too bullish about Tesla showing earnings power, and sustained positive cash from operations,” he said.
Investors have wondered whether Tesla, which has never posted an annual profit, will seek more capital to fund a planned Model Y SUV, the building of factories in China and Europe, and the expansion of Tesla’s existing Nevada battery plant, the Gigafactory.Slideshow (3 Images)
Tesla said it ended the quarter with $4.3 billion in cash and said it could pay a $920 million convertible bond maturing in March.
“Tesla has a fantastic brand, and by all accounts a fantastic product, but we’re worried it’s also fantastically expensive,” said Nicholas Hyett, Equity Analyst at Hargreaves Lansdown. “2019 could prove a make-or-break year.”
The winding down of a U.S. tax subsidy this year will make all Tesla cars more expensive and could hurt sales.
Tesla said it expected lower S and X deliveries in the first quarter, given a “pull-forward in demand” in 2018 for those vehicles when the full subsidy was still available. Tesla recognizes revenue once a vehicle is delivered.
Apple posts revenue drop but optimistic on China
In the fourth quarter, customer deposits decreased by $113 million from the prior quarter to $793 million. Tesla said it was working through its Model 3 backlog without clarifying further.
Asked about Model 3 reservations, Ahuja said that number was “not relevant.” Tesla last disclosed in May that net Model 3 reservations – accounting for new orders and cancellations – exceeded 450,000.
The company made a net profit of $139.5 million in the three months ended Dec. 31, compared with a $311.5 million in the third quarter, when it benefited from regulatory credits.
Excluding items, Tesla earned $1.93 per share, missing expectations of $2.20 per share, according to IBES data from Refinitiv.
Tesla’s total revenue rose 5.9 percent to $7.23 billion, beating the analyst average estimate of $7.08 billion. -Reuters
-Sonam Rai in Bengaluru and Alexandria Sage
South Africa’s Informal Sector: Why People Get Stuck In Precarious Jobs
South Africa has a jobs crisis. In the fourth quarter of 2018, 6.14 million people were out of work, an unemployment rate of 27.1%, which is one of the highest rates in the world, along with sub-Saharan African countries like Lesotho, Mozambique and Namibia.
South Africa’s labour market has another important distinction. Only about three million people who are working – about 18% of all employed (16.53 million) – are in the informal sector. That’s much lower than other developing countries. For example in India and Ethiopia, up to 50% of those with jobs are employed in the informal sector. The figure is as high as 90% in Ghana and Mali.
There are two schools of thought around the role and value of a country’s informal sector. Some argue that it’s an important alternative to the limited opportunities available in the formal sector; a survivalist strategy that allows those without much formal education to work and earn money. In addition, others argue, the informal sector is also an important space for entrepreneurs.
But there are some who disagree, arguing that employment in the informal sector tends to be poorly paid and precarious. A mere 20% of informal sector employees are hired permanently, compared to 70% of those in the formal sector.
Little is known about how many people transition between the two sectors, a phenomenon called “churning”. Addressing this knowledge gap is important for a number of reasons. These include the fact that informal workers may be spending some time in the formal sector, getting valuable skills and work experience to boost their chances at formal employment, with the hope that they eventually settle permanently in the formal sector, which would be good news.
Conversely, knowing whether there’s a high rate of transition from the formal to the informal sector would be cause for concern because it would suggest high rates of retrenchment and fewer formal job opportunities.
We set out to understand “churning” between South Africa’s formal and informal sectors. To do this we analysed data from the country’s National Income Dynamics Study – a study that was conducted four times between 2008 and 2015 by the Southern Africa Labour and Development Research Unit based at the University of Cape Town’s School of Economics.
We found there was a lot of movement between the informal and formal sectors during these years. But there were very few instances of people making successful, lasting transitions from informal to formal sector employment.
This emphasises South Africa’s skills mismatch. The formal sector requires skills that those in the informal sector simply don’t have. More education and support is necessary to bridge this gap.
Our data were drawn from the National Income Dynamics Survey, which is the first national household panel study in South Africa. It examines the living standards of individuals and households over time.
By analysing data from the four waves of the study we were able to make some key findings about churning, and about the informal sector more broadly. These included:
- Only 8% of those surveyed were inactive (7%) or unemployed (1%) in all four waves – that is, throughout the seven-year period. About 54% were employed in one to three waves, meaning they worked transitorily but not continuously;
- only 3% worked in the informal sector in all four waves;
- only 12% always worked in the formal sector during the seven years under review; and,
- 8% of individuals worked throughout the seven years under review but transitioned between the two sectors.
These results clearly indicate that a high proportion of the labour force participants have been in and out of employment (which is not surprising, given the country’s high unemployment rate), some workers enjoy the privilege of always working in the formal sector, and most importantly, churning between the informal and formal sectors definitely takes place to some extent.
The findings also emphasised how precarious the informal sector is. For instance, 67% of those who started off working in the formal sector in 2008 remained there seven years later. This suggests that for those who initially secured work in the formal sector, retrenchment likelihood is not as high as perhaps anticipated. The retention figure in the informal sector was just 39%. Only 27% of those in the informal sector successfully transitioned to the formal sector.
The country’s many social inequalities were evident in the data. Black women without school leaving certificates aged between 25 and 44 years were most likely to remain in the informal sector. Highly educated white men living in the urban areas of Gauteng and KwaZulu-Natal provinces were most likely to successfully transition from the informal to the formal sector.
Filling the gaps
Given what we’ve learned from this research, how might the government and policy makers deal with those who “churn”?
First, the country’s education system must do more to produce skilled labour in the areas the economy requires. Formal firms could help here, by providing assistance and information on what skills are needed and how to develop these. This implies that strengthening the partnership between industry and universities is important, as this would help those who are able to access higher education.
Those who don’t go on to higher education, or don’t complete their secondary schooling, also need to be helped. The government should more actively provide workshops and specialised assistance to enhance entrepreneurship skills and advise small informal firms on growth strategies. These incentives will assist in their growth, long-term sustainability and successful transition to the formal sector.
In addition, larger, more established formal firms can also play a role by helping to develop and train informal sector workers and providing expert guidance to informal firms. This assistance can be incentivised through tax reductions and the prospects of a larger collective market via the informal sector.
Lastly, the government should continuously alleviate the numerous barriers to the informal economy. These include limited credit and training opportunities, poor infrastructure and the red tape that makes it difficult to start a business.
–Moegammad Faeez Nackerdien Lecturer, University of the Western Cape
–Derek Yu Associate Professor, Economics, University of the Western Cape
SMMEs Meltdowns Continue Because Of Eskom Power Cuts
Small medium and micro enterprises (SMMEs) that are feeling the strain from Eskom’s load-shedding are appealing to the South African government to come up with a solution, because they are forced to shut their doors.
South Africa has been experiencing stage 4 load-shedding from the beginning of March. As a result, power cuts are forcing small businesses to shut their doors as swiping facilities and security cameras do not function.
Johannesburg based Gim Bekele, who owns a clothing store in Randburg, says they are losing a significant number of customers as a result of load-shedding.
“When there is load-shedding we are forced to closed the shop because people can’t come in when it is dark. The cameras are not working as well as the cashier machines,” he says.
“So that means we lose out on a lot of money. On a normal day without load shedding we make above R5,000 but when there is load shedding, it is a struggle to even reach R1,000,” says Bekele.
Bekele says between the loss of customers and an increase in the monthly expenses he can no longer afford to pay his employees.
“I had to let go of two employees because I could no longer afford to pay them. The rent is high, and now we are barely meeting our sales target because of load shedding, how could we continue to pay for their salaries as well?”
“We can’t even afford a generator at this point,” added Bekele.
Another entrepreneur, Shaodong Zhuang who owns a takeaway shop in Randburg says his stock is compromised.
“I usually sell fresh meat and some of my meat gets spoiled and I have to throw it away,” says Zhuang.
I am basically making a small change. Our government is really not good. The people are suffering heavily because they are not running things properly.
Energy expert Adi Nchabeleng says that small businesses should brace themselves because there won’t be any turn around soon, but they could expect to see some form of solution a year from now.
“It is a delayed reaction that caused this whole advent of load-shedding. The current executive and the new democratic dispensation inherited the current dispensation of Eskom years ago and they didn’t do anything with any of power stations. They just used them as they are,” says Nchabeleng.
Nchabeleng says that it is unfortunate that small businesses have to take the heat for poor planning.
“If they do not have enough electricity reserves it means their shops and businesses must be closed. A lot of people are going to be out of jobs… So the impact of load-shedding on businesses is so severe.
“In order for the business to survive, you need to spend R500 ($7,25)-R1,000 ($14,49)daily, just to make sure that the generator has fuel, and I don’t think the government understands the seriousness of this matter,” says Nchabeleng.
“They have not woken up to the reality of what the people go through,” he added.
He advises that in order for small businesses to weather the electricity crises, they need to reduce their expenditure but he does not foresee that as the best solution for employees.
“The usual expenses that the majority of businesses will choose to cut are their staff. They will say ‘when we have load-shedding we don’t need workers.’ We cannot go for that solution, we need to look at a much more different solution in relation to businesses,” says Nchabeleng.
He believes that the South African government should take responsibility for providing SMMEs with assistance.
“I would suggest that the government compensate the losses incurred by small businesses. This is a direct cost problem; this is not something that happened sporadically. The government knew that there was going to be load-shedding, they knew that there was not going to be enough power available,” says Nchabeleng.
Chilling Words From The Man Who Broke The Bank Of England
The multimillion-dollar circus called Davos rolled into the Swiss ski-resort yet again, in January, in all its big deal bombast and bean counting glory. This year, African debate was scant: the man who broke the Bank of England foretold of a broken world laden with fear and doom; there was scary talk of cyber terrorism; just another day, another Davos, for the World Economic Forum.
If you want an example of how the dash of Davos can descend into self-parody, you should have taken a look at the huge banner draped across the posh Belvedere Hotel throughout the World Economic Forum in the mountain ski-resort.
It was on the main street through Davos where thousands of delegates slip and slide to scores of functions – with at least one or two slipping over every day – along a line of shops taken over by big money corporate sponsors.
Much more money is being made elsewhere in this ski-resort: the people who live here go away for the week and let out their homes for a king’s ransom; $30,000 for the week is nothing unusual.
Most people saw an irony in the banner, yet clearly the people who spent a fortune on putting it up there couldn’t have.
“Free trade is great,” says the banner on behalf of Brexit-bound Great Britain.
“Didn’t someone tell them they were about to leave one of the greatest free trade zones in the world?” says one passer-by with a cynical chuckle.
The crack summed up some of the irony that swirls around when cohorts of bean counters, highly-paid administrators and bosses gather in an Alpine icebox to solve the problems of the world.
The bigwigs weren’t there and this year, there was less buzz and fewer queues outside the briefing rooms.
Donald Trump, who made a big splash at Davos last year, stayed at home trying to figure out his government shutdown. The four ‘Ms’ – May, Modi, Macron and Mnangagwa weren’t there either; at least two of them tied up with fighting fires, from Brexit to economic meltdown, in their own backyards.
Empty hot seats, at Davos, at a time when the world is crying out for the wisdom of sage leaders.
Instead, it was left to business leaders, like the Australian-born CEO of billion-dollar turnover infrastructure giant Arup, Greg Hodkinson, to cut to the chase.
“We need clear political leadership in this fractured world… otherwise we are going to get easy political leadership preying on people’s fears,” says Hodkinson at one of the first panels of WEF 2019, on infrastructure.
READ MORE | Why The Richest And Most Powerful Go To Davos
Hodkinson, who has worked in infrastructure for 40 years, also said investment in infrastructure could no longer ignore the future, or the deteriorating environment.
“Carbon should be priced into infrastructure projects and that will act as an economic trigger for private money to come in because not only will it mean more revenue, it will help us put more money into saving the environment,” says Hodkinson.
According to the WEF Global Risks Report for 2018, some of the top risks by impact are posed by the elements: floods and storms; water crisis, plus earthquakes, tsunamis, volcanos and electric storms.
“By 2040, the investment gap in global infrastructure is forecast to reach $18 trillion against a projected requirement of $97 trillion. Against this backdrop, we strongly recommend that businesses develop a climate resilience adaptation strategy and act on it now,” warns Alison Martin, Group Chief Risk Officer, Zurich Insurance Group, in the report.
The money is there, according to Hodkinson, but needs to be channeled with foresight.
“Even if someone is building a car parking garage, I ask what else can they do with it because they won’t need it one day,” says Hodkinson.
“The money is there. Investors sank six trillion dollars into United States junk bonds last year; if investors are prepared to roll the dice on junk bonds, what about infrastructure investment?”
Investors, on this day at Davos, heard that 65% of world infrastructure projects are unbankable without government guarantees. Private money is needed to fill the gaping infrastructure gap, yet negotiations between investor and government officials can prove difficult.
READ MORE | World Bank Sees Global Growth Slowing In 2019
Just ask Heng Swee Keat, the Cambridge-educated finance minister of Singapore, the former Parliamentary Private Secretary to the father of infrastructure on the industrious little island who harnessed private money for public good – the legendary late premier Lee Kuan Yew.
The finance minister warned relationships between public and private sectors could be “lumpy”.
“I remember a man coming to me and saying he was never going to invest in infrastructure in your country again, I asked him ‘why’ and he said, because the last time we invested and made money the government came back to us and asked ‘why are you making so much money’,’’ chuckled Swee Keat.
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