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Exclusive-Tesla halts production at Shanghai plant due to supply issues – sources

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© Reuters. FILE PHOTO: Tesla China-made Model 3 vehicles are seen during a delivery event at the carmaker’s factory in Shanghai, China January 7, 2020. REUTERS/Aly Song

SHANGHAI (Reuters) -Tesla Inc halted production at its Shanghai plant on Monday due to issues with supplies, two people familiar with the matter said.

The suspension comes just three weeks after the U.S. automaker partially resumed production at the Shanghai plant on April 19 following a 22-day closure caused by the city’s COVID-19 lockdown, reflecting the complexity and uncertainties of keeping manufacturing going as China battles the coronavirus.

It is unclear when the supply issues can be resolved and when Tesla (NASDAQ:TSLA) can resume production, said the people, who declined to be identified as the matter is private. Shanghai is now in its sixth week of lockdown.

Among Tesla suppliers facing issues is wire harness maker Aptiv (NYSE:APTV) which had to stop shipping supplies from a plant that supplies Tesla and General Motors (NYSE:GM) after with infections found among its employees, sources said on Monday.

Tesla did not immediately respond to a query for comment.

The company was aiming to increase output at its Shanghai plant to 2,600 cars a day from May 16, Reuters reported previously, as it seeks to restore production to levels before the lockdown.

The disruption to Tesla’s Shanghai plant has been one of the highest profile consequences of China’s measures to control its biggest COVID-19 outbreak, which have also crimped consumption, including vehicle sales.

China’s auto association said last week it estimated auto sales in China dropped 48% in April as zero-COVID lockdowns shut factories, limited traffic to showrooms and put the brakes on spending.

Shanghai authorities have tightened a city-wide lockdown imposed more than a month ago on the commercial hub with a population of 25 million, a move that could extend curbs on movement through the month.

Economy

EU summit unlikely to find solution on Russia oil embargo, von der Leyen says

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© Reuters. FILE PHOTO: Models of oil barrels and a pump jack are seen in front of displayed EU and Russia flag colours in this illustration taken March 8, 2022. REUTERS/Dado Ruvic/Illustration

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DAVOS, Switzerland (Reuters) – European Union leaders are unlikely to strike a deal on an oil embargo against Russia at their summit on Monday and Tuesday, head of the bloc’s executive Ursula von der Leyen said.

“I don’t think the summit is the right place for that… We should not stare at the summit,” she told Reuters on the sidelines of the World Economic Forum in Davos, Switzerland on Tuesday. She added that negotiations with member states were ongoing.

Von der Leyen’s Commission has proposed phasing out Russian oil imports by the end of the year in most EU member states, while Hungary and others could be given more time.

It would be the EU’s harshest sanction yet in response to Moscow’s Feb. 24 invasion of Ukraine.

Hungary, however, has so far refused to lift its veto.

It says hundreds of millions of euros are needed to upgrade its refining and pipeline infrastructure so that it can cut out Russian oil, while a total modernisation of its energy system would cost billions of euros.

Von der Leyen said the negotiations were mainly focusing on working out details now: “I don’t think that this will be a topic at the Council that will be decided there”.

She was echoed by an EU official.

“There is no way that such a technical subject could be negotiated by the heads of state and government at the summit,” the official said.

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Economy

Chanel may limit purchases more in exclusivity drive

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© Reuters. FILE PHOTO: The logo of fashion house Chanel is seen on a store in Paris, France, June 18, 2020. REUTERS/Charles Platiau

By Silvia Aloisi and Mimosa Spencer

PARIS (Reuters) -Chanel could replicate purchase limits on its quilted Classic Flap handbag on other high-end products and in more countries, the French brand told Reuters, as luxury houses tighten their grip on distribution amid soaring demand.

“We have sometimes to limit the number of items a single client can buy,” Chanel’s chief financial officer Philippe Blondiaux said in an interview, when asked about a report on the Pursebop website that it would only allow shoppers to buy two Classic Flaps per year – which can cost $10,000 each.

Blondiaux said the limits, which would not be imposed globally, were aimed at protecting customers and curbing bulk buying.

Analysts say Chanel wants to make its brand even more exclusive, and is also seeking to counter a boom in the resale market for luxury goods.

“It can be implemented on certain product ranges — not only the flap bag — it could impact some items which are in hot demand and fortunately, or unfortunately, there are quite a lot at Chanel, so this is the kind of measure which we could implement in different countries at times,” Blondiaux said.

The company has already been limiting purchases of the famed handbag in South Korea, where long queues can form before dawn outside Seoul department stores as shoppers brace for what’s known as an “open run” – a sprint to Chanel’s doors at opening time.

Some resellers have told Reuters they were hiring “line standers” for up to $125 a day to queue or enter stores on their behalf.

The possible wider use of purchase limits comes amid an industry drive for exclusivity, with Chanel repeatedly hiking prices for its handbags during the pandemic. The group says its aim is also to reduce the price gap between different regions.

After the latest increase in March, the fourth since the start of 2021, some of Chanel’s signature handbags – including the Classic Flap in some cases – now cost up to twice what they did in 2019.

LVMH-owned Louis Vuitton and Kering (EPA:PRTP)’s Gucci have also been increasing prices to protect margins and, more recently, to counter rising costs of transport, logistics and raw materials.

Blondiaux said Chanel could implement further increases in July to account for currency fluctuations – particularly the weakness of the euro – and inflation.

High-end fashion and jewellery brands have so far seen little impact from the rising cost of living, with strong, local demand making up for the lack of global tourism, the industry’s traditional growth driver.

While restricting purchases may cause “short-term frustration” for some customers, they are understanding overall, according to Blondiaux.

The executive also said a 300-euro limit for sales to customers whose main residence is Russia was enforced to comply with international sanctions.

“These sanctions say that you cannot sell an item which could be for use in Russia, whether you sell it to a Russian customer, a French customer or an American customer,” Blondiaux said. “The measures are a reflection of what the law forces us to do, nothing more.”

Angry Russian influencers have been seen on social media cutting up Chanel handbags in protest.

Luxury department store Harrods recently took a similar step, after Britain prohibited the export of luxury goods to Russia with a price tag of over 300 pounds.

Chanel has temporarily closed its 17 boutiques in Russia, but continues to pay employees there and hopes to resume business in the long term, said Blondiaux.

The group says it is confident of another year of solid growth in 2022, despite a decline in sales in China because of a new round of lockdowns since March. Chanel reported revenues of $15.6 billion for 2021, up 49.6% from the previous year.

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Economy

US Business Activity Softens as Inflation Tempers Demand

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(Bloomberg) — US business activity settled back to a four-month low in early May as costs ballooned and high selling prices tempered demand at service providers. 

The S&P Global (NYSE:SPGI) flash May composite purchasing managers index slipped 2.2 points to 53.8, the group reported Tuesday. Readings above 50 indicate growth. A measure of input prices edged up to the highest in data back to 2009, while output price growth slowed from the record pace seen in April.

The group’s gauge of new business at service providers fell to the lowest level since August 2020, indicating some customers are beginning to balk at higher prices. But costs continue to balloon for businesses amid rising wages, interest rates, fuel costs and material prices.

“Companies report that demand is coming under pressure from concerns over the cost of living, higher interest rates and a broader economic slowdown,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

In the euro area, services expanded at a solid pace and manufacturing growth slowed for a fourth straight month. While services activity was buoyed by tourism and recreation, factories were hampered by supply problems related to Russia’s invasion and Covid lockdowns in China.

While at a still-robust 57.5, the S&P Global index of US manufacturing settled back to a three-month low in May. The new orders gauge eased, and production growth cooled.

Order backlogs mounted amid persistent logistics challenges, and manufacturer output prices grew at the third-fastest pace in data back to 2007, though improved somewhat from April.

Meantime, a measure of factory hiring improved to the highest level since July.

“Manufacturers in particular also report that capacity continues to be constrained by supply shortages, though these bottlenecks showed further encouraging signs of easing,” Williamson said.

(Adds graphic)

©2022 Bloomberg L.P.

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