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Tesla stutters under Shanghai lockdown; Beijing keeps hunting COVID

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© Reuters. A worker in a protective suit registers information for people lining up at a makeshift nucleic acid testing site during a mass testing for the coronavirus disease (COVID-19) in Chaoyang district of Beijing, China May 10, 2022. REUTERS/TIngshu Wang

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By David Stanway and Martin Quin Pollard

SHANGHAI/BEIJING (Reuters) – Tesla (NASDAQ:TSLA) operated its Shanghai plant well below capacity on Tuesday, showing the problems factories there face trying to ramp up output under a tightening COVID lockdown, while China’s capital Beijing kept fighting a small, but elusive outbreak.

Many of the hundreds of companies reopening factories in Shanghai in recent weeks have faced challenges getting production lines back up to speed while keeping workers on-site in a “closed loop” system.

Even if they manage to get everything right, such firms depend on suppliers facing similar challenges.

The latest sign of struggle with increasing output under COVID rules came from Tesla’s Shanghai plant, whose resumption three weeks ago received generous coverage in state media as an example of what can still be achieved despite restrictions.

The U.S. automaker has halted most of its production at the plant due to problems securing parts, according to an internal memo seen by Reuters.

Tesla had planned as late as last week to increase output to pre-lockdown levels by next week.

Among Tesla suppliers facing difficulties is wire harness maker Aptiv (NYSE:APTV) after infections were found among its employees, sources said on Monday.

Videos posted online last week showed dozens of workers at Apple (NASDAQ:AAPL) and Tesla supplier Quanta overwhelming hazmat-suited security guards and vaulting over factory gates fearing being trapped inside amid COVID rumours.

COVID curbs in Shanghai, Beijing and dozens of other major population centres and manufacturing hubs across China are taking a heavy toll on the world’s second largest economy, with significant global spillovers on trade and supply chains.

Uncertainty about China’s economic outlook is high, with economists unable to judge with precision when the country could bring COVID under control and for how long and what the final cost is likely to be.

“Growth in China is likely to remain hostage to the course of the pandemic for most of the year,” analysts at Fathom Consulting said in a note.

Chinese markets had another tough day on Tuesday.

Shanghai, a vital centre for commerce, finance and manufacturing for China and beyond with a population of 25 million, was enduring its sixth week of a city-wide lockdown.

The prolonged, ruthlessly-enforced isolation increasingly jars with an outside world which is gradually returning to its pre-COVID way of life, even if cases spread.

China has threatened actions against critics of its “dynamic-zero COVID” policy, which it says aims to “put life first” and prevent the millions of deaths caused by the virus around the globe.

‘CRITICAL PERIOD’

The number of new COVID-19 cases in Shanghai have been falling for almost two weeks, but they remain in the thousands and restrictions were tightening.

“We are still in a critical period of epidemic prevention and control,” said Sun Xiaodong, deputy director of the Municipal Centre for Disease Control.

The city was making what it hoped was a final push to end infections discovered outside areas facing the strictest curbs – the most significant gauge of whether the virus was being brought under control.

While there was no official announcement, many residential compounds received notices that people would no longer be allowed out, having been able to go for brief walks or quick grocery trips previously.

In some cases, entire communities were sent into quarantine over one neighbour testing positive. Many Shanghai residents have to do a rapid antigen test at home, hours before doing the mandatory community PCR test.

Testing is part of daily routine in much of Beijing as well.

The capital has not seen its daily case numbers grow beyond several dozen since its outbreak began on April 22. But it has also found it difficult to bring them down significantly.

So restrictions have gradually tightened.

An area in the southwest of the capital on Monday forbade residents from leaving their neighbourhoods and ordered all activities not related to virus prevention to halt.

Elsewhere, some residents have been told to work from home; dine-in services at restaurants were banned; parks, some malls and other venues were shut; and a significant chunk of public transport routes was suspended.

Economy

Best Buy sees lower TV, computer sales as inflation hits shoppers’ wallets

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© Reuters. FILE PHOTO: A person enters a Best Buy store in Manhattan, New York City, U.S., November 22, 2021. REUTERS/Andrew Kelly

By Uday Sampath Kumar

(Reuters) -Best Buy Co Inc cut its annual profit forecast on Tuesday due to lower demand for TVs and computers, making it the latest major retailer to underline the impact of 40-year high inflation on shoppers’ spending power.

The company’s shares, which fell more than 16% last week in a broader retail selloff, were up about 2%, as the electronics seller reported first-quarter sales that were not as bad as feared.

“We believe investors had anticipated the earnings miss and guidance reduction to a large degree following reports of similar struggles at other retailers,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group.

A spike in prices for everything from toothpaste to gas is taking a toll on consumer spending, while driving companies such as Best Buy, Walmart (NYSE:WMT) Inc and Target Corp (NYSE:TGT) to report their worst earnings miss in at least five years.

“Electronics are highly discretionary, big-ticket items. This puts them directly in the firing line of households looking to trim expenditure,” said Neil Saunders, managing director of GlobalData.

Best Buy reported earnings of $1.57 per share, missing estimates of $1.61, according to Refinitiv IBES data, with the company saying it was forced to discount more than expected in some product categories to clear inventory.

Adjusted earnings forecast for 2023 was cut to a range of $8.40 to $9 per share from a range of $8.85 to $9.15.

Still, even with higher gas and food prices, rising interest rates, and the war in Ukraine all affecting consumer behavior, Best Buy is not currently planning for a full recession, Chief Executive Officer Corie Barry said on an analyst call.

Quarterly comparable sales fell 8%, but beat tempered expectations of a 9.1% drop. It forecast full-year comparable sales to fall 3% to 6% versus its previous outlook of a 1% to 4% drop.

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Economy

EU proposes to make seizing assets easier, including of sanctioned oligarchs -document

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© Reuters. FILE PHOTO: Russian oligarch Roman Abramovich’s super yacht Solaris is seen at Barcelona Port in Barcelona, Spain, March 3, 2022. REUTERS/ Albert Gea

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By Francesco Guarascio and Jan Strupczewski

BRUSSELS (Reuters) – The European Commission wants to make it easier to confiscate assets linked to serious illegal activities and suspected criminals, including those evading European Union sanctions against the Kremlin, according to a draft document seen by Reuters.

The legislative proposal, due to be published on Wednesday and still subject to changes, is aimed at addressing a longstanding weakness in the EU where many states lack sufficiently robust legal frameworks to seize criminal assets, making it easier for criminals to hide their resources and benefit from illegal activities.

The war in Ukraine further exposed this weakness, as many states are struggling to freeze assets of people sanctioned by the EU for their ties to the Kremlin – and many more lack legal powers to confiscate frozen assets.

The legislative proposal would address these weaknesses by creating a common legal framework.

Crimes for which the new rules would apply are terrorism, participation in a criminal organisation, human trafficking, money laundering, and also the violation of EU sanctions, which under a separate proposal, also to be published on Wednesday, would become a crime across the EU.

Asset seizures would generally require a conviction, but under the draft law, they could be allowed pending trial in some cases for suspected criminals, and also when they are “transferred by a suspected or accused person to third parties,” including family members.

Authorities in EU states have said one of the main obstacles they faced in enforcing the sanctions against Moscow was that affected people had their assets registered under somebody else’s name, or transferred them before sanctions were implemented.

“We are working on a European tool to make confiscations possible everywhere in all EU states”, the EU justice commissioner Didier Reynders said while pre-announcing the incoming measures earlier in May. He said one of the ultimate aims was to redistribute proceeds from these confiscations to Ukraine.

To become law, the proposal needs the backing of EU governments, which have traditionally been cautious about reforms that require changes to their criminal laws.

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Economy

Oh Snap! Social media firms sink after bleak warning from Snapchat parent

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© Reuters. FILE PHOTO: A woman stands in front of the logo of Snap Inc on the floor of the New York Stock Exchange (NYSE) in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

By Nivedita Balu and Medha Singh

(Reuters) – Snap Inc (NYSE:SNAP)’s shares plunged nearly 40% on Tuesday after a profit warning from the Snapchat parent signaled tough times ahead for the once-booming digital ad industry, sparking a sector-wide selloff.

The company was on course to erase more than $14 billion in market value, while Meta Platforms, Pinterest (NYSE:PINS), Twitter (NYSE:TWTR) and Google-parent Alphabet (NASDAQ:GOOGL) were altogether set to lose nearly $140 billion if losses hold.

Snap said on Monday it expected to miss quarterly revenue and profits targets that it set just a month earlier and would have to slow hiring and lower spending.

The bleak view from one of the sector’s most known players underlines how the Russia-Ukraine war, surging inflation and rising interest rates are hobbling social media companies at a time when they had just started recovering the impact of changes to Apple (NASDAQ:AAPL)’s iOS operating system.

“Snap is a proxy for online advertising and when you see weakness there then you automatically think Facebook (NASDAQ:FB), Pinterest and Google,” said Dennis Dick, a trader at Bright Trading LLC in Las Vegas.

“Once you start thinking about Google, that’s when the markets starts to sell off.”

Tuesday’s selloff comes days after a Bank of America (NYSE:BAC) fund managers survey indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years.

Analysts also said Snap’s outlook for core profit suggested expenses will outpace its revenue growth, given headcount was up 52% in the prior quarter. The company also faces pressure from TikTok and a shift in ad budgets to Google and Facebook, they added.

“There’s a lot to deal with in the macro environment today,” Chief Executive Officer Evan Spiegel said at a tech conference on Monday.

Graphic: Digital advertising stocks this year – https://graphics.reuters.com/DIGITAL%20ADVERTISING-STOCKS/dwpkrnzogvm/Digital%20advertising%20stocks%20this%20year.png cb55bba9-860d-4771-9546-5eaef7b68cf01

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