Aurelia Butler

Rosenthal, one of Germany’s oldest porcelain manufacturers, has seen plenty of disruption in its 140-year history. But nothing has prepared it for this: the threat of a cut-off of natural gas that would bring production of its bone china plates, bowls and vases to an abrupt halt.“We can’t live without gas,” says Mads Ryder, Rosenthal’s chief executive. “We don’t have an alternative energy source.”The war in Ukraine is reordering the global energy landscape. Shocked by the devastation visited on Ukrainian cities by Russian bombs, the EU has imposed swingeing sanctions on Russian hydrocarbons. Coal is banned; oil could be next. Gas may also be on the agenda. But talk of a full-scale embargo on Russian energy is spreading panic in Germany, which until the war received 55 per cent of its imported gas from Russia. The fear is that any sudden gas shut-off could paralyse large parts of the country’s industry. Martin Brudermüller, chief executive of the chemicals group BASF, says it would plunge German business into its “worst crisis since the second world war”.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Rosenthal, a small company with 600 employees near the Czech border, would be profoundly affected. “If the gas is cut off we would have to close down our production within a few days or weeks,” says Ryder. A long closure “would mean the end for some companies in the industry”, which, burdened by high labour and energy costs, is “already fighting for its survival”.It is this fear that explains Germany’s profound opposition to the idea of turning off the Russian gas tap. In early April, Chancellor Olaf Scholz told the Bundestag that Germany’s energy reliance on Russia had “grown over decades and cannot be ended from one day to the next”. All of the country’s big parties agree with him.But that view could become increasingly indefensible as the war in Ukraine progresses. The mounting evidence of war crimes committed by Russian troops in places such as Bucha and the launch of a major new Russian offensive in the eastern Donbas region this week are raising the pressure on all European countries to at least consider a gas import ban — and Germany is no exception.Meanwhile, Germany also faces the risk that Russia could itself retaliate against western sanctions by unilaterally stopping the flow of gas to Europe. Either way, Berlin is facing a scenario unthinkable even a few weeks ago — a gas supply shock that would force it to ration energy to industry and could shutter some of the country’s largest factories.Energy veterans are at a loss. “I’ve seen many disruptions,” says Leonhard Birnbaum, chief executive of German energy group Eon. “I’ve seen the energy transition from zero to, let’s say, full steam. I’ve seen Fukushima . . . I’ve seen turbulent times. But what we are observing right now is . . . unprecedented.”The pressure on Europe feeds off outrage at the vast sums it has been handing over to the Kremlin for its hydrocarbons, even as it prosecutes a war that has claimed thousands of civilian lives and laid waste to Ukrainian towns and cities. Since the war began the EU has forked out more than €35bn for Russian energy supplies, according to Josep Borrell, the EU’s foreign policy chief. His colleague Charles Michel, president of the European Council, said in early April that “sooner or later” the bloc would have to consider banning imports of Russian oil — and even gas.But German businesses insist such an embargo would have catastrophic consequences. Siegfried Russwurm, head of the BDI business association, says a sudden gas import ban would bring whole sectors of industry to a standstill and “massively damage Germany’s greatest strength, also in international conflicts — its economic strength and stability”.In its insistence on a gradual approach, the government has been given cover by some of Germany’s leading economists. A forecast released on April 13 by its top economic institutes said a full EU energy embargo would trigger a sharp recession in Germany, sending output down 2.2 per cent next year and wiping out more than 400,000 jobs.“Germany would forfeit €220bn in economic output in 2022 and 2023, equivalent to 6.5 per cent of gross domestic product,” says Stefan Kooths of the Kiel Institute for the World Economy.Such gloomy predictions come with Germany already looking like the sick man of Europe. Its GDP shrank in the final quarter of last year under pressure from global supply chain bottlenecks and, unlike the US, China, the UK and the overall eurozone, Germany has not rebounded to pre-pandemic output levels. Eon chief Leonhard Birnbaum says of the energy crisis: ‘I’ve seen Fukushima . . . I’ve seen turbulent times. But what we are observing right now is . . .  unprecedented’ © Ina Fassbender/AFP/Getty ImagesBut debate continues to rage over the future of Germany’s gas supplies from Russia. Some analysts and economists say the projected costs of a moratorium, and the difficulty of filling the supply gap, have been overstated. Others think the economic importance of Russian gas should not be policymakers’ sole consideration. Janis Kluge, an expert on eastern Europe at the German Institute for International and Security Affairs, thinks Germany should consider a gas embargo — if only for moral reasons. “By not exerting enough pressure on Moscow in this war, we’re losing political capital in Europe and the west,” he says. “Germany doesn’t seem to realise what huge costs doing too little entails.” The Berlin-Moscow energy axis The gas dilemma goes to the heart of a far wider debate in Germany that revolves around a simple question: how did it come to be so reliant on a country that under Vladimir Putin has morphed into a revisionist dictatorship willing to invade its neighbours and plunge Europe into war?The close energy relationship has its roots in a historic agreement between then West Germany and the Soviet Union in 1970, which saw the Germans pay for Soviet natural gas with exports of steel pipes.“It was a great deal for everybody, including the Soviets,” says Eon’s Birnbaum. “They got their export infrastructure financed from the West . . . and we got cheap gas.”As the relationship bedded in, Russia gained the reputation as a reliable supplier that kept pumping gas even when the Soviet invasion of Afghanistan brought east-west tensions to boiling point. “There was an element of stability . . . at an operational level because of the symbiotic nature of customer and supplier,” says Frank Mastiaux, chief executive of EnBW, Germany’s third-largest energy company.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

As Germany’s energy policy shifted, it grew ever more reliant on Russian gas. Under former chancellor Angela Merkel, Berlin decided to phase out nuclear power in 2011 and later also moved to close all of the country’s remaining coal-fired power stations. Yet with the buildout of renewables stalling, gas as a bridge fuel to a low-carbon future began to loom even larger in the energy mix.“In the last 20 years we have shut down every alternative,” says Birnbaum. “The Germans didn’t want anything . . . no hard coal, no lignite, no nuclear, and all of a sudden we were overdependent [on Russia].”Even as Russia invaded Georgia, intervened in Syria, annexed the Crimean peninsula and fomented a separatist war in eastern Ukraine, Germany continued to expand its energy partnership with Russia.Not only did Merkel’s government back the Nord Stream 2 pipeline to increase the flow of Russian gas pumped directly to Germany across the Baltic Sea, it also stood by as key pieces of Germany’s energy infrastructure were snapped up by Kremlin-controlled companies. One example is the PCK oil refinery in the east German town of Schwedt that is now owned by Rosneft; another, Rehden, western Europe’s largest gas storage facility, is owned by Gazprom. Both acquisitions occurred after Russia invaded Crimea.Meanwhile, Berlin took decisions that locked it into Russian supplies of gas for decades to come, to the exclusion of other sources. The Nord Stream 1 and 2 pipelines destroyed the business case for building import terminals for liquefied natural gas, which would have allowed Germany to diversify its energy inflows.The German politicians seen as having fostered close ties to Russia are now being pilloried. One is Frank-Walter Steinmeier, a former foreign minister in Merkel’s government who is now Germany’s president. He had planned to visit Kyiv last week but was told by Volodymyr Zelensky’s government that he would be unwelcome — a spectacular snub. A worker inspects parts at Rehden, western Europe’s largest gas storage facility, which is owned by Russia’s Gazprom © Joerg Sarbach/APBut the Berlin-Moscow energy axis was in fact the work of successive German governments. And it was driven not just by economic factors — the relative cheapness of Russian gas — but also by the imperative of Wandel durch Handel, or change through trade, the idea that a “growing interdependence would stabilise the Russia-Germany relationship”, says Kluge.“That political narrative took away the fears people might otherwise have had of this lopsided dependence on Russia,” he says.‘Freeze for freedom’Despite its preference for a slow unwinding of this relationship, Germany is now actively preparing for the eventuality of a Russian gas shut-off. After EU states rebuffed Moscow’s demand to be paid in roubles for its gas last month, the German government activated the first of three warning stages in its emergency supply plan, a scheme put in place during the Arab oil embargo of the 1970s. Under its provisions, in the case of acute shortages the German government would eventually nationalise the country’s gas distribution network, ensuring supplies would be reserved for critical infrastructure, such as hospitals, and for households. Industry would be forced to cut back on its gas consumption, though it remains unclear whether small or large companies would be asked to do so first, or by the same measure. Moscow: Vladimir Putin greets Frank-Walter Steinmeier, Germany’s president, who planned to visit Kyiv last week but was told he would be unwelcome © Mikhail Svetlov/Getty ImagesGerman boardrooms are in uproar. Government officials say they have been inundated with letters from industries insisting how “systemically relevant” they are — particularly from the chemicals sector, which feels that the true importance of its core products to the broader economy has not been fully understood. Companies jostling for a place in the rationing queue are hiring lawyers to advocate on their behalf. They point out that while a car assembly line can be idled and then restarted with minimal permanent damage, the same cannot be said of blast furnaces at steel plants or large steam crackers that break down hydrocarbons.As part of the government plan, the Federal Network Agency, the regulator that oversees Germany’s energy infrastructure, has been holding talks with businesses to prepare for “unavoidable shutdowns” should energy supply shortages occur. “Unfortunately we can’t exclude a situation where we have to make decisions that have terrible consequences for companies, jobs, supply chains, whole regions,” Klaus Müller, the agency’s president, told the newspaper Handelsblatt. Already, some companies such as Thyssenkrupp and BASF are drawing up lists of production units they can afford to shut down in an emergency. Some retailers are reducing the temperature in their outlets to cut energy costs. Former German president Joachim Gauck last month called on his compatriots to “freeze for freedom.” Meanwhile, the government is scrambling to find alternatives to Russian gas. Economy minister Robert Habeck, a prominent figure in the Green party, travelled to Qatar last month to secure long-term LNG supplies from the Gulf state. Habeck has optioned three floating storage and regasification units that will provide Germany with 27bn cubic meters of gas a year, and he has also expedited a deal to build a permanent LNG terminal in Brunsbüttel, a port near Hamburg. The PCK oil refinery in the east German town of Schwedt that is now owned by Russia’s Rosneft © Krisztian Bocsi/BloombergMeanwhile, the government is pushing for more wind farms and solar parks to increase its share of renewable power. But it might also allow Germany’s coal-fired power stations, which are slated for closure by 2030, to operate for longer — a bitter pill for the Greens to swallow. Habeck’s ministry says that since Russia invaded Ukraine, the government has reduced its dependence on Russian coal from 50 to 25 per cent, oil from 35 to 25 per cent, and gas from 55 to 40 per cent. The plan is for Germany to all but wean itself off Russian gas by mid-2024 and become “virtually independent” of Russian oil by December. Eon’s Birnbaum, however, says it will take three years for Germany to fully break its addiction to Russian energy imports. Others, though, disagree. According to a report by the DIW think-tank, Germany could easily fill its gas supply gap were Russian exports to stop, partly by increasing pipeline imports from Norway and the Netherlands, tapping more LNG via import terminals in Rotterdam, Zeebrugge and Dunkirk, and forcing industry to conserve energy.“German industry has been developing these horror scenarios, saying we just can’t do without Russian gas, and by doing this they’re taking the whole economy hostage,” says Claudia Kemfert, an energy expert at the DIW. “But we’re living in a different world now . . . We can’t do business with Russia any more and industry has to realise that.”But government officials dismiss suggestions that Germany can somehow make do without Russian gas. “Russian gas imports are still, in our view, irreplaceable,” says one.The costs of a cut-offOpinion is just as mixed about the potential economic impact of an energy embargo, on Germany and the EU. Some leading economists support the government’s gradual approach, warning a sudden, continent-wide supply cut-off could permanently damage the competitiveness of Europe’s economy and even fuel social unrest.“It would be a very asymmetric shock, hitting Germany and Europe very hard, much harder than the US and other parts of the world,” says Marcel Fratzscher, head of the DIW. “There is a risk of a social backlash if we have a long period of much higher prices, company closures and rationing of gas supplies.”A fuel truck passes the Nord Stream 2 pipeline in Lubmin. Nord Stream 1 and 2 destroyed the case for building LNG import terminals, which would have diversified German energy inflows © Krisztian Bocsi/BloombergNot so, says Rüdiger Bachmann, an economics professor at the University of Notre Dame who co-wrote one of several reports after the invasion of Ukraine estimating that ending Russian energy imports would be “manageable” for the German economy. “It is a temporary crisis,” he says. “We can protect jobs with short-time work and support companies with capital injections by the government. We have done this before with Covid. Germany has the fiscal capacity to pay for this.”Veronika Grimm, an economics professor at the University of Erlangen-Nüremberg, who sits on the council of economic experts advising the government, agrees, saying efficiency measures could also reduce gas consumption in the short-term by as much as 15-25 per cent.Such calculations are met with scorn by many German companies, who warn of the chaotic consequences of a sudden shut-off of Russian gas. Rosenthal is an example. It fires its porcelain in kilns that are heated to 1,200C and that temperature must be maintained constantly.“We can’t just reduce our gas consumption a little,” says Ryder. “If we don’t have a constant temperature the porcelain doesn’t fire and starts to break.” He is already working on an emergency plan for the eventuality of a gas supply shortage — but the outlook is bleak. “If we’re cut off slightly, or 100 per cent, we would be able to work on the existing inventory, packaging and finishing the goods, but only for a while. Then we’d have to send our people home.” More

The 19th century French philosopher Auguste Comte got it wrong: demography is not destiny. Population trends are some of the strongest forces in economics, affecting global prosperity, the growth of individual nations and the strength of public finances. But reducing the success of countries and regions to their trends in births, deaths and migration is a simplification too far. As the coronavirus pandemic has shown, the confident predictions in 2020 of a lockdown baby boom followed by the 2021 fear of a Covid baby bust demonstrate that demographic trends are far less stable than often imagined. Small changes in fertility, mortality and migration can have immense effects. As recently as 2014, the official UK government projection was for the country’s population to rise to 85mn by 2080 up from 67mn in 2020, but the most recent iteration with higher death rates and lower birth rates has brought that figure down to only 72mn people.The economics of demography is also easy to diagnose wrongly, especially with often-used comparisons that are typically both simple and misleading. The US economy is frequently said to be more dynamic because the nation is more youthful than Japan. In the 19 years between 2000 and 2019, the US economy grew 46 per cent compared with only 26 per cent in Japan. But the latter achieved its growth rate with a falling working age population and its per capita growth rate for everyone aged between 16 and 64 was 5 per cent higher than that in the US over the same period.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Demographic trends and their relation to economic dynamism are clearly more complicated than some simple statistics suggest. Overall growth rates of middle-income and rich countries are strongly linked to population growth, but living standards are not. Over the next 20 years, some trends are clear. Declines in fertility rates leading to a shrinking natural population in the US, less than one baby born per woman in South Korea and deep concerns about fertility across Europe will make sustained rapid economic growth ever harder to achieve. They will increase the burden of high levels of public and private sector debt for potentially shrinking populations and put pressure on governments to raise taxes to pay for the greater income, health and care needs of the elderly. After 30 years of decline amid China’s achievement of middle-income status, global inequality is also likely to rise again. This will be driven by the fact that the only area with a rapidly growing population is sub-Saharan Africa, the world’s poorest region. UN projections show that roughly one in seven people lived south of the Sahara desert in 2019, a figure projected to rise to one in six by 2030, and to one in three by the end of the century. If the public finance difficulties of richer countries, amid slower growth and greater global inequality, are relatively likely consequences of current global demographic trends, the effect of ageing on global inflation is much disputed. In their book, The Great Demographic Reversal, authors Charles Goodhart and Manoj Pradhan predict a sustained rise in inflation as large numbers of advanced economy residents retire and the era of cheap labour in China comes to an end. Japan’s experience of ageing alongside persistent mild deflation suggests the outcomes will be less certain, especially as ageing societies are not known for rampant consumerism.The world can therefore expect slower growth alongside falling fertility rates in middle and advanced economies, similar income levels per family and uncertain effects on inflation. The gaps between standards of living in rich and poor countries and the growing African population of young people will increase the incentives for migration as inequalities become ever starker. This will generate difficult choices across the world. Richer countries that welcome and successfully integrate migrants will be able to smooth many of the financial pressures of ageing. Others will try to offer financial incentives to increase birth rates, even though they have scant evidence of their effectiveness. Cultural change to make lives easier for parents, especially mothers, will also be needed. Where longevity is rising, later retirement will also become important. Demography is not economic destiny. It is too fickle a variable for that to be true. But neither can it be ignored. As the Swedish economist Knut Wicksell proposed more than a century ago, economics needs to start with demography because it frames the important issues. But wider policies will determine success in the rest of this century. More

War, political tensions and a deteriorating macroeconomic outlook are testing the skills of central banks in Hungary, Poland and Romania. They add up to the region’s third great challenge after the 2008 financial crisis and the transition from communism to a market economy in the 1990s.Month by month, the central banks are raising interest rates to curb inflation pressures that were already rising before Russia’s invasion of Ukraine in February drove up the prices of oil, gas, metals, food and fertilisers. Yet real interest rates remain deep in negative territory, a sign that more hikes will be needed to reduce or anchor inflation expectations.For the central banks, the question is how high and fast to raise rates without harming the post-pandemic economic recovery that was taking shape before February. Unfortunately, some factors that might ease their task lie beyond their control.Hungary, Poland and Romania hope to maintain economic growth with the help of tens of billions of euros from the EU’s €800bn post-Covid recovery fund. But disputes over the rule of law with Brussels mean that Hungary and Poland have yet to receive a cent from the fund, whilst doubts persist about Romania’s ability to absorb EU money efficiently.The region’s central banks need to manage inflation without excessively pushing up debt-servicing costs, Jakob Suwalski and Levon Kameryan of Scope Ratings wrote last week. “Inflation expectations are rising. Currency volatility will persist amid possible capital outflows, putting pressure on foreign exchange reserves even as central banks tighten monetary policy.”Hungary is a case in point. Its central bank raised its base rate by 100 basis points last month to 4.4 per cent, but annual inflation is currently 8.5 per cent. The central bank estimates average inflation this year will be 7.5 per cent to 9.8 per cent.More rate increases are clearly on the way. Peter Virovacz of ING bank sees a chance for a positive real interest rate by the end of this year, which would probably mean 8 per cent or higher. But Hungary’s central bank is not operating in a policy vacuum.Before this month’s parliamentary elections, Hungary’s government wooed voters with lavish social benefit payments, wage settlements and tax cuts. These measures increased Hungary’s budget deficit, which came under more pressure from expenditures related to the Ukraine war.The forint fell in early March to a record low of 400 to the euro. It has stabilised since then, but to reassure investors the government must bring public expenditure under control. Yet spending cuts and sharply higher interest rates, coupled with lack of access to the EU recovery fund, would put the Hungarian economy under considerable strain.Annual Polish inflation hit 11 per cent last month and is expected to average about the same for the whole year. On April 6, its central bank raised its benchmark interest rate by 100 basis points to 4.5 per cent. Adam Antoniak of ING foresees the rate rising to 6.5 per cent this year and 7.5 per cent in 2023.Interest rates may therefore remain negative this year, even as pressure mounts on the fiscal side. The war in Ukraine is generating increased spending on defence and education as well as healthcare and social protection for the more than 2.5mn refugees who had arrived in Poland by early April.Furthermore, the government plans to cut the personal income tax rate to 12 per cent from 17 per cent and introduce other tax benefits. Such measures make the task of managing inflation expectations especially urgent. Adam Glapinski, the central bank governor, rightly points to the Polish economy’s strong fundamentals. To protect them, he may raise rates more aggressively than some investors anticipate.Annual Romanian inflation rose to 10.2 per cent in March, but the main interest rate is only 3 per cent despite a 0.5 percentage point increase in early April. Economists expect average inflation this year of around 9 per cent.For the National Bank of Romania, the difficulty is that higher rates seem necessary but economic growth is fading. “A ‘do the least and hope it holds’ strategy seems to have been the tool of choice so far and we have little reason to expect any change in the policy stance,” says Valentin Tataru of ING.Central and eastern Europe’s economies are vulnerable to the fallout from the Ukraine war. To defend them, the region needs central banks willing to tame inflation — but also governments willing to take tough decisions on spending and relations with the [email protected] More

WELLINGTON (Reuters) – New Zealand’s annual consumer price index (CPI) hit a three-decade high in the first quarter, underlining the central bank’s hawkish stance to contain price pressures bubbling in the economy.Annual inflation rose 6.9% from 5.9% in the previous quarter, the fastest rate since a 7.6% annual increase in the year to the June quarter of 1990, Statistics New Zealand said in a statement on ThursdayCPI rose 1.8% in the quarter ending March from a 1.4% rise in the fourth quarter. But the data was below economists’ expectations in a Reuters poll for a 2.0% rise for the quarter, with an annual rise of 7.1%.Rising prices for food, construction and housing is fuelling surging inflation, said Statistics New Zealand.Prices for the construction of new dwellings increased 18% in the March 2022 quarter compared with the March 2021 quarter, the largest increase recorded since the series began in 1985.”Construction firms have been experiencing many supply-chain issues, higher labour costs, and also higher demand, which have pushed up the cost of building a new house,” senior prices manager Aaron Beck said.The kiwi dollar eased 0.4% to $0.6772, from $0.6804 just before the data hit dealing screens. Two-year swap rates dipped as much as six basis points to 3.52% as the market reconsidered the chance of another half-point rate hike.The Reserve Bank of New Zealand, which met last week, has been vocal about its concern around inflation expectations in New Zealand and the need to get out ahead of it. The central bank has increased the cash rate at four consecutive meetings and signalled there will be further increases in coming quarters. More

The UN has asked Sri Lanka to introduce a temporary basic income and negotiate “debt-for-nature” swaps tied to environmental conservation as part of measures to mitigate the country’s economic meltdown, as Colombo begins talks with the IMF.The UN Development Programme made the proposals in a document seen by the Financial Times that was submitted to President Gotabaya Rajapaksa’s government and that will be reviewed by the cabinet that was sworn in this week.Sri Lanka’s lack of foreign exchange has left the debt-laden island of 22mn unable to repay its loans, triggering an economic and political crisis with mass protests over shortages of food, fuel and medicine. Rajapaksa has faced sustained calls to resign.The government, which has about $8bn of debt and interest due this year on usable foreign reserves estimated as low as a few hundred million dollars, has suspended bond payments and begun negotiations for an IMF bailout.A Sri Lankan government delegation travelled to Washington this week to begin talks with the fund over an assistance package expected to include debt restructuring. The UNDP argues that Sri Lanka, which owes about $45bn in long-term debt to creditors that include international bondholders and countries such as India and China, needs immediate financial assistance while the IMF talks are under way. The UN body has asked Sri Lanka to pursue swaps and short-term financing from countries including India, China and Bangladesh to alleviate economic pain ahead of IMF assistance.“The IMF package, if it comes in, that is going to be an austerity package,” Kanni Wignaraja, the UNDP’s Asia director, told the FT. “So the government will have to, and they are considering very much, supporting the most vulnerable households with an immediate social protection flow.”Among the UNDP’s requests is that Rajapaksa’s government introduce a temporary basic income, which would take the form of an unconditional cash transfer to working-age Sri Lankans for a period of about six to nine months. Similar programmes have been implemented in Kenya and the US state of Alaska.“It’s something that has been tried and tested,” Wignaraja said. “There’s obviously a cost to bear, but it has been found to be more efficient than some of these very heavy social protection measures.”The agency has also asked Sri Lanka to pursue bonds or debt swaps linked to environmental and social sustainability, such as debt-for-nature deals in which some loans are forgiven in exchange for investment in environmental conservation.Similar measures have been introduced in countries such as Costa Rica, and Wignaraja argued that Sri Lanka — famed for its beaches, forests and mountains — was well-placed to tap such schemes.

We’re “moving quite aggressively to see if the debt-for-nature swaps can be a big part of [a deal]. We’ve got to reduce our debt burden, not just keep restructuring it,” she said. “Sri Lanka has amazing natural resources that they can put [up] to draw down the debt.”Sri Lanka is Asia’s largest issuer of high-yield debt but was locked out of private markets and rendered unable to refinance after rating downgrades sparked by sharp tax cuts in 2019 and the loss of tourism during the pandemic.Dwindling foreign exchange reserves left the import-dependent island with shortages and severe inflation. Food and fuel prices have doubled while the currency has fallen 60 per cent since it was floated last month.Rajapaksa’s government had for months resisted international calls to restructure or approach the IMF before a U-turn last month triggered by widespread protests followed by the resignation of his cabinet. A protester was killed after police opened fire on crowds in the town of Rambukkana on Tuesday. More

Elon Musk, Tesla chief executive, said that a factory shutdown in China and severe supply chain pressures would put a further brake on the electric carmaker’s headlong growth in the current quarter.However, he stuck to bullish predictions for 2022 as a whole on Wednesday, while claiming that a new, purpose-built robotaxi without a steering wheel or pedals would reach production in 2024 and become a “massive driver of growth” for the company. The comments came as Tesla revealed that it had withstood the worst of the auto industry’s supply chain crisis to generate revenue and earnings above most Wall Street forecasts in the first quarter. The news lifted the company’s shares about 5 per cent in after-market trading, erasing a loss of the same magnitude earlier in the day.Tesla said that a continuing shortage of chips and constraints caused by Covid-19 restrictions had hit production and left it with long waiting lists for new cars, some stretching into next year.Tesla’s Shanghai plant was closed under local rules for a number of days in March, and Musk said that with the plant only now starting to pick up production again, the carmaker’s second-quarter production was likely to be “roughly on par” with the preceding period. That would mark the second quarter in a row of stalled production growth, after an 83 per cent leap in vehicle volumes last year.However, the Tesla chief predicted that a rapid acceleration at new plants in Berlin and Austin would enable the company to overcome bottlenecks and make “over 1.5mn cars this year”, a higher figure than most analysts have been expecting.Tesla has put off production of new vehicles such as its cybertruck until next year in the hope that focusing on existing models would enable it to scale up more quickly at new plants. Musk’s promise of a robotaxi for 2024 added to the spate of vehicles waiting to go into production, some of which are years behind schedule. The timing will also depend on whether Tesla can overcome persistent problems in developing its self-driving software, though Musk has predicted it will finally achieve a breakthrough by the end of this year.Meanwhile, Musk conceded that increases in Tesla’s prices at a time when its profits are hitting records risked looking “unreasonable”. But he said that long waiting lists meant many of the cars being sold would face higher production costs. “This is our best guess,” he said.

Tesla’s revenue in the latest quarter more than doubled from a year before to $18.7bn, or about $1bn more than most analysts’ forecasts, as year-over-year volumes jumped, helping increase some prices to offset higher supply costs. Pro forma earnings of $3.22 were up more than three-fold and topped estimates of $2.26.The results were boosted by $679mn from sales of regulatory credits, more than double the preceding three months. Tesla receives credits from some governments for producing more zero-emission vehicles than it is required to under local regulations, and can sell these to other carmakers that produce too few. It has warned that sales of credits will fluctuate widely and eventually decline.Even without the credit sales, Tesla managed to lift the gross margin from its automotive operations — the best measure of its underlying auto business — to 30 per cent for the first time, up from 29.3 per cent in the final quarter of last year. More