Philippa Kaur

YOU MAY think that if you splashed out $100,000 for a vehicle you would usually take delivery of something pretty flash—a Porsche, say. In fact, many buyers of wheels at that price care less about the badge on the bonnet and more about how much the thing costs to drive and how much weight it can carry. For this is also the price of a large lorry. These commercial vehicles, together with smaller trucks and vans, keep supply chains humming and deliveries moving.They also make lots of money for their makers. In 2023 vans accounted for a third of revenues of €190bn ($207bn) at Stellantis (whose largest shareholder, Exor, part-owns The Economist’s parent company). Ford Pro, the American car giant’s commercial-vehicle arm, made a net profit of $7.2bn on sales of 1.4m units, compared with $7.5bn at Ford Blue, its car division, which sold twice as many vehicles. Daimler Truck, the world’s biggest manufacturer of medium-sized and large lorries, earned revenues of €56bn last year. Lorries made by Volvo and Daimler rake in margins typical of an upmarket carmaker.Given both the already high upfront cost and the attention buyers pay to operating expenses, you might expect commercial vehicles to be ripe for electrification—not least because they are also disproportionately heavy emitters, with lorries and buses contributing over a quarter of the carbon spewed by road transport in the EU. Business buyers value this total cost of ownership more than individual motorists, who may be willing to pay a premium to salve their green conscience. The problem is that for many commercial vehicles, the calculation continues to favour petrol and diesel. Can that change?China, where volts have made the biggest impact, accounted for 85% of global sales of electric heavy-duty lorries (the largest sort) in 2023. Yet that corresponds to just one in 25 such vehicles sold in China; by comparison, one in three new passenger cars there is electric. In Europe the figure is one in 70, and one in seven for passenger cars. When an eu ban on sale of cars with internal combustion engines comes into force in 2035 only three-quarters of lorries could be electric, according to bcg, a consultancy. idTechEx, another consultancy, forecasts that zero-emission lorries will make up 13% of sales in America by 2030, far short of President Joe Biden’s goal for 50% of car sales.Over the next six years electrification is likeliest for smaller vehicles operating over shorter distances, such as last-mile delivery services, reckons Alexander Krug of Arthur D. Little, one more consulting firm. The economics of running smaller electric vans can be compelling. Uwe Hochgeschurtz of Stellantis notes that going electric can both save money and comply with increasingly strict emissions rules in cities. Electric vans that travel relatively short distances over the course of a day but cover lots of miles over a year could have a 10% cost advantage over conventional ones, calculate consultants at McKinsey. Lars Stenqvist, technology chief at Volvo, sees no reason why all cities in Europe should not run electric bin lorries.Batteries can be smaller and vehicles can be recharged overnight at depots. Even where they are not yet cheaper, going electric allows large delivery companies such as FedEx and DHL to help merchants they cater to meet carbon-cutting commitments which many shoppers demand. FedEx has set a target for half its parcel-delivery vehicles to be electric by 2025. dhl wants the same for 60% of its last-mile vehicles by 2030. Amazon has 10,000 electric vans on American roads and hopes to have 100,000 by 2030.The economics are a heavier lift for lorries. Optimists point out that plenty of routes are well within current vehicles’ range. America’s Department of Transportation reckons that the distance travelled by three-quarters of all goods ferried by road in the country in 2023 was less than 250 miles (400km). Volvo calculates that 45% of goods in Europe today travel less than 300km. Marco Liccardo, Mr Stenqvist’s opposite number at Iveco, an Italian commercial-vehicle firm (also part-owned by Exor), expects electric cars to reach total-cost parity with conventional lorries in 200km runs between logistics hubs.Regulators are trying to speed things along. In America, the Environmental Protection Agency has proposed requiring that half of sales of new buses and a quarter of new heavy-duty lorries be all-electric by 2032. Buyers of such clean vehicles can also count on tax credits. The eu is requiring cuts of 15% to the average carbon-dioxide emissions of carmakers’ fleets by 2025 from 2019 levels, and of 43% by 2030.So far this is having little effect. Only a few electric models are on sale. The large and bulky batteries they require drive up the purchase cost. Electric trucks set businesses back between two and three times as much as a diesel one does, and offer limited range. The largest trucks, of which 2m or so were sold worldwide in 2023, are also the most likely to stick with internal combustion. Volvo shifted 6,000 electric ones last year, just 2% of its total.And even if the cost disadvantage can be overcome, that leaves the problem of infrastructure. Van fleets can recharge overnight at depots. Bigger lorries on shorter-haul routes can be charged at either end, while they are loaded or unloaded or drivers rest. Longer-haul routes will require public charging stations. But dedicated fast chargers for lorries require far more power than for cars, plus lots of parking space. The fastest chargers that can top up cars in a few minutes would take around 90 minutes for a lorry. A handful of “megawatt chargers”, which are ten times faster, are already in operation in Germany and the Netherlands.But a Europe-wide charging network would require investments of as much as €36bn, estimates PwC, a consultancy. One to refuel lorries with hydrogen—a zero-emissions alternative to batteries—would not come cheap either. Cash-strapped governments are unlikely to want to foot the bill. On March 12th the Biden administration unveiled a strategy to speed up the building of public infrastructure for freight lorries. But even if it is successful, it will not be built overnight.Another problem stems from the carmakers themselves. Moving more swiftly to an all-electric world would “write off seven or eight years of profit”, says Robert Falck, boss of Einride, a Swedish commercial-vehicle startup. Whereas legacy carmakers were forced into electrification first by Tesla and more recently by cheap but decent Chinese models, the lorry business has so far faced less disruption.Tesla itself has moved more slowly. It unveiled the Semi, its electric lorry, in 2017 but started shipping it only in late 2022. Tesla says it has a fleet of around 100 on the road, many of which are operated by PepsiCo. The carmaker’s plans to produce 50,000 a year by the end of 2024 look wildly optimistic. Nikola, which launched in 2014 and to great fanfare struck a joint venture with Iveco in 2019 to develop zero-emission lorries, has also struggled. Its founder was jailed in 2023 for misleading investors. Since then its market value has crashed from nearly $29bn in 2020 to around $900m today. Last year it sold just 35 hydrogen-fuel-cell vehicles. It has also paused production of its battery lorries. Its joint venture with Iveco was disbanded in 2023.Startups eyeing last-mile delivery vans have had similarly mixed fortunes. As for the upstart EV-makers taking on Tesla, ramping up production and raising capital is proving tough. Lordstown, an American firm, and Volta Trucks of Sweden, have gone bust. Arrival, a British one, is teetering on the brink, despite an order of 10,000 vans from ups, another parcel-delivery giant. Rivian, an American firm which in 2019 signed a deal for 100,000 vans with Amazon, and Canoo, a rival which counts Walmart among its customers, are struggling to make vehicles at scale and are burning cash. Other manufacturers, such as REE and Tevva, which make battery-powered vans and lorries in Britain, or Harbinger and Workhorse, both of which make medium-sized trucks in America, are hopeful but have even further to go.The threat to legacy lorrymakers from China is also far less acute than in the market for passenger cars. As with electric cars, China has stolen a march on everyone else in commercial EVs, thanks to its world-beating battery industry (and strong government incentives). Maxus, a British brand acquired by saic, a Chinese carmaker, is selling vans across Europe; one model was Britain’s best-selling electric van in December. byd, China’s biggest electric-car maker, has exported a handful of large battery-powered lorries to America.But Chinese lorrymakers will find it harder to conquer foreign markets even than Chinese carmakers, which are viewed with suspicion by many Western governments. Europe is more protected against Chinese lorries. One car executive calls its strict regulations for lorries “the equivalent of tariffs”, adding that this makes Chinese commercial EVs uncompetitive on the continent.Mr Falck hopes to shake up the market with a new business model, which he calls “Uber for freight”. Volvo and Iveco are trying to increase the appeal of their electric lorries with a financing deal that sidesteps high upfront costs in favour of customers paying by use. Einride goes a step further, owning its own fleet of vehicles (built by partners and financed by investors) and providing the lugging of goods as a service. The company already operates fleets for Maersk, a shipping giant, ab InBev, a brewer, and Lidl, a supermarket chain. That is an interesting path to electric freight. But it, too, looks long and winding. ■ More

HAS SAUDI ARABIA stopped believing in a bright future for petroleum? That is the question that in recent weeks has hung over Saudi Aramco. The desert kingdom’s national oil goliath has a central position in the world’s oil markets. Its market value of $2trn, five times that of the second-biggest oil firm, ExxonMobil, and its rich valuation relative to profits are predicated in large part on its bountiful reserves of crude and its peerless ability to tap them cheaply and, as oil goes, cleanly (see chart 1). So Saudi Arabia’s energy ministry stunned many industry-watchers in January by suspending the firm’s long-trumpeted and costly plans for expanding oil-production capacity from 12m to 13m barrels per day (b/d). Was it proof that even the kingpin of oil had finally accepted that oil demand would soon peak and then begin to decline?image: The EconomistTo get a hint of Aramco’s answer, all eyes turned to its financial results for 2023, reported on March 10th. No one expected a repeat of the year before, when high oil prices and surging demand propelled Aramco’s annual net profit to $161bn, the highest ever for any listed firm anywhere. But analysts and investors were still keenly interested in the extent of the decline in the company’s revenue and profit, in any changes to its capital-spending plans and, possibly, in the unveiling of an all-new strategy.In the event, profits did fall sharply, from $161bn in 2022 to $121bn last year, though that was still the second-best performance in the company’s history. Thanks to a recently introduced special dividend, Aramco paid nearly $100bn to shareholders last year, 30% more than amid the bonanza of 2022. It also promised to hand over even more in 2024.Shovelling a larger chunk of a smaller haul to owners could, on its own, imply that the company is indeed less gung-ho about its oily future. Except that the rich dividend was accompanied by two developments that point in the opposite direction. First, Aramco is rumoured to be preparing a secondary share offering that could raise perhaps $20bn in the coming months—a move typically associated with expansion rather than contraction. Second, even more tangibly, Aramco is already ramping up capital spending.Its annual results reveal that investments rose from less than $40bn in 2022 to around $50bn last year. In a call with analysts on March 11th Aramco confirmed that the suspension of its planned capacity expansion will save around $40bn in capital spending between now and 2028. But, it added, that does not mean Aramco is not investing. On the contrary, the aim is to spend between $48bn and $58bn in 2025, and maybe more in the few years after that.A bit of that money will go to clean projects such as hydrogen, carbon capture, renewables and other clean-energy technologies. Some will go to cleanish ones, such as expanding Aramco’s natural-gas production by over 60% from its level of 2021 by 2030, and backing liquefied-natural-gas projects abroad. But most is aimed at ensuring that Aramco can maintain its ability to pump up to 12m b/d of crude.image: The EconomistGiven the company’s actual output of around 9m b/d (see chart 2), this does not compromise its ability to move markets. If anything, it strengthens Aramco’s position because it implies spare capacity of 3m b/d—above the company’s historic average of 2m-2.5m b/d, according to Wood Mackenzie, a consultancy. The world’s biggest oil firm is, in other words, committed both to pumping oil and to preserving Saudi Arabia’s role as the market’s swing producer.That is in part because the company is also committed to pumping money into the economic vision for Saudi Arabia championed by Muhammad bin Salman, the kingdom’s crown prince and de facto ruler. This became more evident on March 7th, when Aramco announced the transfer of 8% of its shares, worth $164bn, out of the hands of the government and into the Public Investment Fund (PIF), a vehicle for Saudi sovereign wealth which Prince Muhammad has tasked with diversifying the economy. This leaves the PIF with 16% of Aramco, compared with the 2% or so that is owned by minority shareholders and traded on the Riyadh stock exchange (the rest remains directly in the government’s hands).In light of all this, Saudi Arabia’s plans to suspend the expansion of production capacity do not reflect a U-turn away from hydrocarbons. Rather, the pause is born of a hard-headed assessment of market realities: a surge in oil production in the Americas, soft demand in China and cuts to output from the OPEC cartel (of which Saudi Arabia is the most powerful member). As Amin Nasser, Aramco’s chief executive, summed it up in the results presentation, “Oil and gas will be a key part of the global energy mix for many decades to come, alongside new energy solutions.” And so will Aramco. ■ More

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WEIGHT-LOSS drugs called GLP-1 agonists help users shed fat, and with it the negative health effects of obesity. This can have life-changing effects for the people who take them. It is also increasingly affecting the lives of corporate citizens. Since June 2021, when Wegovy, the first GLP-1 slimming jab, was launched in America, the market value of WW (formerly Weight Watchers) has crashed by 90%. On February 28th Oprah Winfrey announced that she would leave the dieting firm’s board and sell all her shares in order to avoid conflict of interest around her use of GLP-1s. Food giants such as Nestlé are already planning for a future where the drugs dampen demand for sugary snacks. Bosses of consumer-goods firms brought up weight-loss drugs twice as often in the last full set of quarterly earnings calls, in late 2023, as they had in the previous one (see chart 1).image: The EconomistThe drugs’ biggest impact so far, though, has been on their makers. Sales of Wegovy, developed by a Danish firm called Novo Nordisk, swelled from $876m in 2022 to $4.5bn in 2023. The company expects double that this year. Zepbound, introduced in America in November by Eli Lilly, an American pharma giant, is expected to generate $2.9bn in sales in its first full year. Bloomberg, a data provider, predicts that by 2030 yearly sales of weight-loss medications will reach a staggering $80bn, putting them among the biggest classes of drugs in history. Eli Lilly and Novo Nordisk are expected to corner more than 90% of the market (see chart 2).image: The EconomistInvestors’ appetite for the duopoly’s shares has been as insatiable as dieters’ for its products. In the past three years Novo Nordisk’s market capitalisation has expanded more than three-fold, to $560bn, turning it into Europe’s most valuable company. Eli Lilly is worth $740bn, more than twice what it was at the start of 2023 (see chart 3). They are now the world’s two biggest pharma firms by market value. There is excited talk of the industry’s first trillion-dollar company—and the second. To live up to those lofty expectations, however, Eli Lilly and Novo Nordisk must make enough of the drugs to meet demand, widen the pool of patients and fend off a clutch of challengers.image: The EconomistGLP-1 agonists are astonishingly effective and relatively safe. Originally introduced to help diabetic patients by promoting insulin production, they regulate the body’s response to eating and create a feeling of fullness that suppresses appetite. Patients who take them lose more pounds than people on other weight-management plans. In clinical trials users of Wegovy shed about 15% of their body weight on average. Those on Zepbound lost around 20%.Given that 2.7bn people, or 38% of those aged older than five, are obese or overweight, according to the World Obesity Federation, the drugs are also in high demand. Because the injections must be taken weekly rather than just once, the more people start treatment, the faster total demand rises. And it is already rising so fast that Eli Lilly and Novo Nordisk are struggling to meet it.Making the drugs requires two main components: the active ingredient and the “skinny pens” that patients use to inject the medicine. Right now both are hard to find. Neither the Danish firm nor its American rival has explained why they cannot get hold of more of the necessary chemicals, but it is clearly a problem. A shortage of semaglutide, which gives Wegovy its powers, has forced Novo Nordisk to push back the launch of a pill version of Wegovy, which works as well as the shot, is easier to make and less unpleasant to administer, but which requires 20 times the amount of the active ingredient.Making enough of the skinny pens for Wegovy and Zepbound has also been a challenge. These devices are made at specialised “fill-finish” factories. Both Eli Lilly and Novo Nordisk are pouring billions of dollars to boost supply by teaming up with manufacturers or building their own capacity. In November the American firm announced plans to spend $2.5bn to build a new factory in Germany. The same month Novo Nordisk said it would invest $6bn in expanding capacity at its Danish site. In February Novo Nordisk’s parent company agreed to pay $16.5bn for Catalent, a big American manufacturer, to boost production for America’s gargantuan market. Despite these investments, analysts expect demand to outstrip supply for at least a few years.The limited production capacity has helped the companies in one way, by masking another problem. So far only half of the 110m obese Americans have access to the drugs through their health insurance. To hit the rosy revenue forecasts, Eli Lilly and Novo Nordisk need to make their drugs available to a wider group of patients. Medicare, a government health-care programme for the elderly, is prohibited by law from covering weight-loss drugs. Private health insurers are put off by the drugs’ costs. Even though discounts mean they typically pay around 60% of Wegovy’s list price in America of around $16,000 a year, many insurance firms are reluctant to cover an expensive drug that must be taken indefinitely.To bring insurers on board, the two companies are running trials to prove that GLP-1s do more than just help people lose weight. A trial by Novo Nordisk found that Wegovy lowers the risk of major heart problems by 20%. Eli Lilly is conducting a giant trial with 15,000 participants, set to finish in 2027, which studies the effect of tirzepatide, the active ingredient in Zepbound and Mounjaro, a related diabetes medicine, on the overall health and lifespan of obese adults. There is evidence to suggest that GLP-1s also help with conditions such as sleep apnea, chronic kidney disease, Alzheimer’s disease and fatty liver disease. The use of GLP-1 drugs to treat these illnesses has not yet been approved by regulators. But David Risinger of Leerink Partners, an investment bank, believes that as more health benefits emerge, it will become hard for insurers to deny coverage.Eli Lilly and Novo Nordisk may in time deal with their capacity and coverage problems. That still leaves a third challenge: competition. The booming market has unleashed a flood of wannabes, from big pharma to biotechnology startups. Bloomberg estimates that close to 100 candidates for weight-loss drugs are in various stages of development. Most imitators are refining the GLP-1 approach to craft drugs that outdo existing ones by delivering more weight loss or easier use.One idea to boost efficacy is to combine GLP-1 with other agonists. Zepbound already uses one called GIP along with GLP-1 to increase energy expenditure, decrease fat accumulation and reduce nausea. Viking Therapeutics, an American biotech firm, uses a similar cocktail. On February 27th it shared trial data which showed that its anti-obesity medicine helped patients lose more weight even than Zepbound. Viking’s share price more than doubled. A drug in development by Boehringer Ingelheim, a German drug company, and Zealand Pharma, a Danish biotech firm, uses another agonist called Glucagon in combination with GLP-1 to deliver weight loss and fight liver diseases.Other rivals, such as Pfizer, an American drug giant, and Carmot Therapeutics, a biotech firm which in December was scooped up for $2.7bn by Roche, a Swiss behemoth, are focusing their efforts on doing away with needles. Besides being cheaper to make and easier to pop, oral drugs do not need refrigeration like many injectables do. This makes them more suitable than jabs for patients in poorer countries, many of which also face an obesity crisis but lack robust “cold-chain” logistics. Ray Stevens, chief executive of Structure Therapeutics, another biotech firm pursuing oral weight-loss drugs, believes that it is still “early innings”. It will be a while before pharma’s weight-loss winners are decided, he says.The two pioneers do, however, have a head start. The patents for Wegovy and Zepbound expire only in 2032 and 2036, respectively. No rival product is about to go on sale. Developing a new drug takes on average nine years, so even those already in early trials are unlikely to be available before 2027. Most important, the prospect of years of healthy profits has not lulled either Novo Nordisk or Eli Lilly into complacency. On the contrary, the two companies are innovating furiously in order to maintain their edge over potential competitors—and to steal a march over one another.Already Eli Lilly has closed Novo Nordisk’s early lead thanks to Zepbound’s greater efficacy. The American drugmaker’s share price relative to its forecast profits in the coming year is almost twice that of its Danish rival. Novo Nordisk’s fortunes are much more closely bound up with GLP-1 than those of Eli Lilly, which also has money-spinners in cancer and immunology treatments. Novo Nordisk hopes its pill and seven other related drugs in various stages of trials will help it regain its lead. Eli Lilly, for its part, has six drugs in the works, including a promising pill of its own in late-stage trials that if all goes well could be in pharmacies by 2026. Only one of them can be the first to a trillion dollars. But as they race, millions of patients will be the real winners. ■ More

If you think Tim Cook has always led a charmed life at the helm of Apple, think again. The years straight after the death of Steve Jobs in 2011 were a trial by fire. First there was antitrust: America’s Department of Justice (DoJ) sued Apple for conspiring to fix e-book prices. Then there was competition: Samsung, a South Korean rival, went to war with the iPhone with bigger, sleeker models. Then came broader concerns. Apple’s new voice assistant, Siri, made rookie errors. Ditto Apple Maps, which went as far as relocating the Washington Monument to the Potomac River. At the time, the question hanging over the company was existential: could Apple’s creative spark survive the death of its founder? One of Mr Cook’s lieutenants was so miffed at the criticisms that he publicly retorted in 2013: “Can’t innovate anymore, my ass!”A decade or so later, Mr Cook may be having a moment of déjà vu. On all three counts—antitrust, Asian competition, the existential question of innovation and growth—there are parallels between then and now. Competition watchdogs in the EU are demanding compliance by March 7th with rules that for the first time breach the “walled garden” which keeps users and developers bound within Apple‘s playpen. In America the DoJ’s trustbusters may soon launch a case against Apple. In China, Huawei, a domestic mastodon, is seizing market share. Hanging over everything is the nagging concern, amid a levelling off in iPhone sales, that Mr Cook is missing the opportunity to pull another rabbit out of the hat with generative artificial intelligence (gen AI).In short, with its market value down by 10% since mid-December, and Microsoft, thanks to gen AI, vaulting past it to become the world’s most valuable company, sceptics wonder if Apple is now so dominant it has lost its mojo. So jaded is the narrative that many pay little heed to the buzz about the Vision Pro, Apple’s snazzy—though lavishly priced—mixed-reality headset. What hopes they have are pinned on the company’s annual developer conference in June, when they want Mr Cook to announce whizzy gen-AI upgrades proving that Apple can join the chatbot hypefest. That, though, is not how the company does things. Nor should it be.Go back to the threat from Samsung in Mr Cook’s early days. Back then investors pestered Apple to come up with a bigger phone, just as now they want it to match Samsung’s models with gen-AI bells and whistles. But Apple doesn’t rush things. It wasn’t until the launch of the iPhone 6 in 2014 that it produced a large-screen phone. When it came, it was a smash hit. Its modus operandi remains the same. It is rarely first with a product. It seeks to improve what is already out there, learning from others’ mistakes and eventually trouncing the competition. Of course, that poses a risk. In theory, a scrappy upstart may produce new technology products cheaper and faster, pulling the rug from under the market leader. Perhaps a young company building a killer device for the gen-AI era already has Apple in its sights.Yet you do not have to be a true believer to see why Apple may be right to take its time. First, there will be more to gen AI than chatbots. They appear to be a revolutionary technology. But so far they are just a better (and accident-prone) way of putting in a query and getting an answer. That is not Apple’s forte. “They are features, not products,” as Horace Dediu, an expert on Apple, puts it. Nor does Apple compete with other tech giants, such as Microsoft, Amazon and Alphabet, to run cloud-computing platforms with large language models (LLMs) on which other firms can build gen-AI apps. Instead of relying on cloud services, it seems to be working on ways to embed gen AI in its own devices, bolstering its ecosystem. Since 2017 it has been using homemade chip technology called neural engines to handle machine-learning and AI functions that its gadgets use behind the scenes. In late February it emerged that it was scrapping its ten-year project to build an Apple car and redirecting the engineers towards gen AI. No doubt it is moving up a gear—though not from an idle start. Apple will reveal nothing about its intentions. But one of the options it has is hiding in plain sight: the Vision Pro. The most recent gen-AI launches, such as OpenAI’s Sora, which converts text to video, and Groq, which speaks at humanlike speed in response to questions, suggest that eventually something other than written words could be the main gateways to gen AI. The Vision Pro is all about sounds and images.Known unknownsIn the short term none of this will resolve the growth question. In fact, the regulatory onslaught in the EU via the Digital Markets Act, which from this week will apply to big-tech “gatekeepers” including Apple, could potentially crimp its biggest growth engine, services. For the first time Apple will be forced to allow third-party app marketplaces and alternative payment systems outside its App Store on devices in Europe. It has made no secret of its disdain for the rules. It calls them a threat to safety and privacy, and has introduced complex new fees for those who dare bypass its protective walls. Some developers have slammed its compliance measures, but they are likely to work: inertia means that many will probably stick with the status quo. As for a possible DoJ antitrust case, it would be a headache. But its scope is not yet clear.China is a bigger problem with no clear solution. Huawei has become a formidable competitor, though in the long run it may be constrained by an America-led ban on sales to it of high-end chips. However big the geopolitical risks, Apple and China are so co-dependent that they may be stuck with one another.Still, don’t give up on Mr Cook yet. Apple is bound to be working on gen-AI products that do not leave egg on its face—just, as is its way, not in the open. At this stage, the vast sums needed to train AI models favour deep-pocketed incumbents over scrappy upstarts, which will work to Apple’s advantage. You can almost hear Cupertino muttering, “Can’t innovate anymore, my ass!” ■ More