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The electric car industry is growing quickly in China, but so are costs, as covid-related restrictions add to chip and battery shortages, said Freeman Shen, CEO of Chinese electric car start-up WM Motor.
He said the company would raise prices to cope with rising costs, as others are in the industry.
“We have to use this kind of technology (like virtual reality), because if not, the user experience is going to be terrible, and the efficiency is going to be very bad, and we sometimes cannot even get things done,” Shen said.

Freeman H. Shen, Founder, Chairman & CEO of WM Motor, speaks during Fireside Chat on Day 2 of CNBC East Tech West at LN Garden Hotel Nansha Guangzhou on November 28, 2018 in Nansha, Guangzhou, China. 
Dave Zhong/Getty Images for CNBC International

BEIJING — Covid-related restrictions have increased production costs for Chinese electric car start-up WM Motor, even as existing chip and battery shortages are driving up costs, CEO Freeman Shen told CNBC.
“Adding all these things together, this industry is a fast-growing industry, but the cost part of the equation is also going to be a challenge,” Shen, also founder and chairman of WM Motor, said Wednesday.

Sales of new energy vehicles — which include battery-only and hybrid-powered cars — more than doubled last year in China, the world’s largest automobile market. The country has become a hotbed for electric car start-ups and a launch pad for many traditional auto giants making the shift to electric.
China quickly controlled the local spread of the coronavirus in 2020 by imposing swift lockdowns on cities and neighborhoods. But after the emergence of the highly transmissible omicron variant, some analysts started to question whether the costs of the zero-Covid policy now outweigh the benefits.
The impact is already being felt by factories. A Chinese ministry overseeing manufacturing said this month the lockdowns would be a drag on industrial production in the first quarter.
Shen laid out the impact of Covid-related restrictions on his start-up:

A chip manufacturer in Malaysia had production problems and stopped delivering to Bosch China, which then stopped delivering to WM Motor.
Within China, after Covid cases emerged in Nanjing, one of WM Motor’s battery cell suppliers stopped deliveries.
In the last few months, similar disruptions affected two of the company’s suppliers in the Shangyu district of Shaoxing city, near Hangzhou.
Covid-related restrictions on the Ningbo port area also stopped delivery from three suppliers there.

“So, all these things were killing us,” Shen told CNBC.

Automakers around the world have cut production due to a shortage of semiconductors. Geopolitical tensions and overwhelming demand for chips in the wake of the pandemic contributed to a shortfall in supply that has lasted for more than a year.
Shen said he expects the chip shortage to improve in the second half of this year, based on conversations with his start-up’s 11 chip suppliers.

Electric car battery shortage

However, he pointed to another looming problem that could get worse: Rising raw materials costs for batteries.
Battery-grade lithium carbonate prices were up more than 500% year-on-year as of earlier this month, according to S&P Global Platts. The firm’s survey of industry insiders released this week found that 80% of respondents expect those lithium prices to remain high this year — about four times higher than the start of 2021.
The battery shortage will likely worsen as demand for electric cars in China picks up in the second quarter, Shen said. For 2022, he expects electric car sales in the country to nearly double from last year to about 5 million vehicles.
The surge in electric car sales comes despite an overall decline in passenger car sales in the last several months as China’s consumer spending slumped.
WM Motor said it delivered a quarterly record of 15,114 vehicles in the last three months of 2021, bringing cumulative deliveries to 88,686 since the start-up handed over its first car to a customer in 2018.

Read more about electric vehicles from CNBC Pro

Reassessing a Japanese manufacturing model

One of the reasons the pandemic disrupted the supply chain is that factories have historically used a longstanding Japanese model of “just-in-time” or lean manufacturing, in which factories only purchase parts as needed to reduce costs and increase efficiency, Shen pointed out.
But now, the strategy is changing.
“In order to make sure you can deliver your car, you probably will start thinking: We have to waste some of our money to keep some stock,” he said. “For a car company, the biggest loss would be losing the sales to your customer.”
Part of WM Motor’s sales strategy is to work with property developers to open test drive sites in more residential neighborhoods, while building up the cars’ autonomous driving capabilities such as in parking, Shen said.
He said the company will need to raise prices to cope with rising costs, as others in the industry already have.
For one, Tesla raised the price for its Model Y in China by 21,088 yuan ($3,300) in December to 301,840 yuan ($47,450), after subsidies. WM Motor’s cars are about half that price.

Travel restrictions affect business

Economists say China’s Covid-related travel restrictions affect consumer spending more than factories.
Cities frequently change Covid testing requirements for travel, while flights and train tickets can get cancelled based on newly reported Covid cases.
These restrictions have also affected WM Motor, Shen said. The company has research and development, factory and other business-side operations in Shanghai, Chengdu, Zhejiang province and Hubei province, in addition to about 500 brick-and-mortar stores across the country.

He said the company has had to use more technologies like virtual reality and augmented reality to help employees and customers communicate despite travel restrictions.
“We have to use this kind of technology, because if not, the user experience is going to be terrible, and the efficiency is going to be very bad. And we sometimes cannot even get things done,” Shen said.
Asked if he had any IPO plans, Shen said there was no news to announce on the listing front, and cited the pressing delivery issues.
“Obviously people had a lot of expectation, our investor had a lot of expectation, but we are very busy these days to deliver our product,” he said. “Hopefully we can get something to announce in the near future.”

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Traders work on the floor of the New York Stock Exchange at the opening bell Jan. 25, 2022.
TIMOTHY A. CLARY | AFP | Getty Images

Stock futures fell slightly in overnight trading on Sunday as investors braced for the final trading day in what could be the worst month for the S&P 500 since March 2020.
Dow futures fell about 80 points. S&P 500 futures dipped 0.25% and Nasdaq 100 futures fell 0.35%.

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January has turned out to be a dismal month for stocks. The S&P 500 is headed for its worst month since the pandemic-spurred market turmoil in March 2020 as investors worry about inflation, supply chain issues and the upcoming rate hikes from the Federal Reserve.
The 500-stock average is nearing correction territory, down more than 8% from its intraday high earlier this month. The S&P 500 is down 7% in January.
The Dow Jones Industrial Average is also heading for its worst January since March 2020. The Dow is off by 4.4% this month.
The Nasdaq Composite, which is roughly 15% off its November record close, is headed for its worst month since October 2008 and the worst first month of the year of all time. The technology-focused average is down 12% in January.
Plus, the small-cap benchmark Russell 2000 is in a bear market.

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Last week, the Federal Reserve indicated that it is likely to raise interest rates for the first time in more than three years in order to combat historically high inflation. Markets are now pricing in five quarter-percentage-point interest rate hikes in 2022.
The major averages experienced violent swings last week, with the Dow moving a gut-wrenching 1,000 points in both directions. The Dow ended the week 1.3% higher. The S&P 500 gained 0.8% last week and the Nasdaq was about flat for the week.
“This all kind of results in additional market volatility until investors digest this transition period,” said Michael Arone, chief investment strategist at State Street Global Advisors. “On the other side of this, the economy should continue to expand, earnings are pretty good. That’s enough to sustain markets, but I think they’re adjusting to the shift in monetary policy, fiscal policy and earnings.”
Earnings season continues this week with major reports from Alphabet, Starbucks, Meta Platforms, Amazon and more. About one-third of S&P 500 companies have reported fourth-quarter earnings and 77% have beaten Wall Street’s earnings expectations, according to FactSet.
“Mostly, this week will be all about whether the correction low is already in or whether last Monday’s intra-day low is again challenged and breached,” said Jim Paulsen, Leuthold Group chief investment strategist.  “The longer the S&P stays above last Monday’s low or moves even further away on the upside, the more that calm will return and fundamentals may again start to dominate emotions in driving the market.”
There are also key economic data this week, the most important of which is Friday’s January employment report.
—CNBC’s Patti Domm contributed to this report.

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Robinhood clawed back major losses and gained on Friday as investors looked past disappointing guidance from the company and rallied around progress on new product developments.
First-quarter revenue guidance and its data on monthly active users were the weak spots in its earnings report released Thursday after the bell.
The major Wall Street firms kept their respective ratings on Robinhood following the results.

Baiju Bhatt and Vlad Tenev attend Robinhood Markets IPO Listing Day on July 29, 2021 in New York City.
Cindy Ord | Getty Images

Robinhood clawed back its major losses and gained on Friday as investors looked past disappointing guidance from the company and rallied around progress on new product developments.
Shares of the stock-trading app climbed 9.7% after plunging 14% to $9.94, their low for the day.

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Robinhood’s first-quarter revenue guidance and its data on monthly active users were the weak spots in its earnings report released Thursday after the bell.
The newly public brokerage anticipates first-quarter revenue of less than $340 million, off 35% from the year-earlier period. Wall Street’s consensus estimate was for $448.2 million in revenue, according to FactSet. Plus, monthly active users fell to 17.3 million in the fourth quarter from 18.9 million in the previous period. That number was below Street estimates of 19.8 million, according to FactSet.

The major Wall Street firms kept their respective ratings on Robinhood following the results. However, several firms including Goldman Sachs, JPMorgan and Piper Sandler, lowered their 12-month price targets slightly. Barclays and Deutsche Bank also lowered their targets for the stock.
Most analysts were disappointed with the first-quarter guidance but were hopeful about the launch of fully paid securities lending, the crypto wallet and a top-line boost for monetary tightening.
“Robinhood has been on a tough road recently but we still see plenty to be excited about,” said Devin Ryan, analyst at JMP Securities. “We do think that investors buying the stock today must believe that Robinhood can diversify its business further beyond just a trading offering, but our confidence around that is actually higher heading out of results.”

Shares of Robinhood are trading around $12 per share on Friday, well below its IPO price of $38 from July.
— with reporting from CNBC’s Michael Bloom.

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Logo on an Apple store is seen in Arlington, Virginia, January 27, 2022.
Joshua Roberts | Reuters

Check out the companies making headlines in midday trading.
Apple — Shares of the tech giant jumped 6.98% following a strong quarterly report that showed its largest single quarter in terms of revenue ever. Apple beat analyst estimates for sales in every product category except iPads. Sales grew more than 11% despite supply challenges and the lingering effects of the pandemic.

Robinhood — The stock trading app rose 9.6%, after being down more than 14% earlier in the session. Robinhood gave disappointing first-quarter guidance during its earnings report but also said it is investing heavily in product development.
Visa — The payments giant got a 10.6% jump in its shares after it reported an adjusted quarterly profit of $1.81 per share, which beat estimates by 11 cents. It also reported revenue that beat estimates and topped $7 billion for the first time.
VF Corp — The owner of apparel brands like North Face and Vans saw shares slide 6.5% after cutting its full-year sales forecast in its quarterly earnings report, citing delivery delays and worker shortages. The company beat analysts’ estimates on its quarterly profit and revenue.
Western Digital — Shares of the disk drive maker fell 7.3% despite the company reporting a beat on top- and bottom-line estimates for its latest quarter. It also issued a weaker-than-expected outlook and said supply chain issues prevented it from fully meeting strong demand.
ChargePoint — The EV charging stock surged 10.4% following an upgrade to overweight from JPMorgan. The analysts said in a note that the company still had a long potential growth path ahead and that lack of near-term profits should not be a major concern.

Chevron — Shares declined 3.4% after the energy giant reported weaker-than-expected quarterly earnings, though its revenue exceeded analyst estimates. The company earned $2.56 per share excluding items, while analysts had been expecting $3.12 per share.
Caterpillar — The machinery stock fell 5.1% despite a fourth-quarter report that beat estimates on the top and bottom lines. However, the company’s operating profit margin shrank, reflecting higher costs.
Synchrony — Shares fell 6.7% after the company said it sees an increase from current levels in net charge-offs and delinquencies as part of its quarterly results. The financial services firm reported earnings that were in line with Wall Street forecasts.
Mondelez — The snack maker dipped 1.5% after the company slightly missed earnings estimates, by a penny per share, in its most recent quarterly update. Mondelez said it raised prices during the quarter but that that wasn’t enough to offset increased ingredients and logistics costs.
 — CNBC’s Jesse Pound, Maggie Fitzgerald and Yun Li contributed reporting.

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Visa said during its recent earnings call that customers made $2.5 billion in payments with its crypto-linked cards in its fiscal first quarter of 2022.
“People are using their crypto-linked cards to spend in a variety of ways — retail goods and services, restaurants, travel,” Visa CFO Vasant Prabhu told CNBC in a phone interview.
Visa has started a crypto consulting service and invested in crypto platforms as part of a push for digital currency adoption.

Coinbase launched its own debit card in an effort to promote the use of cryptocurrencies in payments as well as investing.

Visa said during its recent earnings call that customers made $2.5 billion in payments with its crypto-linked cards in its fiscal first quarter of 2022.
That was 70% of the company’s crypto volume for all of fiscal 2021.

“To us, this signals that consumers see utility in having a Visa card linked to an account at a crypto platform. There’s value in being able to access that liquidity, to fund purchases and manage expenses, and to do so instantly and seamlessly,” Visa CFO Vasant Prabhu told CNBC in a phone interview, providing insight as the company reported better-than-expected earnings and revenue after the bell Thursday.
“We will continue to lean into the crypto space and our strategy is to be a key partner to provide the connectivity, scale, consumer value proposition, reliability and security that is needed for crypto offerings to continue to grow,” Visa CEO Al Kelly said on the earnings call, as the stock moved up in after-hours trading and then opened strongly higher Friday.

The payments company also announced its network of crypto wallet partners is growing from 54 to more than 65, including Coinbase, Circle and BlockFi. The number of merchants accepting crypto as payment also grew to almost 100 million.
“Looking at the broad categories of spend, we don’t see the volume concentrated in a specific merchant vertical with these programs. People are using their crypto-linked cards to spend in a variety of ways — retail goods and services, restaurants, travel. They’re increasingly being treated like a general purpose account,” Prabhu told CNBC.
Back in July, Visa reported crypto-linked card usage reached $1 billion for the first six months of 2021.

Mastercard and crypto exchange Gemini plan to launch a card allowing customers to earn cryptocurrency as a reward. But cardholders will not be given direct access to their digital wallet. Gemini, the crypto exchange co-founded by billionaires Cameron and Tyler Winklevoss, expects to make the card available to customers on a waitlist in early 2022, following previous plans to launch over the summer.
Major cryptocurrencies saw their rapid growth slow in the second half of last year. Bitcoin, which hit an all-time high of nearly $69,000 in November, has dropped more than 45% since then.
“We’ve seen this payment volume continue to grow despite volatility in the crypto markets,” Prabhu said, “Crypto rewards are a significant part of the value proposition for many of these card programs, particularly for consumers who are new to crypto who may not be directly investing in it, but are excited for the opportunity to earn it as they spend fiat [currency like the dollar]. We’re watching these programs closely to see how they impact the rewards category as a whole.”
Visa has no plans to hold cryptocurrency on its balance sheet, but it’s created a crypto consulting service and made several recent investments in crypto platforms as it continues to push for adoption of digital currencies.

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The Federal Reserve prefers the Personal Consumption Expenditures Price Index to gauge inflation over others, like the perhaps better-known Consumer Price Index.
That’s largely for two reasons: It has a broader scope and better reflects how consumers change what they buy to account for rising prices.
The PCE Price Index jumped 5.8% in December from a year earlier, tied for the fastest pace since 1982, the Bureau of Economic Analysis said Friday.

Federal Reserve Chairman Jerome Powell speaks during his re-nomination hearing before the Senate Banking, Housing and Urban Affairs Committee on Jan. 11, 2022 in Washington.
Brendan Smialowski-Pool/Getty Images

The Federal Reserve is expected to raise interest rates soon from rock-bottom levels to cool inflation.
The Personal Consumption Expenditures Price Index jumped by 5.8% in December from the year prior, tied for the fastest pace since June 1982, the Bureau of Economic Analysis said Friday.

Fed officials prefer this inflation metric over others as the North Star guiding their policy response. The U.S. central bank uses it to grade whether it’s on track to hit its 2% inflation target, according to economists.
But why is this the preferred gauge?

Broad scope

Like the perhaps-better-known Consumer Price Index, the PCE Price Index reflects the prices Americans are paying for a basket of goods and services, and how those costs change over time.
But the barometers differ in two key ways.
For one, the PCE Price Index has a broader scope than its CPI cousin.

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The latter looks at households’ out-of-pocket costs, while the PCE Price Index examines a broader swath of the cost ecosystem, according to economists.
Take health care, for example: The PCE Price Index accounts for costs incurred by government programs like Medicare and Medicaid, as well as private insurers, where CPI does so just for health costs that directly impact Americans’ wallets, according to Josh Bivens, research director at the Economic Policy Institute.
“The larger scope is one virtue [of the PCE Price Index],” Bivens said.

“When the Fed is looking at inflation, they’re less concerned with what is happening to the living standard of the household; they want to know the macroeconomic inflationary pressure building up,” he added.
The Federal Reserve looks primarily at “core” prices, which strip out volatile food and energy categories. That PCE Price Index gauge jumped 4.9% in December from a year earlier, the biggest gain since September 1983.

Consumer behavior

The PCE Price Index is also more dynamic, economists said. It better reflects how prices affect consumer behavior and how households respond to rising costs.
If beef prices rise significantly, families may instead buy chicken to defray costs, for example.
The CPI does this, too, but much more slowly — about every two years instead of each quarter, Bivens said.

That’s why CPI tends to overstate the rate of inflation — it assumes people buy the same things in years one and two without accounting for substitution bias, according to Marc Goldwein, senior director of policy at the Committee for a Responsible Federal Budget.
Indeed, inflation jumped 7% in December as measured by the CPI, relative to the 5.4% for the PCE Price Index.
“[The CPI] is a bad measure of inflation,” Goldwein said.
Directionally, the indices point in the same general direction, though, he added.

Other factors

Of course, Fed officials don’t just look at one data point when judging interest-rate policy. The PCE Price Index gauge may be most important metric, generally speaking, but the central bank weighs economic data like unemployment rate and labor force participation, too.
“They are looking at as much data as they can absorb to get the best sense of the dynamics of the economy,” Goldwein said.
High and lingering inflation is the result of supply-and-demand dynamics resulting from the pandemic, economists said.
For one, there’s been a surge in consumer demand, especially for physical goods.

“We’ve done all these things juicing demand.

Marc Goldwein
senior director of policy at the Committee for a Responsible Federal Budget

Americans have had a pent-up willingness and ability to spend as they emerge from hibernations at home; government programs like stimulus checks, enhanced unemployment benefits and a student-loan pause also put more cash in their wallets, while interest rates near zero offered cheap access to mortgages and other loans, Goldwein said.
“We’ve done all these things juicing demand,” Goldwein said.
A shift toward more physical goods has also run headlong into supply-chain issues, as manufacturers have grappled with virus-related closures — limiting supply at the same time demand is increasing, Bivens said.
Some economists expect inflation to cool throughout 2022, despite any new Fed policies.

Fed officials expect the PCE Price Index to temper, to 2.5% to 3%, by the end of the year, they estimated in December. (This projection strips out food and energy prices.)
“[Inflation] has lasted longer than people thought,” Bivens said. “[But] it has the seeds of its own deceleration” since high spending on physical goods is unlikely to persist.
“No one buys a new car every year,” he added.

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“There are disturbing echoes of the subprime crash” in the cryptocurrency market, Nobel Prize-winning economist Paul Krugman says.
Krugman argues crypto investors are being sold speculative financial products without truly understanding the risks involved.
Bitcoin and other digital currencies have dropped sharply in recent weeks.

Nobel Prize-winning economist Paul Krugman.
Panayiotis Tzamaros | ullstein bild via Getty Images

Nobel Prize-winning economist Paul Krugman has given an ominous warning about the volatile cryptocurrency market, comparing it to the subprime mortgage crisis of the late 2000s.
In an opinion piece for The New York Times on Thursday, Krugman said he’s “seeing uncomfortable parallels” between crypto and the U.S. subprime crash, which brought the whole housing market to its knees and triggered the 2007-2008 global financial crisis.

“There are disturbing echoes of the subprime crash 15 years ago,” Krugman says in the piece.
The subprime crisis was essentially the result of banks making loans out to people of higher risk, at a time when interest rates were low and house prices were soaring. Once the market became saturated, homeowners found themselves in negative equity unable to repay their loans, resulting in hefty losses for lenders.
Krugman argues crypto investors are similarly being sold speculative financial products without truly understanding the risks involved. It’s worth noting Krugman is a known bitcoin bear, having previously likened the cryptocurrency to a Ponzi scheme.

“Many borrowers didn’t understand what they were getting into,” he said in the NYT op-ed. “And cryptocurrencies, with their huge price fluctuations seemingly unrelated to fundamentals, are about as risky as an asset class can get.”
The Nobel laureate isn’t convinced cryptocurrencies pose a systemic risk, however: “The numbers aren’t big enough to do that.” The entire crypto market is worth roughly $1.7 trillion, according to CoinGecko data.
Bitcoin and other digital currencies have dropped sharply in recent weeks. At a price of just over $37,000, the world’s top coin is currently around 46% off its November record high of nearly $69,000. At the peak, the whole crypto market was worth a combined $3 trillion.

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Check out the companies making headlines before the bell:
Caterpillar (CAT) – Caterpillar earned an adjusted $2.69 per share for the fourth quarter, beating the $2.26 consensus estimate, with revenue also coming in above analyst forecasts. The heavy equipment maker’s sales were up 23% from a year earlier despite supply chain constraints. However, increased costs weighed on Caterpillar’s profit margins and the stock slipped 1.4% in premarket trading.

Chevron (CVX) – Chevron slid 2.8% in the premarket after missing bottom-line estimates for the fourth quarter, although revenue exceeded analyst forecasts. Chevron earned an adjusted $2.56 per share, compared with a $3.12 consensus estimate, despite higher oil and gas prices.
VF Corp. (VFC) – The company behind North Face, Vans and other apparel brands saw its stock fall 2% in premarket trading after it cut its full-year sales forecast due to delivery delays and worker shortages. VF reported better-than-expected profit and revenue for its most recent quarter.
Apple (AAPL) – Apple reported record profit and revenue for its latest quarter, despite supply chain issues that cut into sales. Apple earned $2.10 per share, compared with a $1.89 consensus estimate, and revenue also topped Street forecasts. CEO Tim Cook said those supply chain challenges are showing signs of improvement. Apple shares jumped 3.1% in the premarket.
Visa (V) – Visa beat estimates by 11 cents with an adjusted quarterly profit of $1.81 per share. The payment network’s revenue also beat estimates. Visa was helped by a jump in travel spending and continued growth in e-commerce, with the company seeing quarterly revenue above $7 billion for the first time. Visa rallied 3.6% in premarket trading.
Mondelez (MDLZ) – Mondelez fell a penny short of analyst forecasts with adjusted quarterly earnings of 71 cents per share, though the snack maker’s revenue did beat estimates. Mondelez raised prices during the quarter, but it was not enough to make up for increased costs for ingredients and logistics. Mondelez slid 2.2% in premarket action.

Robinhood (HOOD) – Robinhood slumped 13% in the premarket after warning that current-quarter revenue could fall significantly from a year ago. The trading platform operator reported a quarterly loss of 49 cents per share, 4 cents wider than estimates, although revenue was slightly above analyst forecasts.
Western Digital (WDC) – Western Digital shares plunged 10.4% in premarket trading after the disk drive maker issued a weaker-than-expected outlook, and supply chain issues that prevented it from fully meeting strong demand. Western Digital did beat top and bottom-line estimates for its latest quarter, earning an adjusted $2.30 per share compared with a consensus estimate of $2.13.
3M (MMM) – 3M will appeal a ruling that awarded $110 million to two U.S. Army veterans who said they suffered hearing loss after using 3M’s combat earplugs. 3M has faced multiple lawsuits over allegations that the design of the earplugs is defective. The stock fell 1% in the premarket.
Beazer Homes (BZH) – Beazer Homes jumped 5.1% in premarket trading after beating top and bottom-line estimates for the quarter ending in December. Beazer earned $1.14 per share, well above the 67-cent consensus estimate, and said the housing market continues to see strong demand and limited supply

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