fortune--2020-04-16--The fertility sector braces for a recession

Trump prepares to unveil new coronavirus guidelines Thursday , saying U.S. is ‘ past the peak ’

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.
As social distancing becomes the norm and hospitals across the country are overwhelmed with coronavirus cases, a stark, anxious reality is sinking in for thousands of Americans hoping to have a family someday, as well as companies whose business models often rely on smart time management for aspiring parents.
The American Society for Reproductive Medicine issued recommendations last month essentially halting egg freezing, IVF, and other procedures considered to be elective. The industry organization reasserted the same guidelines as of March 30, noting, “It is unclear how long the COVID-19 pandemic will continue.”
The coronavirus pandemic is already upending the fertility services industry—estimated at $27 billion by CB Insights—and impacting a range of patients, clinics, and fertility services, including surrogate pregnancies, egg freezing, and IVF. Since a lot of fertility treatments are time-sensitive, it’s only going to get more taxing emotionally and financially with each passing month.
The number of unknowns about the virus, including its impact on pregnancies and financial fallout for both patients and clinics, is plunging the fertility industry into unchartered crisis mode that may exceed the 2008 financial fallout.
Since there is limited scientific evidence on what the pregnancy risk is from the coronavirus, no consensus has yet been reached in the global medical community on what the best practices are, and there isn’t an outright ban on pregnancies. For couples who can get pregnant naturally, the Centers for Disease Control (CDC) recommended following “usual preventive actions,” and some countries have categorized pregnant women as a vulnerable group based on the knowledge that “some viral infections are worse” in pregnant women.
Each clinic and industry segment face specific challenges depending on their funding model and traction, but everyone in reproductive medicine is likely to be impacted.
“There is a spectrum of impact, inconvenience, people putting their plans on hold who’ve tried to conceive for years, but also in terms of finances—if they need to restart at a later time, they may not have the financial resources,” said David Sable, who has invested in the fertility sector since the late 1990s. “In the best of times, there are going to be companies that don’t make it. We don’t have our arms around how big of a challenge it’s going to be. We don’t know the timetable for the worldwide recession or worse.”
Egg freezing, which has matured as a service only over the past few years, is particularly vulnerable.
“The recession will force employers and patients to be more price-sensitive than ever before, so the winners will be clinics who have priced their services in anticipation of the recession, which means on the lower end of the range,” said Gina Bartasi, founder and chief executive officer of Kindbody, a fertility startup that has raised $31.3 million so far looking to disrupt traditional clinic space with a more lifestyle approach to a range of services including fertility assessment, egg freezing, IVF, community events, and fertility supplements. “It really depends on your funding partner and burn rate. We’re fortunate that we have some of the best partners in Perceptive Advisors, Google Ventures, and RRE Ventures.”
Since no one can predict how long the coronavirus outbreak will last, some fertility companies like Kindbody are already preparing for a disruption to their business of at least a year.
“Fertility has proven recession-resistant throughout time, and I think all fertility tech startups that have raised sufficient cash or are in cash conservation mode will thrive once we begin to return to the new normal,” said Bartasi. “I know ASRM is looking to reduce the restrictions as soon as plausible for the health of all patients.”
Extend Fertility, which has one of the largest egg freezing volumes in the country, is offering discounts for women considering freezing their eggs, which will require a deposit now, and patients can proceed with a cycle once the pause is lifted. The company has halted new cycles in line with ASRM’s guidelines.
“It’s a very hard time for the industry, to say the least,” said Joshua Klein, chief clinical officer at Extend Fertility. “We’re doing our best to buckle in and prepare for a prolonged interruption. We can’t imagine not doing business for 18 months and staying intact in the form in which we’re in. But I think a month or two or three is very realistic, and we’ll have to figure out how we manage that situation if it’s longer than that.”
Timing is everything
The central worry for the clinics and their patients is that a lot of fertility-related services are time-sensitive both in terms of the biological clock as well as the careful timing of the procedures themselves. The questions about the virus’s risks for pregnant patients add to the uncertainty and pressures faced by other types of businesses.
The longer this uneasy situation lasts, the bigger the financial strain on the clinics: How long can they keep the lights on, pay their staff, and continue operations until everything goes back to normal and their clients feel comfortable resuming treatments?
At Extend Fertility, it takes about 1.4 egg freeze cycles per patient to extract enough eggs to complete the treatment, depending on age; younger women typically require fewer cycles. In total, the company completed more than 1,900 egg freeze cycles in 2018 and 2019, and it is anticipating a “temporary dramatic drop” this year.
“If a very prolonged amount of time passes and [patients] can’t proceed with the plan that they had for themselves, that’s obviously a source of anxiety,” said Klein. “From a clinical perspective, we can reassure people that…for most women, the difference between freezing eggs today to two or three months from now is usually not something they need to be concerned about.”
The latest federal guidelines and death toll projections already include timelines through August, at least, although a lot of uncertainties remain about which businesses will be able to resume normal operations and how soon.
For patients around the world, a de facto moratorium on fertility procedures is already having an impact.
“We’ve been trying to conceive for six years,” said 30-year-old Kirsty Hampson, who lives in the U.K. “I’m with CARE Fertility in Bath, and I was told on the 20th that because I hadn’t started the estrogen tablets, it didn’t count as a started cycle and that it would be canceled. I now just have to wait until they are starting treatments again.”
Fertility treatments are often a multistep process. Patients who had the opportunity to complete some steps before the pandemic feel lucky, but they are now unsure about how long it will be before they can continue with the next steps.
“Going through the process is pretty emotionally and physically intensive. To think that you couldn’t have completed that would have been devastating,” said Julia Kramer, 35, who completed an egg freezing cycle a year ago in New York. She had plans to try to get pregnant naturally before using the frozen eggs, but she is now putting the next steps on hold. “I don’t know if I’ll be thinking about it until the end of the year.”
While most clinics are currently closed, not all fertility clinics are following the industry guidelines. Some states, including Virginia, Arizona, and Florida, have issued executive orders to halt elective surgeries, but there are no direct consequences for simply not following the ASRM’s guidelines.
“ASRM is an educational body, not a regulatory one,” said Sean Tipton, a spokesman for ASRM, in an email. “Our job is to provide our members and their patients with the best possible information so they can make sound medical decisions.”
Opportunity for reinvention
Assisted reproduction is still a fairly new industry that has grown in popularity over the past five years, with new businesses popping up, and now the sector has been largely on hold because of a global pandemic. The more established companies that have already gained traction with clients, proven their product-market fit, and offer affordable services are likely to weather the storm, industry experts estimate.
“I imagine that will lead to disruption and maybe permanent change in the landscape of the different players in the fertility space,” Klein noted. “I can’t speak for my competition, but certainly newer startups that are more in their growth phase and spend a lot of money on their marketing phase without the clinical volume behind them, they are probably a little more anxious than we are.”
Some investors see this crisis as an opportunity for the industry to reinvent itself, potentially opening the door to more affordable solutions and automated technologies.
“For investors, the fertility sector is a very interesting, growing one, and the fact that clinics are having trouble might make it even more interesting, depending on solutions created by the startups,” said Benjamin Joffe, a Paris-based partner at HAX, an accelerator that focuses on hardware startups. “Anything that is consumer-oriented will be more and more relevant, and anything that can lower the costs for clinics is also more relevant.”
In the U.S., some see the current crisis as a chance to address some of the systemic challenges like the high price point, obstacles preventing access, lack of fertility education, ethics in marketing, or lack of storage space. This could lead to expediting projected industry trends and redefining the future of the industry as well as specific segments like IVF.
“The current crisis is going to magnify the need for much more efficient throughput of the IVF segment in the U.S. and the rest of the world,” Sable said, noting there’s been more demand for services than the industry has been able to offer. “We’ve been incredibly underserving this population for decades, worldwide, and the degree of being underserved is much higher in the United States. You can’t rectify that overnight just by making it cheaper.”
Compared to other countries, many fertility treatments in the United States remain costly: An average IVF cycle costs more than $23,000, while an egg freezing cycle clocks in at an average of about $17,000, according to FertilityIQ. Medication costs, storage costs, and the number of cycles required varies by patient, but the average IVF patient completes multiple cycles. While some insurance plans are starting to cover parts of assisted reproduction, most of these costs are often paid out of pocket.
Companies like TMRW, a New York–based startup set to launch in August focusing on specimen management systems for IVF, see breakthroughs in fertility technology expanding demand for clinics to handle “billions” of frozen samples like embryos and eggs, which today’s labs can’t accommodate. The number of U.S. patients storing eggs or embryos jumped from 17,000 in 2005 to nearly 700,000 in 2017, according to TMRW’s estimates.
The pandemic has created immediate pressure for industry players to generate revenue and support their existing clients.
Companies like Modern Fertility and Kindbody are looking to sustain and engage their existing and potential clients online.
Kindbody hosted a virtual retreat on April 4, which featured “fertility facts, financial wellness, healthy eating, and meditation.” Almost 900 participants tuned in, the kind of virtual engagement the company described as “unlike anything” it has seen before.
A view of Kindbody’s virtual retreat. Courtesy of Kindbody
The company is also making its clinical space and medical professionals available to tackle the coronavirus outbreak while the industry moratorium is in place, the CEO said.
The crisis is also not deterring new entrants that see opportunity and demand in the fertility industry.
Kegg, a fertility-tracking Kegel device, is going to market amid the coronavirus outbreak—its fertility tracking devices based on cervical fluid are pending FDA approval. The company is still planning to ship its first order this month.
Kegg began sourcing all of its components in Taiwan to reduce delays when the outbreak hit China, and the company is seeing an opportunity in the fact that while traditional clinics are closed, their clients still need support.
“COVID-19 accelerated the process of transitioning all services and products online. Fortunately, wearable devices and digital health companies have been built to serve users from the comfort of their homes,” said Kristina Cahojova, founder and CEO of Kegg. “We are better prepared than some newcomers. Also, 700,000 IVF patients are anxiously browsing the Internet on what to do when their fertility clinics are shutting down.”
The long-term impact on the fertility industry as a whole will ultimately depend on how long the pandemic and existing ASRM guidelines will last.
“Even if coronavirus is not a thing of the past completely three months from now, this is a time-sensitive topic by its nature,” noted Klein of Extend Fertility. “Fertility treatments are not the first thing that need to be open, but it’s not the last thing either. I don’t think we have to wait until the last case of coronavirus.”
Many fertility patients would agree: There is already a lot of uncertainty with assisted reproduction, and your chances of success diminish as time goes by. For many, it takes time to decide on the right treatment and then go through the process itself, which can be strict.
Since both the timing of the procedure and the process itself are time-sensitive and have to be done exactly right, Kramer described her egg freezing cycle as buying fertility insurance.
“With the guidelines now taking that away, it’s just devastating,” she said.
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—There won’t be any new emoji next year, and the pandemic is to blame
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fortune--2020-04-16--On the pain of the coronavirus economy

On the pain of the coronavirus economy

What the government bailout means for airline investors ( and CEOs )

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
It is impossible to be a citizen of the world and not ache at the devastation wrought by COVID-19. As I write this, Johns Hopkins is tracking more than 2 million confirmed cases across the globe and 137,000 deaths—of which 31,000 are in the U.S.
While health concerns are paramount at the moment, the pandemic’s effects on business are also part of the human toll. Fortune has covered the pain and disruption to business and society extensively. We’ve also felt the pain ourselves. This week, I had to lay off some of our valued colleagues and friends, as the nationwide lockdown has impacted our business.
Readers of this newsletter know I’m a passionate advocate of business efforts to focus more directly on social impact. That made my decisions this week particularly painful. Laying off workers, particularly at a time when unemployment is spiking, clearly isn’t good for those individuals, their families, our organization, or society as a whole.
The crisis, though, also has made me recommit to the goals of stakeholder capitalism. At Fortune, that means doubling down on our relentless focus on making business better. With that in mind, we’ll keep publishing our award-winning journalism—which shines a spotlight on the good and bad of business, and illuminates the complex challenges companies face. We’ll keep convening leaders—though those gatherings will move to virtual for the time being, and include more virtual elements in the years to come. And in everything we do, we’ll aim to inform, educate, and connect business leaders everywhere, so they can better anticipate the changes ahead and share learnings and best practices for leading through tumult.
In times of disruption—whether that disruption is driven by a pandemic or a technology revolution—Fortune will strive to light the way forward.
I hope you’ll join us in this mission, and subscribe to Fortune, digital and/or print, here. There’s a special 50% offer for CEO Daily readers that we have extended until tomorrow. If you’ve already subscribed, thank you, and please feel free to share this link with your colleagues.
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Testing needed
Business executives have reportedly told President Trump that the public won't be confident enough to return to work or resume regular consumption activities until his administration drastically increases coronavirus testing. The executives came from the banking, financial services, hospitality, food and beverage, and retail sectors. Wall Street Journal
German strategy
Germany will allow small shops to reopen from Monday, along with larger car dealerships and book shops. Schools will start to reopen from May 4 (though not daycare facilities). Chancellor Angela Merkel says the lifting of restrictions requires "extreme caution" as Germany is "walking on thin ice." The country uses extensive testing and has maintained a very low death rate, compared with other western European countries—but its case rate is climbing again. CNBC
Shell greening
Royal Dutch Shell has pledged to achieve carbon neutrality by 2050—that means net zero emissions from its own activities, rather than the use of its products. The oil giant had previously aimed to reduce its carbon footprint by 50% by 2050, and 20% by 2035, but now it's targeting 65% by 2050 and around 30% by 2035. CEO Ben van Beurden: "Society's expectations have shifted quickly in the debate around climate change. Shell now needs to go further with our own ambitions." Barron's
iPhone SE
Apple has launched a new "low-cost" iPhone SE, which is essentially an iPhone 8 with a better camera and processor. The release of the $399 device (for the base specification) should provide a good indication of consumer demand for new smartphones at this moment. The Verge
AROUND THE WATER COOLER
Unemployment chart
If you'd like a graphic representation of how coronavirus layoffs are affecting total unemployment figures by sector, here's one based on Goldman Sachs projections. As you might expect, the retail and leisure and hospitality sectors dominate. Fortune
Coronavirus bargains
Gulf sovereign wealth funds are hunting for bargains—assets whose valuations are depressed by the crisis. Saudi Arabia's Public Investment Fund has apparently already made a bunch of big investment in recent weeks, including cruise ship operator Carnival, English football club Newcastle United, and oil producers such as Royal Dutch Shell, Total, Repsol, Equinor and Eni. Financial Times
Tracing privacy
Privacy advocates are worried about the implications of companies such as Google and Facebook getting into the coronavirus-tracking game. For now, those fears seem to be ill-founded, as the collection of people's location data will be explicitly opt-in. But that doesn't mean privacy advocates should let their guard down, as it may not be so easy to roll back surveillance measures. Fortune
Chinese nukes
Tired of worrying about coronavirus? Here's something else to worry about instead: the State Department is apparently about to issue a report that says China may be secretly conducting nuclear tests, despite its insistence that it is adhering to an international ban on such tests. Wall Street Journal
This edition of CEO Daily was edited by David Meyer.


fortune--2020-04-16--Global stocks climb ahead of today’s historic U.S. jobless claims report

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning. The global markets are rebounding this morning as we await the latest U.S. jobless numbers. They’re due out before the opening bell.
Let’s check in on what’s happening.
(I’m trying out a new quick-scan format. Let me know if you like it).
Markets update
Asia
The major indices are mixed. Tokyo and Hong Kong were down while Shanghai was clinging to small gains.
and were down while was clinging to small gains. In emerging markets, G20 finance ministers yesterday agreed to a debt moratorium . As of May 1, the world’s poorest countries can pause debt payments as they grapple with the fallout of the coronavirus pandemic.
finance ministers yesterday agreed to a . As of May 1, the world’s poorest countries can pause debt payments as they grapple with the fallout of the coronavirus pandemic. Australia defied the odds. Employment ticked up last month.
Europe
European bourses bounced back solidly on Thursday. The blue-chip Euro STOXX 50 opened 1.4% higher.
bourses bounced back solidly on Thursday. The blue-chip Euro STOXX 50 opened higher. There’s reason to cheer. Italy reported a month-low in new infections yesterday. And, Germany is planning to reopen the region’s largest economy as soon as next week. It will be a gradual and deliberate process—”small steps” as German Chancellor Angela Merkel called it.
is planning to reopen the region’s largest economy as soon as next week. It will be a gradual and deliberate process—”small steps” as German Chancellor Angela Merkel called it. If you think yesterday’s U.S. retail sales report was bad, check out what happened to the U.K. sector—down 27%.
U.S.
The Dow , S&P 500 and Nasdaq are poised to open higher, but by less than 1% , as I type. All three sank yesterday after a volley of awful data from retailers, home-builders and manufacturers.
, and are poised to open higher, but by less than , as I type. All three sank yesterday after a volley of awful data from retailers, home-builders and manufacturers. The big story today is the weekly jobless claims . Economists expect it to come in around 5.5 million . If that forecast holds, the U.S. economy will have lost all the jobs created in the past decade. All of them.
. Economists expect it to come in around . If that forecast holds, the U.S. economy will have lost all the jobs created in the past decade. All of them. President Trump is expected to unveil today guidelines for reopening the U.S. economy. We’ll see how many governors heed the call.
Elsewhere
The dollar is up. Again. King dollar typically spikes on uncertainty. And it’s been gaining in recent days.
is up. Again. King dollar typically spikes on uncertainty. And it’s been gaining in recent days. Gold is up too. (See dollar explanation above.)
is up too. (See dollar explanation above.) Crude is flat after falling to an 18-year low yesterday. Whenever you see WTI crude hover around $20 (as it is today), you’re likely to see headlines on subzero oil. What’s subzero oil ? “Producers could soon be forced to pay consumers to take [oil] off their hands—effectively pushing prices below zero,” the Wall Street Journal explains.
is flat after falling to an 18-year low yesterday. Whenever you see WTI crude hover around $20 (as it is today), you’re likely to see headlines on subzero oil. What’s ? “Producers could soon be forced to pay consumers to take [oil] off their hands—effectively pushing prices below zero,” the Wall Street Journal explains. It’s a demand problem. Orders for oil in April are forecast to drop by a record 29 million barrels/day, per the International Energy Agency.
The path forward
I’ve been reviewing a lot of sentiment data—mostly investor sentiment data—recently. And I’ve shared my views on that here in Bull Sheet over the past week. Today, let’s look at how Corporate America’s finance chiefs view the upcoming quarters.
Everyone wants to know when we can expect business—and life in general—to bounce back to something approaching normal. It’s unlikely to be this quarter, as today’s chart show.
The data for this chart comes from a new survey by Deloitte. They polled 113 chief financial officers last week on their views about how the coronavirus outbreak is impacting operations, staffing and liquidity. Most CFOs are banking on a rebound in Q3 or later—the further out, the more confident they are on a return to normal.
There’s been a lot of discussion about the shape of the recovery: will it be a quick bounce-back or a more protracted one? Now that the world’s biggest economies are (hopefully) approaching the peaks of coronavirus infections and plotting a resumption of business, these surveys are becoming increasingly important to gauge when we can expect to start emerging from this crisis.
This sentiment data, showing a dismal 1H; recovery in 2H, seems to track the GDP forecasts I’ve seen. Businesses are ready to get back to work. But public health officials will, and should, have the last call.
Postscript
Yesterday, my wife asked me about Canadian dollar. Her foundation learned they’d be getting coronavirus emergency funding from a donor in Canada, and she wanted to know: when should we transfer that money to the foundation’s bank account in Europe? When will the CAD/EUR exchange rate be most favorable?
In her line of work—she’s in the save-the-world sector—even the smallest bit of money goes a long way to help feed, provide skills-training and basic health care to some of the most impoverished people on earth, mainly in the Global South. And so she’s keen not to lose money on FX fluctuations and bank fees. Every dollar/euro/Congolese franc that gets to her programs makes a huge difference to the people there.
She expects the funds to be green-lighted from the donor any day now, and, following that, she would like to make the transfer at the “optimal time” within 30 days of the money becoming available.
I told her not to hesitate on executing the transfer, but beyond that I didn’t have any good advice. FX is not my specialty. Here’s what I think I know about the loonie, the Canadian dollar. If the energy markets are doing okay, so too is the loonie. The energy markets are performing terribly this year. Sure enough, the Canadian dollar has been fairly weak, falling nearly 5% YTD against the euro. But is there anything on the horizon—in, say, the next month—that points to a rebound? Even an FX rate improvement of 1-2% could make a big impact on the ground, she tells me.
So, I’m opening up the question to you. I told her I would. If you were in her shoes when would you make the transfer of Canadian dollars into euros? Remember: a lot of people in need stand to benefit.
Please let me know, and I’ll share it with her. And I’ll report back here at some point later on where the money went, and the impact.
Have a good day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
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Today's reads
New era for airlines. There are serious strings attached to the $50 billion aid package just enacted to aid America's stricken airlines. The aid will help them through these rough times, but will also fundamentally change the industry for years to come. In exchange for the cash, the major carriers will halt stock buybacks and dividends, possibly for years, making their shares far less attractive. Strict caps on C-suite pay could make it difficult to recruit top talent. And carriers may need to shoulder hazardous levels of government-guaranteed debt simply to survive.
Sleight of hand. Not for the first time, that master of illusion Donald Trump has landed a big deal by giving little or nothing away. The president just saved OPEC from the worst oil price war in history by offering cuts in U.S. production he didn't have to make—because the coronavirus outbreak had already forced even bigger cutbacks, Fortune’s Shawn Tully writes.
Amazon primed. The coronavirus pandemic isn’t hurting Jeff Bezos’s finances. Quite the opposite. The world’s wealthiest person is getting richer, opening up a big lead over his rivals for the crown. Stuck-at-home consumers are relying on Bezos’s Amazon.com more than ever. The retailer’s stock climbed 1% to a new record close Wednesday, lifting the founder’s net worth to $140 billion.
Market candy
What’s in a name?
Quite a lot, according to an accounting professor at UC Berkeley’s Haas School of Business. Omri Even-Tov’s research shows that analysts make more accurate predictions about a company’s earnings when he or she—get this—shares the first name of the CEO they're covering. Perhaps investment banks should appoint an analyst named Tim to cover Apple or Jeff to cover Amazon, suggests The Wall Street Journal.


fortune--2020-04-16--‘Essentially zero:’ United CEO warns staff of bleak travel demand into 2021

United Airlines Holdings Inc. is warning employees of bleak times and potential long-term payroll cuts despite billions of dollars in U.S. taxpayer assistance, as the outlook for travel demand remains depressed into next year.
The carrier will further chop its flight schedule in May to roughly 10% of the capacity it had planned at the start of 2020, and similar cuts are in store for June, said Chief Executive Officer Oscar Munoz and President Scott Kirby. As an example of the shortfalls, the carrier will fly fewer people during all of next month than on a single day in May 2019.
“Travel demand is essentially zero and shows no sign of improving in the near term,” Munoz and Kirby wrote in a message to employees late Wednesday. “While we have not yet finalized changes to our schedule for July and August, we expect demand to remain suppressed for the remainder of 2020 and likely into next year.”
The dire tone underscored the depth of the crisis facing airlines as the Covid-19 pandemic and government travel restrictions force people to stay home. Rescue funds contained in the U.S. stimulus package signed into law last month will help airlines pay employees while obliging them not to cut jobs through Sept. 30. But United signaled that deep cost reductions will be necessary for the company to survive.
“The challenging economic outlook means we have some tough decisions ahead as we plan for our airline, and our overall workforce, to be smaller than it is today, starting as early as October 1,” Munoz and Kirby said.
Government Aid
United will collect about $5 billion from the government in grants and a low-interest loan, part of $25 billion in airline assistance being doled out by the U.S. Treasury.
Carriers are also in line for $25 billion in additional loans as part of the overall economic rescue plan of about $2 trillion. Airlines seeking quick review of their loan applications have been told by Treasury officials to file by April 17.
More than 20,000 United employees have accepted voluntary leave and separation programs that the company has offered in recent weeks as it seeks to reduce labor expenses. The Chicago-based airline, which had a workforce of about 95,000 at the start of the year, said it would renew efforts to interest more workers in the programs.
“The challenge that lies ahead for United is bigger than any we have faced in our proud 94-year history,” Munoz and Kirby said. “We are committed to being as direct and as transparent as possible with you about the decisions that lay ahead and what impact they will have on our business and on you.”
Kirby will assume the role of CEO on May 20, with Munoz becoming executive chairman.
American’s Video
American Airlines Group Inc. released a somewhat more upbeat video late Wednesday in which CEO Doug Parker told employees that the almost $11 billion the carrier expects to receive in U.S. grants and loans should help get the company through the crisis.
“It feels strange and even a little frightening when we don’t have as many people to care for as we’re used to,” Parker said. “But this will pass and when it does, the American team will be ready to safely care for our customers.”
About 32,000 employees at American have chosen to retire early or accept reduced work hours, he said.
More must-read stories from Fortune:
—How Fortune 500 companies are stepping up during the pandemic
—When will stimulus checks be deposited or mailed? Ensure yours isn’t delayed
—Stocks have gained 25% since their March lows—but the math doesn’t add up
—Freelancers and independent contractors can now apply for SBA Paycheck Protection Program loans. Here’s what to know
—After coronavirus, expect to see smaller airlines
—PODCAST: COVID-19 might have upended the concept of the best companies of the year
—WATCH: The U.S. Postal Service is in deep financial trouble. Here’s why
Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-16--What the government bailout means for airline investors (and CEOs)

The strings attached to the $50 billion aid package just enacted to aid America’s stricken airlines will fundamentally change the industry for years to come. In exchange for the sorely needed cash, the major carriers will cease the stock buybacks and dividends that have been their main channels for rewarding investors, possibly for years, making their shares far less attractive. Strict caps on C-suite pay could make it difficult to recruit top talent. The biggest threat: The hit from the coronavirus is so unprecedented, so devastating, that carriers––some heavily leveraged today––may need to shoulder hazardous levels of government-guaranteed debt simply to survive.
It’s important to distinguish between the two programs created by the Coronavirus Aid, Relief and Economic Security Act, better known as the CARES Act. The measure provides a total of $50 billion in assistance for passenger carriers split evenly between a $25 billion Payroll Protection Grants package, and a $25 billion a Loan and Loan Guarantees facility––we’ll call them “the Grants” and “the Lending” programs.” Each imposes stringent, sometimes overlapping restrictions on the airlines that tap the programs for aid. Let’s look at two areas where the requirements will re-route the flight paths for the Big Four, American, Delta, United Continental and Southwest.
Buybacks and dividends
In the recovery from the Great Recession and beyond, the major carriers have enjoyed the most stable, consistently profitable period in their post-deregulation history. As profits swelled, they returned the vast bulk of the cash to investors via dividends, and most of all, repurchases. In the three years from 2017 to 2019, the Big Four recorded total net income of $32.8 billion, and channeled 70% of those earnings into buybacks and dividends, with the former accounting for 80% of that total.
The payroll grants program and the lending facility impose different restrictions on dividends and repurchases. It’s important to recognize that all of the Big Four are signing up for the grants packages, and will hence be subject to its restrictions as a minimum. Its regulations stipulate that all of the cash be used for wages, salaries and benefits. It’s designed to cover all compensation for Q2 and Q3 of this year. To get the cash, the airlines must maintain the same total payroll, and same level of employment as prevailed in the same two quarters in 2019––no layoffs or furloughs permitted. The Big Four will receive around $22.1 billion of the $25 billion total.
But though the program is titled “grants,” only part of the money is actually a capital injection. Thirty-percent of the aid comes in the form of loans for a maximum of five years. The Treasury guarantees repayment to the banks that make those loans, but the airlines must pay the government back, or risk another round of bankruptcies––and as we’ll see, the second program offers a far bigger bailout in the form of fresh credit.
Under the grant program, Delta, for example, will receive a $3.95 billion capital award, plus a loan for $1.7 billion. To get the aid, the carriers are prohibited from repurchasing shares or paying dividends through September 30, 2021.
That rule doesn’t sound exactly brutal, since the Big Four will most likely lack the earnings to return cash to shareholders by late 2021 in any case. But here’s where the additional bans in the second “Lending Program,” bites hard. That provision makes $25 billion available, once again in five year loans, with the Treasury determining the interest rate based on the risks posed by the borrowers, and the rate on government bonds of the same maturities when the loans are made.
It’s not clear whether all of the majors will grab these credits. But American has already announced that it’s applying for a $4.7 billion loan under the Lending Program. It’s likely that the rest of the Big Four will each need billions from the facility as well, because the aid from the Grants Program alone isn’t nearly big enough to plug the gigantic cash shortfalls caused by the shutdown in air travel. Consider Delta, along with Southwest the most profitable of the Big Four. CEO Ed Bastian predicts that revenues will drop 80% in Q2; a similar drop in Q3 is likely. In that scenario, Delta’s revenues would fall from $25 billion over those six months last year to $5 billion. Keep in mind that to qualify for the Grants Program, Delta will need to spend the same $5.6 billion in payroll in Q2 and Q3 of this year as it dispensed in 2019. The looming, multibillion dollar deficit over those two quarters will almost certainly force the majors to grasp the Lending Program as a lifeline.
By taking cash under the Lending Program, the Big Four are submitting to tighter constraints. Repurchases and dividends can only restart one year after the loans are repaid. The term of the Treasury financing is five years. The carriers will make a top priority of paying of back the Treasury, and escaping from these shareholder-unfriendly strictures. But how long will it take them to accumulate the sufficient cash? That uncertainty could make airline stocks a lot less attractive in the years to come than in the recent golden period where plentiful cash flowed back to investors.
CEO pay gets slashed
It’s the Grants Program that hammers pay at the top. It imposes two levels of limits, one for highly-paid managers, and another for the multi-million comp crowd who show up in the annual proxy. For executives earning more than $425,000 in 2019, the carriers are barred from providing raises for two years, until March of 2022. How about the C-suite? Many of the top airline executives already taking voluntary pay cuts. Bastian is forgoing his entire salary for six months, and United’s CEO Oscar Munoz and President Scott Kirby are not collecting their base pay through June. Doug Parker, chief of American, hasn’t taken a salary since 2015.
Those sacrifices pale next to the clampdown in total comp––including the big number, equity grants––decreed by the Grant Program. It mandates that for any executive earning over $3 million in 2019, they may receive that $3 million plus a limit of “50% of the excess over $3 million during any consecutive twelve-month period.” In plain language, they can now take home just half of anything over $3 million. So, if a CFO made $5 million in 2019, now his pay is capped at $4 million, $3 million plus half the $2 million “excess.”
American, United and Southwest all filed proxies for 2019, while Delta’s most recent numbers are from 2018. In those four reports, every one of the five highest-ranking executives earned over $3 million for those years. In 2018, Bastian garnered $15 million, and last year, Munoz made $14.5 million, his designated successor Kirby made $8.1 million, and American’s Parker $12 million. The lowest-paid CEO was Gary Kelly of Southwest at $7.7 million.
Those big names are all heading for huge pay cuts. Bastian, assuming he pocketed a similar number in 2019, would see his comp lowered from $15 million to $9 million ($3 million plus half of the $12 million excess).
It’s certain that boards would have lowered pay anyway, given the horrendous losses pending for 2020. But here’s where the Grant and Loan Program overlap. It appears that if a carrier only enrolls in the Grant Program, the restrictions on pay remain just one year, until March of 2021. But if the airline also signs for the what’s called “loans and loan guarantees,” the restrictions remain in place until one year after the loans are repaid, the same timeline banning buybacks and dividends.
If dark skies ahead force the Big Four to keep those Treasury loans on their books until they come due in the spring of 2024, they’d be bound by the limits for the next six years, limits based on pay scales seven years earlier.
The U.S. has every right to set rigorous conditions. But this time the Treasury may scare off the investors and future leaders needed to make the industry fly again.
More personal finance coverage from Fortune:
—What to do if you can’t pay your bills this month
—When will stimulus checks be direct deposited or mailed? Ensure yours isn’t delayed
—What you should know about mortgage forbearance and skipping payments
—Everything you need to know about furloughs—and what they mean for workers
—Freelancers and independent contractors can now apply for SBA Paycheck Protection Program loans. What you need to know
—The IRS launched portal to get your stimulus check if you don’t file taxes
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO


fortune--2020-04-16--How each industry is fueling the U.S. unemployment rate in one chart

We’re living through the largest layoff spree in American history.
In a three-week period through early April, 16.8 million Americans filed for unemployment benefits, likely pushing the real unemployment rate to near 15%, the highest level since 1940.
And it’s not just small- and midsize employers. Fortune 500 firms are trying to limit the impact of the coronavirus slowdown on their finances by axing thousands of jobs. Some of the biggest companies to announce sizable job cuts include hospitality companies Marriott and MGM, as well as retailers Under Armour and Sephora. Other corporate titans—companies such as GE Aviation, Disney, and Macy’s—are turning to furloughs, with the hope of rehiring talent eventually. “We’ve never been through anything that compares to this,” said Mark Zandi, chief economist at Moody’s Analytics.
A few companies such as Instacart, Amazon, and Walmart have announced big hiring pushes. But they are the outliers, as the vast majority of industries are contracting. In the graphic below, Goldman Sachs projects how many points each of these sectors will add to the growing unemployment rate in the U.S.
More coronavirus coverage from Fortune:
—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—Inside the surreal “Mask Economy”: Price-gouging, bidding wars, and armed guards
—The IRS just launched “Get My Payment” portal for tracking your stimulus check status
—Should you fear government surveillance in the coronavirus era?
—If you’ve been a little busy lately, here’s what’s going on with the 2020 election
—The coronavirus crisis is fintech’s biggest test yet—and greatest opportunity to go mainstream
—There are 32 authorized coronavirus tests so far—here’s how they differ
—PODCAST: COVID-19 might have upended the concept of the best companies of the year
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-16--Stimulus checks began arriving for millions this week—even the deceased

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The government’s economic stimulus payments are being distributed to a wide swath of Americans, including some who are recently deceased.
When the money reached many Americans’ bank accounts on Wednesday, some recipients were surprised to find payments for spouses or parents who had passed away.
It’s an expected consequence of a program passed with urgency and meant to cover as many people as possible. The Internal Revenue Service is relying on data that is as old as 2018 in some cases, resulting in people who are no longer alive included in the payments.
The IRS declined to comment about whether the payments to the deceased would have to be repaid to the government. Generally the agency has said that recipients will not have to pay back any of the money.
Ok this is insane, but just the tip of the iceberg. This is a direct text to me from a friend. I called to confirm this actually just happened. pic.twitter.com/GBRPcmYMXW — Thomas Massie (@RepThomasMassie) April 15, 2020
Representative Thomas Massie, a Kentucky Republican, said he was alerted to the situation by a text message from a friend whose late father received a payment.
“This stimulus program is ripe for waste, fraud and abuse and this dead person receiving a check is just the tip of the iceberg,” Massie, one of the few lawmakers who opposed the $2.2 trillion economic rescue bill, said in an interview. He said the government should move away from stimulus payments and reopen the economy.
Errors such as payments to the recently departed are a consequence of lawmakers trying to balance accuracy with getting the money into bank accounts and mailboxes quickly, said Gordon Gray, director of fiscal policy at the American Action Forum, a conservative policy research group.
“Congress erred on the side of speed, which nearly everyone agreed was the right answer in this case,” said Gray, a former tax counsel in the U.S. Senate. “The mechanisms we have to get money to people mean that some people have died since they last interacted with Treasury and as far as Treasury knows, that person should get a check.”
Michael Zona, a spokesman for the Senate Finance Committee, said the panel was looking into the issue.
The payments to the deceased were one of the glitches with the program as the payments began hitting bank accounts and the IRS launched a web page to let recipients see when their money will be sent and whether they will receive it by direct deposit or a mailed check.
Phyllis Jo Kubey, a tax preparer in New York City, said several of her clients received error messages after trying to access the IRS’s “Get My Payment” tool earlier Wednesday. The website said high demand was causing some delays.
The IRS said in a statement that the website is operating smoothly and more than 6.2 million taxpayers have successfully received their payment status while almost 1.1 million taxpayers have successfully provided banking information.
If the site volume gets too high, users are sent to an online “waiting room” for a brief period until space becomes available. The IRS said in a statement that the online tool will be updated once a day.
High demand
“The IRS urges taxpayers to only use Get My Payment once a day given the large number of people receiving Economic Impact Payments,” according to the statement.
The IRS began sending more than 80 million payments via direct deposit this week to middle- and low-income households. Mailed checks for those who don’t have bank account information on file will start going out next week, but it could take months for all the payments to be distributed.
Individuals earning up to $75,000 or couples earning up to $150,000 are eligible for a $1,200 payment per adult and $500 per child under 17. The payments phase out above that income level, and individuals earning more than $99,000 or couples with a combined income of $198,000 don’t get anything.
To see when payments will be sent, people will need to provide their Social Security number, date of birth and mailing address. Those wishing to submit bank account information also need to upload the adjusted gross income on their most recent tax return, as well as the amount of their most recent refund or amount owed.
People who filed tax returns in 2018 or 2019 can add bank account information to receive direct payments instead of waiting to receive a paper check.
The IRS released a separate website last week to allow people who aren’t required to file tax returns to provide their bank account information.
The agency will send recipients a notification about two weeks after they were scheduled to receive their payment with the details of how they should have received the money and how to report payments that don’t arrive.
To see when payments will be sent, people will need to provide their Social Security number, date of birth and mailing address. Those wishing to submit bank account information also need to upload the adjusted gross income on their most recent tax return, as well as the amount of their most recent refund or amount owed.
People who filed tax returns in 2018 or 2019 can add bank account information to receive direct payments instead of waiting to receive a paper check.
The IRS released a separate website last week to allow people who aren’t required to file tax returns to provide their bank account information.
More coronavirus coverage from Fortune:
—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—Inside the surreal “Mask Economy”: Price-gouging, bidding wars, and armed guards
—The IRS just launched “Get My Payment” portal for tracking your stimulus check status
—Should you fear government surveillance in the coronavirus era?
—If you’ve been a little busy lately, here’s what’s going on with the 2020 election
—The coronavirus crisis is fintech’s biggest test yet—and greatest opportunity to go mainstream
—There are 32 authorized coronavirus tests so far—here’s how they differ
—PODCAST: COVID-19 might have upended the concept of the best companies of the year
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-15--Everything to know about Apple’s iPhone SE—a new $400 phone amid the coronavirus pandemic

With smartphone sales tumbling during the coronavirus pandemic, Apple is making a move to appeal to more budget-conscious shoppers.
After a four-year wait, Apple on Wednesday announced an updated version of its smaller and lower priced iPhone SE model. The second-generation device has a larger screen than its 2016 predecessor, at 4.7 inches, but the same $400 starting price tag. Preorders start on April 17 on Apple’s website, with the SE going on sale on April 24.
The long-rumored device also has a single camera on the back, versus two or more on Apple’s higher-end models, and comes in black, white, and red. The iPhone SE’s design, with a home button and built in fingerprint scanner, is based on the older design of the iPhones 6, 7, and 8. Still, the new SE has the same processor chip, called the A13 Bionic, that Apple uses in its flagship iPhone 11 line up.
The iPhone SE has one camera versus two or more on Apple’s higher-end models. Courtesy of Apple
The low price, 43% less than the cost of Apple’s entry level iPhone 11, comes at a time when the world economy is slumping due to the coronavirus pandemic, and as phone sales overall have dropped sharply. With unemployment skyrocketing and consumers cutting back, industrywide smartphone sales declined 14% in February from the same month in 2019 and are expected to contract further, according to Counterpoint Research. Most Apple stores remain closed indefinitely.
The pandemic may also have affected Apple’s announcement plans. As it has done with all its product releases since the coronavirus pandemic, Apple debuted the new iPhone SE by a press release, without inviting reporters to an event.
Apple premiered the $400 iPhone SE in 2016 with a four-inch screen. In 2017, it increased the amount of storage capacity in the phone without upgrading other components.
At the same time Apple introduced the new SE on Wednesday, it stopped selling the similar iPhone 8 and 8 Plus phones, which it had priced at $450 to $600.
More must-read tech coverage from Fortune:
—How the coronavirus stimulus package would change gig worker benefits
—Zoom meetings keep getting hacked. How to prevent “Zoom bombing”
—Why China’s tech-based fight against the coronavirus may be unpalatable in the U.S.
—Hospitals are running low on the most critical supply of all: oxygen
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: Best earbuds in 2020: Apple AirPods Pro Vs. Sony WF-1000XM3
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-04-15--The IRS launched its ‘Get My Payment’ portal for tracking your stimulus check status

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Wondering if the check is in the mail?
The IRS has launched a new tool to enable those expecting stimulus checks to track the status of their payment. It will also offer “eligible people a chance to provide their bank account information so they can receive their payment more quickly rather than waiting for a paper check.” The IRS website states that this option will be unavailable if a paper check has already been scheduled.
However, while the portal was functioning early Wednesday, by mid-morning users who tried to log in were greeted with a message that read, “Due to high demand, you may have to wait longer than usual to access this site.” Other users reported that after being asked to wait, they were able to input their information, but then received a message reading “Payment Status Not Available” and were directed to a FAQ page.
This comes after the IRS last week launched a tool for those who do not pay income taxes—an estimated 44% of Americans—to file for their stimulus payments via a new web portal.
According to the IRS, tens of millions of stimulus checks have already gone out. The agency’s website states that “Eligible taxpayers who filed tax returns for either 2019 or 2018 and chose direct deposit of their refund will automatically receive an Economic Impact Payment of up to $1,200 for individuals or $2,400 for married couples and $500 for each qualifying child. Individuals who receive Social Security retirement, survivors or disability benefits, SSDI or who receive Railroad Retirement benefits but did not file a return for 2019 or 2018 will automatically receive a payment in the near future.”
The stimulus payments, as part of the CARES Act, are an attempt to soften the blow dealt by the economic shutdown by providing direct cash assistance to Americans. In addition, a $350 billion program administered by the SBA aims to help small-business owners, as well as freelancers and independent contractors who have been hurt by the shutdown. The SBA Paycheck Protection Program extends loans to eligible small businesses, but they can be forgiven and essentially turned into grants as long as businesses meet certain criteria. Another program is aimed at avoiding foreclosures by aiding homeowners with mortgage forbearance.
Updates on these and other programs can be found at www.irs.gov/coronavirus.
Wednesday, April 15: This story has been updated to reflect users who experienced issues accessing their information via the Get My Payment portal Wednesday morning.
More must-read finance coverage from Fortune:
—How to spend your stimulus check money, according to economists
—Trouble tracking your stimulus check? You aren’t alone
—How people are planning to spend their stimulus checks
—Excited to get your hands on that stimulus check? So are scammers
—Do I have to pay back the stimulus check money?
—Trump’s name will be on stimulus checks—after he denied wanting his name on stimulus checks
—Filing for unemployment benefits? What to know before you start your claim
—Debt collectors could seize your stimulus check before you have a chance to use it, lawmakers warn
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-07--Waymo Is Still an Expensive Science Project in Search of a Business

What Goes Into the Production of a New Girl Scout Cookie Brand

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John Krafcik, CEO of Alphabet’s self-driving car project, Waymo, heads a company that has an odd combination of attributes. It is, on the one hand, the widely acknowledged technology leader in robotic car technology, having been at it for 11 years. At the same time, all these years later, Waymo remains an expensive science project in search of a business. No one quite doubts Waymo can find a way to commercialize its technology, but no one quite knows exactly what it will be.
Krafcik is a crafty auto industry veteran. He doesn’t like to answer questions on the first pass and doesn’t necessarily do much better on the second try. But he was a lively conversationalist before a Fortune audience at the CES conference in Las Vegas last night.
He said Alphabet, the holding company that holds Google and an oddball collection of other exotic stuff, has invested “billions” in Waymo. It has crafted deals with a hodgepodge of auto makers—notably Land Rover, Chrysler, and Renault—but failed to persuade their better financed competitors to arbitrage their future revenue opportunities for the chance to work with a Google sister company.
Right now Waymo makes money—Krafcik doesn’t say now much—in four ways: a limited ride-hailing service in Arizona that operates with fully driverless cars; a delivery service; a long-haul trucking trial; and a business that licenses its sensor technology. Krafcik recently gave the impression that trucking could make a better short-term opportunity than ferrying human passengers. He didn’t exactly disavow that assertion Monday, though he said ride-hailing should be a bigger market by 2030. That’s a long way off.
This is all fun and exciting and interesting. Self-driving cars haven’t yet lived up to their hype. The technology is costly. The tests have only been conducted in fair-weather cities. Regulators move more slowly than robots. After Krafcik left the stage, the chatter in the room was about whether new Alphabet CEO Sundar Pichai and his chief financial officer, Ruth Porat, will force Waymo to begin earning back its investment sooner rather than later.
Adam Lashinsky
Twitter: @adamlashinsky
Email: adam_lashinsky@fortune.com
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This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
If it oinks like a pig. Expanding from its plant-based burgers, Impossible Foods is creating pork and sausage substitutes. The new Impossible Pork and Impossible Sausage will also be based on a soy protein, the company said at the CES show in Las Vegas.
Heard this one before. In less down-to-Earth news at CES, Hyundai said it would partner with Uber on a flying taxi vehicle. Electric-powered with a range of 60 miles and a top speed of 200 miles per hour, the craft is just a concept right now. Closer to the here and now, Elon Musk's SpaceX launched another 60 satellites for its planned Spacelink Internet service. With 180 of the medium-sized craft in orbit now, SpaceX becomes the operator of the largest constellation of satellites in the world.
Bits and bytes. Chipmakers AMD, Intel, and Qualcomm had new products to show off, in varying levels of detail. AMD gave delivery dates and prices for most of its new chips, headlined by the $4,000 Ryzen Threadripper with 64 cores, arriving on Feb. 7. Qualcomm introduced a chipset for self-driving cars dubbed the Snapdragon Drive Pilot. And Intel said its new, higher-performing Tiger Lake laptop chips would be arriving some time later this year.
No more pies. Pizza-making robot startup Zume plans to slash its workforce amid uncertainty about a major investment expected from SoftBank, Business Insider reports. SoftBank, still suffering from losses on WeWork and other investments, appears to have pulled back from some of its prior commitments.
Dissed to his face. I missed it Sunday night, but Golden Globes host Ricky Gervais aimed one of his cutting remarks at Apple while CEO Tim Cook sat in the audience. Apple's TV program The Morning Show was "a superb drama about the importance of dignity and doing the right thing, made by a company that runs sweatshops in China," Gervais said.
FOOD FOR THOUGHT
We've been inundated with tech predictions about the new decade, and some lists are more interesting than others. Serial entrepreneur Elad Gil, who sold his last startup, Mixer Labs, to Twitter, has quite a few. Unlike other lists, none of Gil's ideas require huge breakthroughs that may or may not happen. Instead, Gil focused on how existing technologies could be put together in new ways. For example: neighborhood or corporate pollution sensor networks.
The California wildfires have caused me as a parent to look frequently at pollution data. Even basal pollution levels may impact cognitive function. There seems to be room for both home/neighborhood and corporate level pollution sensor networks. One could imagine a service where companies or people buy hardware + analytics for their homes or facilities and then a subscription for people who do not own the hardware but live nearby. An early player in this area is Aclima which has done cool things with Google.
ON THE MOVE
Speaking of Apple TV, the iPhone giant struck an exclusive, five-year production deal with former HBO chief Richard Plepler. Plepler left HBO last year after AT&T took over the company...Health insurance startup Bright Health hired former Target CFO Cathy Smith as its new CFO. Smith left Target in November and was limited by a $1.5 million non-compete agreement...Chicago startup Mobile Doorman named Nitin Vig as its new CEO, replacing co-founder Bob Matteson, who becomes executive chairman. Vig joined the company last fall as COO after working as a consultant at McKinsey & Co.
IN CASE YOU MISSED IT
This is Why There Are So Many Scooters in Los Angeles By Danielle Abril
For Iran, Retaliation Could Be Just a Retweet Away By Alyssa Newcomb
CES 2020 Kickoff Highlights the Decoupling of U.S. and China’s Tech By Naomi Xu Elegant
CES 2020: Someone Put Air Conditioning in a Baseball Cap By Chris Morris
5 Ways to Save a Terrible Job Interview By Gwen Moran
BEFORE YOU GO
One more list for you to start the year. This one needs no explanation beyond the headline: 10 Bathrooms You Should Pee in Before You Die.
Aaron Pressman
On Twitter: @ampressman
Email: aaron.pressman@fortune.com


fortune--2020-01-07--Viral Video App TikTok Is Here to Stay

Viral Video App TikTok Is Here to Stay

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Like it or not, TikTok is not going away.
The viral video app is killing it with teenagers, growing at a faster rate than Facebook, Instagram, and Snapchat.
TikTok is owned by Chinese parent company ByteDance, and is designed for the “new generation of creators.” The Chinese version of TikTok, called Douyin, has amassed 400 million daily active users, ByteDance revealed in its annual report this week.
Katherine Wu, an investor at Notation Capital, wrote a blog post about ByteDance’s report, asking the question that’s definitely been on my mind: “Is ByteDance the first company to have created a truly global, viral, social app?”
Wu thinks this is only the beginning for ByteDance and its dominance beyond China.
At 28, I feel ridiculously old for TikTok, and I have no idea how to use it, so I just do what other “old people” do — I follow TikTok’s account on Instagram. So when I went to Atlanta over the holidays to spend time with family, my younger sister decided to give me the low-down on TikTok. (She falls squarely in the Gen Z demographic — she’s not on Facebook, barely uses Instagram, but is absolutely obsessed with TikTok.)
She scrolled through the various short-form videos and even forced me to record one with her. (We danced to a mashup of Mariah Carey’s “All I Want for Christmas Is You” and … “Soulja Boy.” Don’t ask. I don’t know either, and I am certain this video will somehow come back to bite me in 20 years.)
All of ByteDance’s products use machine learning in some way to deliver hyper-personalized content that users want. The company uses computer vision and natural language processing to understand and analyze written content, images and videos. Based on your clicks and swipes and taps, the algorithms learn your reading habits and bring you content that it knows you’ll like.
So even though the videos I saw were funny, and I enjoyed them, I couldn’t stop thinking, “YOUR DATA. WHAT ABOUT CHINA. OMG.” And I’m not the only one with those worries. The U.S. government and other tech industry observers have similar concerns.
They fear that TikTok is collecting and sharing user data. It’s threatening national security. It could challenge democratic values. Worst of all — it’s promoting “scantily clad adults and suggestive dancing” to children.
But my little sister didn’t know about any of that, and like many in her age group, didn’t exactly care. “They’re just funny videos.” And honestly, it might be a little too late to stop its influence because it’s already so ingrained in culture.
If you don’t believe me, just read this mind-boggling article in the New York Times about how TikTok influencers with millions of followers are moving into a house in Los Angeles together to … make content full-time. Dubbed the “Hype House,” the physical location of this content creator collective is nearly without furniture, which makes shooting videos easier.
Several politicians have asked the U.S. government to open an investigation into TikTok out of concerns about censorship and counterintelligence. But the genie is way out of the bottle, and culture doesn’t follow Washington’s timeline.
HOW CONFIDENT ARE YOU?: Term Sheet has teamed up with Semaphore on its 12th annual confidence survey of private equity and venture capital professionals. In the past, hundreds of you have chimed in with your confidence levels for the year ahead. I encourage you all to take the survey here. The results will be published here early next month. Thanks in advance.
Polina Marinova
Twitter: @polina_marinova
Email: polina.marinova@fortune.com
VENTURE DEALS
- BigID, a New York-based developer of security software products for personal data protection and privacy, company raised $50 million in Series C funding, from Tiger Global.
- Orchard (previously known as Perch), a New York-based home buying marketplace, raised $36 million in funding. Navitas led the round, and was joined by investors including FirstMark, Juxtapose, and Accomplice.
- Ride Health, a New York-based provider and coordinator of transportation for patients, raised $6.2 million in seed funding. Activate Venture Partners led the round, and was joined by investors including Newark Venture Partners, Anthro Ventures, BioAdvance, Leading Edge Ventures and Startup Health.
- Juro, a London-based contract management platform, raised $5 million in Series A funding. Union Square Ventures led the round, and was joined by investors including Point Nine Capital, Taavet Hinrikus, and Paul Forster.
- Ripple Science, an Ann Arbor, Mich.-based developer of web-based software for health sciences, raised $2.5 million in funding. Investors include Dundee VC, Mercury Fund, SpringTime Ventures, Red Cedar Ventures, and M25, Revolution’s Rise to the Rest Seed Fund.
- OncoLens, an Atlanta-based developer of cancer treatment planning software solutions, raised $2.5 million in pre-Series A funding. BIP Capital led the round, and was joined by investors including Atlanta Technology Angels, and the Robbins Fund.
- TeleVet, an online platform that connects veterinary clinics to their existing clients, raised $2 million in seed funding. Dundee Venture Capital and Mercury Fund co-led the round, and were joined by investors including GAN Ventures.
HEALTH & LIFE SCIENCES DEALS
- Debut Biotechnology, a San Diego-based startup that creates advanced manufacturing processes for high value molecules, raised $2.6 million in seed funding. KdT Ventures led the round, and was joined by investors including Better Ventures, FTW Ventures, and SpringTide Ventures.
PRIVATE EQUITY DEALS
- Insight Partners will acquire Armis, a Palo Alto, Calif.-based company focused on enterprise IoT security. Under the terms of the agreement, Insight will acquire the company for cash at a valuation of $1.1 billion, with participation from CapitalG for $100 million and rollover from certain existing stockholders.
- Colony Capital invested $185 million in DataBank, a Dallas, Texas-based provider of enterprise-class data center, connectivity and managed services.
- Care Advantage, a BelHealth Investment Partners portfolio company, acquired Amaisa Home Care, a Leesburg, Va.-based provider of non-medical home care services.
- Trinity Hunt Partners acquired a majority stake in Dataprise, a Rockville, Md.-based IT managed services provider. Financial terms weren't disclosed.
- Surge Private Equity acquired Norris Training Systems, a Texas-based provider of training hosting services. Financial terms weren't disclosed.
- Busy Bee Cleaning Services, which is backed by Surge Private Equity, acquired Reyes Cleaning Services Corp, a New York City-based cleaning service company. Financial terms weren't disclosed.
- Cotton Creek Capital acquired Landpoint, a Bossier City, La.-based provider of geospatial services. Financial terms weren't disclosed.
- Sun Capital Partners, Inc. acquired Cotton Holdings, a Katy, Texas-based infrastructure support services company for public and private entities. Financial terms weren't disclosed.
- Sheridan Capital Partners made an investment in Tarrytown Expocare, an Austin, Texas-based long-term care pharmacy. Financial terms weren't disclosed.
IPOs
- Topgolf International, a driving range operator, is preparing for an IPO that could value the firm at about $4 billion, Bloomberg reports, citing sources. Read more.
- Velocity Financial, a Westlake, Calif.-based mortgage lender, plans to raise $109 million in an IPO of 7.25 million shares priced between $14 to $16 apiece. The firm posted net interest income of $124.7 million and net income of $10.6 million in 2018. Snow Phipps and PIMCO back the firm. It plans to list on the NYSE as “VEL.” Read more.
- Arcutis Biotherapeutics, a Westlake Village, Calif.-based biotech focused on skin diseases, filed for an $100 million IPO. The firm posted losses of $19.3 million in 2018. Bain Capital (13.5%), Frazier Life Sciences (36.9%), and OrbiMed (15.1%) back the firm. It plans to list on the Nasdaq as “ARQT.” Read more.
- Professional Holding Corp., a Coral Gables, Fla.-based bank, filed to raise $75 million in an IPO. The firm posted total interest income of $28.2 million and net income of $6.8 million in 2018. BayBoston Capital, EJF Capital, and Emerald Advisers back the firm. It plans to list on the Nasdaq as “PFHD.” Read more.
EXITS
Warburg Pincus agreed to acquire Sundyne, an Arvada, Colo.-based company that manufactures mission critical flow control equipment. Sellers include BC Partners Advisors L.P. and The Carlyle Group. Financial terms weren't disclosed.
PEOPLE
- Vineeta Agarwala joined Andreessen Horowitz as a general partner on the bio fund.
- Ara Partners Group promoted Johanna Schmidtke to managing director.
- Silversmith Capital Partners promoted Marc Munfa to operating partner, Nikhil Marathe to principal, - and Lyndsay Kerwin and Jay Leventhal to vice president.
- OpenGate Capital promoted Aaron Figura to principal.
- Surge Private Equity named Thiago Farias as vice president.
- Ara Partners Group promoted Johanna Schmidtke to managing director.
- LLR Partners promoted Sasank Aleti and Michael Levenberg to partner.
- Silversmith Capital Partners promoted Marc Munfa to operating partner, Nikhil Marathe to principal, and Lyndsay Kerwin and Jay Leventhal to vice president.
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fortune--2020-01-07--What Goes Into the Production of a New Girl Scout Cookie Brand

How Elon Musk Built a Tesla Factory in China in Less Than a Year

The Girl Scout Cookie Program still holds the top spot as the largest financial investment in girls annually in the United States, but the program doesn’t rest on old favorites alone.
This week, Girl Scouts is unveiling the newest cookie to join the 2020 lineup: Lemon-Ups, crispy and sweet lemon biscuits.
GSUSA is also updating its packaging so that it reflects how proceeds from the cookie sales are used: namely, to support young female entrepreneurs and leaders by financing both outdoor adventures and STEM programming. The updated images on the packaging are designed to depict a diverse range of experiences available to members: from adventure-packed camping and canoeing, to exploring space science and robot design, to taking action to improve their communities.
The Lemon-Ups feature motivational sayings. Girl Scouts of the USA
The timeline for introducing new Girl Scout Cookies varies, but over the past decade, the Girl Scouts of the USA has been debuting new cookies every one to two years. In 2018, for example, the Caramel Chocolate Chip cookie was brought to market, joining a growing lineup of gluten-free Girl Scout cookies, such as the Toffee-tastic (a buttery cookie with sweet and crunchy golden toffee bits) and the Trios (a peanut butter oatmeal cookie with chocolate chips).
As far as other specialized dietary needs, Girl Scouts Cookies are produced for a short season once a year, which the company says makes the production of specialty cookies challenging. And so far, the demand has not been great enough to make it economically feasible to expand beyond gluten-free.
Girl Scouts is the largest organization to serve girls in the U.S. Girl Scouts of the USA
There’s a lot that goes into the process, from brainstorming new cookies to helping Girl Scouts prepare for cookie season. In partnership with the program’s bakers, GSUSA starts by doing a market assessment and looking into flavors that could be popular or trending with consumers. Then GSUSA collaborates with bakers to develop a new recipe, name the cookie, design the product and packaging, and photograph it.
Many factors go into naming a Girl Scout Cookie, but among the top priorities are choosing a name that conveys deliciousness and that girls are able to say (and thereby sell). Troop leaders and volunteers are trained to help girls of all ages understand the product, be able to say its name and describe it to customers, and learn how to market it.
“We are one of the only—or perhaps the only—brands that design a cookie with girls in mind from the start, since they are the only ones who sell it,” says a spokesperson for Girl Scouts of the USA. For example, the new Lemon-Ups cookies are described as being inspired by Girl Scout entrepreneurs and are embossed with words like “go-getter” and “leader.”
“These messages not only remind girls about the leadership abilities they already possess within them, but they also remind consumers that buying Girl Scout Cookies powers amazing and important experiences for girls,” Girl Scouts CEO Sylvia Acevedo tells Fortune. “Whether it’s through selling the new Lemon-Ups cookie, Lemonades, or any other cookie in our lineup, the Girl Scout Cookie Program fosters a multitude of business and life skills in girls, preparing them to be the ambitious entrepreneurs and leaders of tomorrow.”
Volunteer Katie O’Neill, 29, of Orange, and several of her First American Title co-workers stack Caramel deLites as they load up vehicles during the Girl Scout Cookie Mega Drop at the Anaheim Business Complex in Anaheim on Saturday, January 26, 2019. Kevin Sullivan—MediaNews Group/Orange County Register via Getty Images
Girl Scout Cookie earnings stay local as individual councils depend on cookie earnings to run their programming, and girls decide how to invest their troop’s portion of the earnings in community projects and leadership opportunities. “It varies locally but there are numerous ways cookie earnings benefit STEM programs for girls,” Acevedo explains. “Many councils choose to put their portion of the cookie proceeds towards STEM events, programming, badge workshops, or robotics activities.”
Girls can also choose to spend their cookie earnings on STEM programs or projects. For example, an all-Girl Scout robotics team from Girl Scouts Heart of the Hudson that used some of their cookie earnings to power their team. And Girl Scouts of Central Texas’ scuba troop runs an underwater cookie booth and use their funds for their ocean conservation efforts.
Girl Scout Cookies can only be purchased from a registered Girl Scout. Interested buyers can search online for the nearest Girl Scout troop selling cookies. And given that this is 2020, there is an official Girl Scout Cookie Finder app for iOS and Android. Lemon-Ups will be offered in select Girl Scout council markets for only as long as supplies last.
More must-read stories from Fortune:
—The Philly bakery that makes Beyoncé’s birthday cakes
—Why Petit St. Vincent is the ultimate winter getaway this year
—The 2019 food trends we hope carry over to 2020
—This unique wine is the newest collector’s item in Asia
—The best travel destinations for every season of 2020
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.


fortune--2020-01-07--While Trump Pushes Fossil Fuels, Coal Plants Keep Closing—and Greenhouse Gas Emissions Fall

Greenhouse gas emissions in the U.S. slipped last year as coal-fired power plants continue to close.
Across the U.S. economy, emissions that cause climate change fell an estimated 2% in 2019, according to a report Tuesday from Rhodium Group. It was wholly due to cuts in the electricity sector.
The decline underscores the limitations of U.S. President Donald Trump’s pro-fossil fuel policies. While the White House has rolled back environmental regulations and tried to keep coal plants open, utilities are still shifting to cheaper and cleaner natural gas, wind and solar plants. U.S. coal consumption plunged an estimated 18% in 2019, to the lowest point since 1975.
“Coal plants are closing down and nobody is building new ones,” said Trevor Houser, a partner with Rhodium Group, an independent research firm and leading voice on emissions.
Annual emissions have fluctuated in recent years, including a sharp uptick in 2018. But the general trend has been down, Houser said. U.S. emissions have declined about 13% since 2007.
Electricity generation accounts for about 30% of total U.S. emissions. Greenhouse gases from cars, trucks and the rest of the transportation sector were flat in 2019. Emissions from agriculture and industry increased slightly.
“The good news is that we’re making a lot of progress on electricity,” Houser said “There’s a lot more work to do in other sectors of the economy.”
(Michael Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, has committed $500 million to launch Beyond Carbon, a campaign aimed at closing the remaining coal-powered plants in the U.S. by 2030 and slowing the construction of new gas plants.)
More must-read stories from Fortune:
—2020 Crystal Ball: Predictions for the economy, politics, technology, and more
—Climate change is hitting the insurance industry hard: How Swiss Re is adapting
—Russia and China have built a new gas pipeline that has everything—except profit
—Innovative tech offers a solution to aircraft pollution
—The Future 50 sustainability all stars
Subscribe to The Loop, a weekly look at the revolutions in energy, tech, and sustainability.


fortune--2020-01-07--Harvey Weinstein’s Prosecution Takes a Page from the Bill Cosby Playbook

Good morning, Broadsheet readers! Julián Castro endorses Elizabeth Warren, men benefit from mentoring relationships with women, and the Harvey Weinstein trial recalls another infamous case of the #MeToo era. Have a lovely Tuesday.
EVERYONE'S TALKING
- A page from the Cosby playbook. Harvey Weinstein appeared in a Manhattan courthouse on Monday to finally stand trial for sexual assault charges two years after accusations against him ignited the #MeToo movement. Day 1 of the long-awaited public airing of the once-powerful film producer’s alleged misconduct dealt a blow to his defense. The judge ruled Weinstein’s lawyers can’t call as a witness a detective who is accused of keeping key evidence from prosecutors—a tactic that sought to undermine the integrity of the New York Police Department investigation of the one-time movie mogul.
Previews of the trial focused on such legal mechanics that have restricted the scope of the trial. More than 80 women have publicly accused Weinstein of misconduct, yet prosecutors in New York have charged him with the rape and sexual assault of only two women, former assistant Mimi Haleyi and an unnamed woman who says Weinstein raped her in 2013. (Weinstein has pleaded not guilty and argues the encounters were consensual. He also faced new sex crime charges in L.A. on Monday.)
It’s important to understand that the trial’s narrowness doesn’t mean it can’t have a profound outcome. In fact, its limited focus mirrors the most recent case against Bill Cosby, the one decided in 2018 and upheld last year that ultimately put the disgraced television superstar behind bars.
In Cosby’s instance, more than 50 women had come forward with allegations of sexual misconduct, but his trial technically hinged on the account of just one, Andrea Constand, who said the entertainer drugged and assaulted her years ago. Still, five women shared their experiences on the stand, bolstering the case that Cosby had a “unique sexual-assault playbook,” as a Pennsylvania appellate court put it in upholding his conviction.
Prosecutors in the Weinstein case are expected to mimic that strategy by calling several women who can speak to the former producer’s alleged pattern of predatory behavior. The most serious charge Weinstein faces is predatory sexual assault, which accuses him of sex crimes with more than one person. It carries a maximum sentence of life in prison.
The parallels between the Cosby case and Weinstein's were certainly not lost on New York Magazine, which yesterday published photographs of some of Weinstein’s accusers. The art recalls the magazine’s powerful cover featuring Cosby’s many accusers, only this time the women stand side-by-side, arms linked, forming a human chain.
The Cosby case was considered a watershed moment for the #MeToo movement. It was seen as an indication that societal attitudes had shifted—that jurors would take women’s accusations seriously and that justice would prevail. Now as Weinstein’s trial begins, everything that Cosby’s conviction came to represent is also at stake.
Claire Zillman
claire.zillman@fortune.com
@clairezillman
Today's Broadsheet was produced by Emma Hinchliffe.
ALSO IN THE HEADLINES
- Endorsement report. After dropping out of the race for the 2020 Democratic nomination, Julián Castro endorsed Sen. Elizabeth Warren for president. Most other candidates who have dropped out, including Sen. Kamala Harris, haven't yet offered endorsements. (Judge Judy, meanwhile, endorsed Mayor Michael Bloomberg.) Washington Post
- Men's mentoring. Executive coach Rania H. Anderson argues that men gain just as much from mentorship of or by women as women do from mentor relationships with men: take Marguerite Zabar Mariscal, CEO of chef David Chang’s Momofuku Group, or Richard McPhail, successor to CEO Carol B. Tomé at Home Depot. Amid the ongoing conversation about men's supposed reluctance to mentor women after #MeToo, it's an interesting read. Harvard Business Review
- Four days for Finland. Finnish Prime Minister Sanna Marin proposed making standard across Finland a four-day, six-hour-a-day workweek. The Broadsheet has previously covered the benefits of modified workweeks for working women and the equitable distribution of domestic labor. Quartz
MOVERS AND SHAKERS: Sam's Club SVP and chief people officer Becky Schmitt will join Cognizant as EVP and chief people officer. Imperva named Infor's Pam Murphy CEO. Alyssa Mastromonaco, previous White House deputy chief of staff under President Obama, and Aisha Moodie-Mills, former president and CEO of the LGBTQ Victory Fund, join The Wing as senior political strategists leading its "2020 political programming and efforts."
IN CASE YOU MISSED IT
- Fundraising force. Mayor Pete Buttigieg has raked in $76 million since he started in the 2020 presidential race—more than any Democrat except Sen. Bernie Sanders. The woman behind Buttigieg's fundraising success is Swati Mylavarapu, a Silicon Valley vet of Google and Kleiner Perkins. Taking a cue from her background, she calls campaign fundraisers "investors" instead of "bundlers." Wall Street Journal
- -30-. Sue Shellenbarger has written the Wall Street Journal's Work and Family column since 1991—when she quit her own full-time job because of a lack of affordable childcare and her family's needs. On the eve of her retirement, she reflects on what's changed for working women in the nearly three decades since. From the executive profiled in 1996 who says she had to pretend to be going to meeting because she could "never say I wanted to see my child’s first-grade play," to the couples more equitably splitting domestic duties today. Wall Street Journal
- Another gender gap. One gender gap that's closing? Who's arrested for violent crimes. While men still overwhelmingly dominate arrests (this story doesn't get into the racial breakdown of statistics), the number of female arrests increased by 50% from 2015 to 2016 in the U.K. A private investigator offers this explanation for the uptick: women are now "the breadwinners in 40% of all households. If these women can’t pay the bills, some will resort to committing crimes." Guardian
ON MY RADAR
The Goop Lab trailer: It’s dangerous, it’s unregulated, and it’s Gwyneth Paltrow Vulture
Nike plans to leverage the popularity of Air Max sneakers to attract women customers in 2020 Glossy
Gen X women get less sleep than any other generation. What's keeping them up? Time
QUOTE
"In any other country, Joe Biden and I would not be in the same party, but in America, we are."
-Rep. Alexandria Ocasio-Cortez in a Cut profile


fortune--2020-01-07--How Elon Musk Built a Tesla Factory in China in Less Than a Year

Tesla Inc. kicked off production in China, marking a major step in Chief Executive Officer Elon Musk’s global push for electric-vehicle domination and heralding what could be the dawn of real competition in the world’s largest EV market.
Musk presided over a ceremony on Tuesday at a new multibillion-dollar plant near Shanghai — its first outside the U.S. — where the American company handed over the first China-made Model 3 sedans to the public, the first one being a white sedan going to a man from the nearby city of Wuxi. Technically, deliveries began last week but those were to employees.
Local production could help Musk build on recent momentum for the company in the country, which is also the world’s largest market for normal gas guzzlers. Tesla is storming into China with prices that aren’t much higher than those local manufacturers such as NIO Inc. and Xpeng Motors, while undercutting global giants such as BMW AG and Daimler AG.
Musk also introduced the Model Y crossover for the Chinese market, saying that demand for the vehicle will probably outstrip that of Tesla’s all other models combined. Other plans include forming a design-and-engineering center in China so that Tesla can eventually develop a brand new car from there, he said.
The Chinese plant, which was completed in record time as it sped through approvals and construction, represents a cornerstone of Musk’s plans to make Tesla a truly global carmaker. The company in November announced plans to build a factory in the middle of Germany’s automotive heartland to cater to burgeoning European demand for EVs.
Musk’s flagship company, named after famed inventor Nikola Tesla who died 77 years ago today, will now need to avoid a repeat of the glitches it experienced in its original car factory in California, where the company went through months of what Musk called “production hell” as it ramped up Model 3 production. After consistently falling well short of the CEO’s ambitious targets, the electric-car maker burned through billions of dollars and came within weeks of running out of money.
Lately, Tesla shares have been on a tear since the company reported a surprise quarterly profit in late October. The carmaker is on much steadier footing, having worked out the kinks that limited initial production of the Model 3 and managing to far outpace sales of many other automakers’ electric vehicles in the U.S.
The China plant is already assembling more than 1,000 cars a week, and aims to double that rate over the next year, Song Gang, the manufacturing director at the facility, said on Dec. 30. The company has said it plans to ramp up production to 150,000 Model 3 vehicles a year, of about 3,000 a week, when the first phase of the factory is completed and the company plans to boost production capacity to 500,000 a year after the following phase, although it isn’t clear when exactly Tesla expects to achieve those goals.
Musk’s charm offensive in China has appeared to pay off. Originally just a muddy plot about a 90-minute drive away from Shanghai’s city center, the China plant has quickly come online since it broke ground at the start of 2019. It took twice as long for Tesla’s Gigafactory near Reno, Nevada to begin churning out batteries.
Back in China, Tesla has been winning various concessions from local authorities ranging from approvals to preferential loans — all the more notable given the trade war with the U.S.
Various government officials including Mayor Ying Yong and Zhu Zhisong, deputy secretary-general of the Shanghai municipal government, were among the dignitaries attending Tuesday’s event. Vice Mayor Wu Qing said at the event that no foreign company has invested in a bigger manufacturing facility in the country.
Additionally, the locally built car was included last month on a list of vehicles qualifying for an exemption from a 10% purchase tax in China. It also qualified for a government subsidy of 24,750 yuan ($3,560) per vehicle.
The subsidies have helped Tesla cut prices, with the company announcing last week it would reduce the starting price of the Model 3 by 9% to 323,800 yuan and down to 299,050 yuan after subsidies. Prices could go down further as people familiar with the matter have said Tesla is considering further lowering the price of the sedans by using more local components and reduces costs.
About 30% of the parts now used by the Shanghai facility are sourced locally, and the company plans to increase that to 100% by the end of 2020, said Song, the manufacturing director, on Dec. 30.
Those prices put Tesla closer to some models from domestic EV makers, such as Xpeng Motor’s latest P7 sedan, which starts at 240,000 yuan. NIO’s SUVs start from 358,000 yuan, though that price doesn’t take into account subsidies.
Volkswagen AG’s Audi plans to start selling nine new-energy-vehicle models in China during the next two years, with more than half of them being pure battery-electric. The first electric model, the E-Tron, debuted in November at a starting price of about 693,000 yuan. Daimler’s Mercedes-Benz made its EQC available in October starting at 580,000 yuan. BMW plans to start building the iX3 crossover in China next year and is working with a Chinese partner to electrify its Mini model.
To sum it all up, so far so good but it remains to be seen whether Musk capitalizes on his winning streak to conquer the Chinese market.
More must-read stories from Fortune:
—7 M&As that defined a decade of dealmaking and reshaped the economy
—3 charts that prove patent power is tilting in Asia’s favor
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—These 10 journalists deserve justice in 2020
—2020 Crystal Ball: Predictions for the economy, politics, technology, etc.
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.