BusinessDay 30 Mar 2018

A2 BUSINESS DAY
C002D5556 Friday 30 March 2018
FT
Chinese electric carmaker sets
up US assembly plant...
NATIONAL
US subprime mortgage bonds back in fashion
Yield-hungry investors turn to assets blamed for financial crisis a decade ago
Continued from page A1
removing the risk of retaliation from
Washington.
“So far we think we should be all
right [as] some of our manufacturing
and servicing is in the US,” Mr Zhang
said just before SF Motors’ unveiling
late on Wednesday of two electric
vehicles it plans to launch in the US.
The first, a mid-range crossover SUV,
is due to go into trial production
before the end of this year.
The Chinese-owned company
has acquired a plant in Indiana,
and claims to be the only EV maker
with its own assembly facilities in
both China and the US. The heavily
automated plant is set to bring “a
few hundred” jobs to Indiana, Mr
Zhang said. SF Motors follows other
Chinese-owned electric carmakers
to base their US operations in Silicon
Valley, including Nio and Byton.
SF Motors is set to benefit from a
protected home market that promises
to give it much better economies
of scale than US competitors. China
is already the world’s largest EV market,
a lead that is projected to grow.
Mr Zhang said his company was
counting on its “global business
model” to give it an edge, leading
to lower unit costs and enabling it
to set its prices below other electric
vehicle companies. “We designed
the product for the global market,”
he said.
The company plans to produce
and launch its first vehicles on the
US west coast, where much of the
current demand is centred. Its US
assembly facility has a capacity of
50,000 vehicles a year but its plant
in China can make three times that
number, said Mr Zhang. At peak
capacity, that points to a global production
volume roughly twice what
Tesla achieved last year.
The spectre of Chinese competition
has led to increasing scrutiny
in Washington of the acquisition of
important US technology. Mr Zhang
said his company had developed the
electric power train for its vehicles
entirely in-house. It is looking for
partnerships in the US to develop
autonomous driving capabilities,
he said, a feature it hopes to start
adding to its cars in 2020.
SF Motors has also acquired American
technology outright, with last
year’s purchase of an electric car startup
established by Martin Eberhard, a
co-founder of Tesla. The company,
InEVit, “developed and patented a
unique EV chassis architecture, battery
module design innovations and
manufacturing techniques”, SF Motors
said at the time.
BEN MCLANNAHAN AND
JOE RENNISON
Issuance of securities backed by
riskier US mortgages roughly
doubled in the first quarter
from a year earlier, as investors
lapped up assets blamed for bringing
the global financial system to
the brink of collapse a decade ago.
Home loans to people with
scratches and dents in their credit
histories dwindled to almost nothing
in the aftermath of the crisis, as
litigation-weary lenders retreated
to patch up their balance sheets.
But over the past couple of years a
group of specialist firms has begun
to bring the loans back, navigating
a dense web of new rules drawn up
to protect borrowers and investors
in the $9.3tn US home-loan market.
Last year saw issuance of $4.1bn
of securities backed by loans that
would have been called “subprime”
before the last financial
crisis, according to figures from
Inside Mortgage Finance, with the
pace picking up in the latter half
of the year. The momentum has
continued into 2018, with deals
worth $1.3bn in the first quarter —
twice the $666m issued in the same
period a year earlier.
“The market is . . . starting from
such a small base that it has a lot
of room to grow,” said ca principal
at Axonic Capital, a New York
hedge fund with about $2bn in
Tim Cook: ‘If our customer was our product, we could make a ton of money. We’ve elected not to do that’ © Bloomberg
Apple seeks to take advantage of Facebook’s woes
Cook promotes conservative approach to using customer data amid online privacy uproar
TIM BRADSHAW
Apple is seeking to capitalise
on its conservative approach
to using customer data amid
the online privacy uproar fuelled by
the huge leak of Facebook data to
Cambridge Analytica.
When asked on an upcoming
MSNBC television interview what
he would do in Mark Zuckerberg’s
present position, Apple chief executive
Tim Cook took a swipe at the
Facebook founder. “I wouldn’t be
in this situation,” he said.
He also implicitly criticised
Facebook for failing to review apps
using its social network, like the
personality test that siphoned off
user data to Cambridge Analytica.
“We’re looking at every app in
detail,” he said, referring to Apple’s
longstanding App Store review
process. “We’re always looking at
improving and raising the bar.”
Privacy is a “human right” and a
“civil liberty”, Mr Cook said, echoing
the philosophical arguments he
made when fighting against the US
government over iPhone encryption
two years ago. He also repeated
his call, first made in China over the
weekend, for greater regulation of
personal data in the wake of news
that 50m Facebook users’ information
was used without their consent
by Cambridge Analytica.
In the past, Apple has been
criticised for not being more aggressive
in employing customer data
to improve its artificial intelligence
systems, such as virtual assistant
Siri, an area where some see the
iPhone maker as lagging rivals
such as Google and Amazon.
Now, Apple’s cautious approach
to privacy is starting to look like an
asset rather than a liability, as datacentric
advertising businesses such
as Facebook and Google come in
for widespread scrutiny.
Mr Cook told MSNBC that
Apple was deliberately leaving
money on the table by refusing to
use data to target advertising to its
hundreds of millions of customers.
“If our customer was our product,
we could make a ton of money,”
he said. “We’ve elected not to
do that.”
Instead of giving services away
for free and making money from
advertising, Apple sells highly
profitable hardware and software,
such as its latest $999 iPhone X.
“We care about the user experience
and we’re not going to
traffic in your personal life,” Mr
Cook said.
While tech stocks including
Facebook and Twitter have plunged
in the continuing crisis, analysts
have said Apple could be insulated
from any regulatory fallout.
“We expect over the next year
investors will look favourably on
Apple given the company’s privacyfirst
ethos in an age where privacy is
becoming a more prevalent topic,”
said Gene Munster, a former Apple
stock analyst turned venture capital
investor at Loup Ventures, in a note
last week.
Mr Cook’s comments came as
Apple is preparing to push deeper
into healthcare, where data protection
is an even more sensitive topic.
Apple is opening its own medical
clinics for employees, according
to job advertisements and a website
dedicated to the venture, and
rumours from its supply chain in
Asia point to new health-tracking
features in the next version of the
Apple Watch, due out later this year.
“Although Apple sometimes
speaks of privacy on moral
grounds . . . its business model
makes emphasising privacy easier
than for Google or Facebook,” analysts
at UBS said in a recent note.
“Still, Apple’s policy on not sharing
data for marketing purposes could
turn into a competitive advantage.
People tend not to worry about
privacy — until they do.“
However, Apple has not been
immune from criticism over how
it handles customer information.
Privacy activists took aim at Apple
for moving its Chinese customers’
iCloud data to China, which critics
say could make it easier for the
government there to obtain details
from those accounts.
The full interview with Mr Cook
will air on MSNBC on April 6.
assets under management. “[Investors]
are definitely chasing yields.
Whenever these deals come out,
for the most part, they are oversubscribed.”
Matt Nichols, founder and chief
executive of Deephaven Mortgage
of Charlotte, North Carolina, has
bought about $2bn of non-prime
loans from a network of 100 or
so brokers, and has re-sold about
$1.2bn of that into the mortgagebacked
securities market. He expects
issuance of nonprime MBS
to top $10bn this year.
“The originator appetite to
produce more of it is growing,” said
Mr Nichols, who spent more than
a decade running the residential
mortgage business at Goldman
Sachs. “It’s a question of loan officers
learning about the availability
of the products again and . . . being
willing to teach realtors and borrowers
that there is more credit
available.”
UK businesses caught
between Brexit and
Jeremy Corbyn
Executives unsure who they can support as
politics becomes more polarised
JOSHUA CHAFFIN
Andrew Varga is the quintessential
small manufacturer that politicians
claim to love.
But on a recent afternoon at Seetru,
the Bristol factory his family has run
for the past 69 years, Mr Varga was not
feeling much reciprocal affection for
Britain’s political class.
Scattered around him were trays of
freshly milled safety valves, the successors
to products his father, a Hungarian
immigrant, pioneered decades ago.
One-third of its £11m of sales go to the
EU and Mr Varga has petitioned several
MPs over Brexit, to little effect.
“There is no one that expresses our
voice, I don’t think,” he said. “I feel completely
disenfranchised.”
Since the Thatcher era, British business
has generally felt at ease with both
of the main political parties. Even when
they swapped power, the Conservatives
and Labour maintained a centrist
consensus built around free trade, free
enterprise and a growing role for the
private sector.
But as Britain’s politics become
more polarised in the Brexit era, many
executives are feeling uncharacteristically
shut out.
Their political choice has narrowed
to a Conservative party that is pushing
through policies on trade and immigration
that are antithetical to many businesses
and a Labour party whose leader,
Jeremy Corbyn, is an avowed socialist
who wants to nationalise chunks of
industry and raise taxes.
‘Who the hell do I vote for?’
It has become a parlour game among
executives to debate which is worse —
Brexit or Mr Corbyn. “It’s a real problem
for me — who the hell do I vote for?”
said one grandee who has sat on several
boards and now chairs a large financial
services company.
Like other executives, he was loath
to speak publicly for fear of damaging
relations with the powers that be, or offending
customers. In private, though,
he and others vented their frustration.
The idea, he said, that “if the economy
is strong, if business is doing well,
the country is doing well” was no longer
so widely held. He complained not only
about Brexit, which he opposed, but a
sense that politicians were no longer
listening to business as they drew up
policies for energy, education and other
areas.
A senior executive in the Midlands
said the Labour party under Mr Corbyn
“have no appreciation and understanding”
of business. Yet he was more
perplexed by the Conservatives, who
traditionally pride themselves on being
the party of business.
“The Tory party is so inward-looking
at the moment and tearing themselves
apart over Europe, and not worrying
about creating a positive environment
for business,” he said.