This is an audio transcript of the FT News Briefing podcast episode: ‘Boris Johnson drops out’

Marc Filippino
Good morning from the Financial Times. Today is Monday, October 24th, and this is your FT News Briefing.

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Former Prime Minister Boris Johnson is dropping out of the Conservative leadership race in the UK. British companies have been throwing up a lot of red flags lately. And airlines are getting slammed by an aircraft shortage. Plus, Toyota is the godfather of hybrid cars, just think of the Prius. But the company is having a hard time finding success with a fully electric vehicle. We’ll explain why. I’m Marc Filippino, and here’s the news you need to start your day.

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It seems like one time as UK prime minister was more than enough for Boris Johnson. On Sunday he said he would withdraw from the UK’s Tory leadership race. This despite saying he has the 100 nominations he needs from Tory MPs to continue in the race. But some MPs are not convinced Johnson actually has the numbers. Former chancellor Rishi Sunak is the clear frontrunner to take over for outgoing Prime Minister Liz Truss. Sunak lost to Truss earlier this year when the two were vying to take over for Johnson when he stepped down as prime minister in July. Sunak is the only candidate with more than 100 nominations. Penny Mordaunt, the House of Commons leader, has just about two dozen at the time that I’m recording this. Mordaunt is second to Sunak in this race now that Johnson has dropped out. If no one else reaches the 100 nomination threshold by two o’clock Monday afternoon, Sunak becomes prime minister.

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Profit warnings are skyrocketing at UK companies. These are statements that tell the stock exchange full-year profits will be below market expectations. And more FTSE-listed companies have been forced to issue profit warnings this quarter than at any time since the global financial crisis in 2008. In case you’re wondering about the hard numbers, UK companies issued 86 profit warnings in the third quarter of 2022. They issued only 51 last year at the same time. So what’s the deal? Well, it’s getting more expensive to do business in the UK. Inflation is at a 40-year high, and demand is falling as economic conditions get worse.

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Airlines are being hit by a jet shortage. The delays in getting new planes from Boeing and Airbus are causing companies to reduce the number of flights they run. That’s creating more disruption in an industry that’s already struggling with staff shortages. The FT’s Claire Bushey says the coronavirus pandemic kickstarted these supply chain issues.

Claire Bushey
And suddenly, you know, airlines didn’t want jets because no one was flying. And so that hit production rates. And the big manufacturers, Boeing and Airbus, they can kind of absorb this hard, fast slowdown. But for all the smaller companies that are in the supply chain, they have gotten bigger. And so when their customers say, eh, you know, we’re not gonna be buying your product as much as you thought we were gonna be buying your product, that sends shockwaves throughout the whole supply chain. And so when the airlines wanted to start buying planes again because people started travelling again, it was not as easy as turning on a switch for Boeing and Airbus to restart their supply chains after they have been through, you know, all these shocks over the past few years.

Marc Filippino
Claire, why is this such a big deal? What’s the ripple effect?

Claire Bushey
The reason why it matters that airlines have fewer jets than they would like to is that they can’t offer as many flights as they would like without as many planes to actually ferry the people from point A to point B. So for the airlines that are experiencing a lot of demand and are using the jets that they have efficiently, not having as many jets as they would like means leaving revenue on the table that they could otherwise be sweeping up.

Marc Filippino
Claire Bushey is the FT’s Chicago correspondent.

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Toyota was a pioneer in low emissions vehicles. Its Prius hybrid car has been wildly successful all over the world. But oddly enough, the carmaker is struggling with purely electric vehicles. Toyota started selling its all electric car five months ago, and it’s had some problems. Here’s the FT’s Eri Sugiura.

Eri Sugiura
Compared to global rivals like Volkswagen or GM, which are increasingly focusing on EVs, Toyota has been pushing mainly its hybrid cars. They are also investing heavily on fuel-celled cars, which has batteries fuelled by hydrogen. But Toyota is not all in on EVs.

Marc Filippino
OK, so what are the arguments for not moving more quickly to electric vehicles, Eri?

Eri Sugiura
So Toyota has been arguing that a wide range of options are needed to achieve carbon neutrality. Not only battery electric cars, despite the recent big success that we’ve seen with Tesla. Toyota says that we have charging infrastructure in Europe, US or in China, but that’s not the case in other markets, including Japan and emerging markets. How countries source their electricity is another aspect to think about. Toyota says that if coal or other fossil fuels are used to generate power, EVs won’t be green. So with, you know, tightening regulations in Europe, the US and China, they do agree that EVs will eventually be the mainstream. But during this transition period, they think and they argue that hybrids can be the best choice.

Marc Filippino
Now, Toyota did roll out a fully electric vehicle, but that rollout was botched. What went wrong?

Eri Sugiura
Right. So they issued a recall in June because Toyota said that wheels of the model, which is called bZ4X, could fall off because of problems with bolts. It was only less than two months after the launch. It’s only earlier this month that Toyota started producing the vehicle again, having fixed the flaws. And, you know, it happened on its first mass-produced EV model that investors and drivers were waiting for. And Toyota wanted to show that it is embracing the car industry’s transition to electric with this model. So that was a big blow for Toyota.

Marc Filippino
Now, the way I understand it, Eri, they also have an unusual business model in that when it comes to electric vehicles, they’re asking consumers to lease or rent cars, not buy them. Why are they doing that?

Eri Sugiura
So they call it subscription or simply leasing. This introduced for this EV model only in Japan. So in the rest of the world, they keep the conventional sales model. But Toyota has several rationales here. One obvious reason is because Toyota thought Japan is not mature enough to sell EVs as its penetration rate is only 1 per cent of new car sales. So they probably thought it might be difficult to get the model sold. But more fundamentally, some analysts believe that Toyota wants to change the business model involving EVs. So by retaining ownership, Toyota thinks it can give longer life to batteries and the much needed precious metals used like lithium, nickel and copper. Toyota’s chief scientist told the FT previously that the automotive industry is very concerned about the industry running out of materials for battery supply. So Toyota is trying to cope with that with this subscription model.

Marc Filippino
So are you suggesting that Toyota actually is being more realistic in that it understands these EV targets, and they know that they’re gonna be incredibly difficult to meet?

Eri Sugiura
Yeah, exactly. Toyota is, you know, really good at explaining precisely why they think EVs only is not a good way to reach carbon neutrality. Looking at markets all over the world. But at the same time, analysts also say that this excuse is not what they’re expecting from the world’s largest carmaker. They want leadership from Toyota to navigate one of the biggest transformations of the automotive industry. So, you know, Toyota has a decades old reputation as a pioneer in green technology thanks to the Prius. But what is at stake now is whether the company can keep this position.

Marc Filippino
That’s the FT’s Eri Sugiura.

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Before we go, just a heads-up that “Davos in the Desert” kicks off on Tuesday. This is Saudi Arabia’s annual Future Investment Initiative conference. And if you’re wondering if rocky US-Saudi relations will keep US bankers out of the conference, they won’t. The guest list includes Jamie Dimon, the head of JPMorgan Chase; Stephen Schwarzman, the co-founder of Blackstone; and David Solomon, head of Goldman Sachs. Just a few weeks ago, Saudi Arabia and the oil group Opec said there would be a cut in oil production, a big slap in the face to the US, which is struggling to keep energy costs low. In response, President Joe Biden said he would have to re-evaluate America’s relationship with the Kingdom.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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