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Tesla’s Sales Drop, a Sign That Its Grip on the E.V. Market Is Slipping

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Tesla appeared to be losing command of the market it effectively created after it reported a stunning drop in quarterly sales on Tuesday, raising fresh questions about Elon Musk’s leadership of the company.

The sales decline caught investors off guard as rivals like BYD of China and Kia and Hyundai of South Korea reported increases in electric vehicle sales, suggesting that slower overall demand for battery-powered models was not the only explanation for Tesla’s problems.

Tesla pioneered the market for electric vehicles with its Model 3 sedan and Model Y sport utility vehicle, which proved that battery-powered cars could be appealing, practical and profitable. The cars revolutionized the auto industry and forced established carmakers to develop their own electric models.

But the market is evolving in ways that may not favor Tesla. In contrast to the early adopters who fueled Tesla’s rise, mainstream buyers may be put off by the vehicles’ unconventional design, including minimalist interiors and lack of buttons and switches. Almost all functions in Tesla vehicles are controlled from a large screen on the dashboard.

The system “makes it thoroughly distracting to adjust almost anything within the vehicle while motoring down the road,” Consumer Reports wrote in a review on Tuesday of a new version of the Model 3.

Tesla, which sells cars online and does not have many showrooms, is often the target of complaints about poor service. That may provide an advantage to established carmakers, like Ford Motor and General Motors, that have extensive dealer networks and are ramping up production of electric vehicles.

Tesla seems at a loss to respond to those challenges. It has been slow to follow up its initial success with new models, and Mr. Musk appears disengaged. He did not react Tuesday to the sales figures on X, the social media platform that he owns and posts on prolifically. Instead, he threw barbs at Walt Disney Company executives whom he accuses of being “woke.” Such remarks have made him a hero to conservatives but may be pushing liberals, who are more likely to buy electric cars, away from Tesla.

Tesla said it delivered 387,000 cars worldwide in the first quarter, down 8.5 percent from 423,000 in the same period last year. This was the first time Tesla’s quarterly sales have fallen on a year over year basis since a modest drop at the start of the pandemic in 2020. The sales figures were also significantly lower than the estimates of Wall Street analysts who had expected a modest increase.

“Tesla can’t stand still,” Ben Rose, president of Battle Road Research, said in an email. “Chinese E.V.s are already gaining a foothold in Europe, and it is unclear how long they will be forbidden from entering the U.S.”

More affordable cars would help Tesla appeal to a broader spectrum of buyers, Mr. Rose said.

To be sure, some of the sales decline may have reflected production problems beyond the company’s control, including a fire at a Tesla factory near Berlin that was the result of an arson attack.

And the company’s cars still have many fans. While panning the Model 3’s controls, Consumer Reports said the latest version provided a better ride than its predecessor and had improved handling.

But investors are clearly alarmed. Tesla’s shares have fallen more than 30 percent this year — including a 5 percent drop on Tuesday — because of concern that the company has lost momentum.

In China, Tesla faces BYD and dozens of other rivals with ambitions to expand worldwide. In Europe, established carmakers like Volkswagen and BMW have introduced more compelling battery-powered models. And in the United States, sales of electric cars are not growing as fast as they were a year ago, and many buyers are opting instead for hybrid models that pair a gasoline engine with batteries and electric motors.

Tesla rivals have continued to report sales increases. BYD said on Tuesday that it sold about 300,000 electric vehicles, up 13 percent from a year earlier. The company also sold 324,000 plug-in hybrid vehicles in the first quarter, up 15 percent.

BYD and other Chinese automakers have introduced new models rapidly, often undercutting Tesla on price. Those companies are also increasingly exporting cars to Europe, Southeast Asia and Latin America.

Kia, based in South Korea, said Tuesday that its sales of electric vehicles in the United States more than doubled in the first three months of the year compared with a year earlier after it introduced a new large sport utility vehicle, the EV9. Kia’s sister company, Hyundai, said it sold more than 10,000 electric vehicles in the first quarter in the United States, up 75 percent.

Toyota, the world’s largest automaker, doesn’t sell many fully electric vehicles. But the company said U.S. sales of electrified vehicles, a category largely made up of hybrids, under the Toyota and Lexus brands was up 74 percent in the first quarter.

Tesla pioneered mass-market electric cars, but its lineup is aging. The company’s only new model since 2020 is the Cybertruck, a futuristic pickup that went on sale in limited numbers last year. The least expensive version that Tesla says it can deliver this year starts at around $80,000, which makes it unaffordable to most car buyers.

Rivian, whose R1 pickup competes with the Cybertruck, said its sales, including of the truck and its two other models, rose 70 percent in the quarter, to 13,600 vehicles.

Tesla is working on an electric car that would cost around $25,000, but the model is not expected to go on sale in large numbers until 2026. In the meantime, Tesla remains dependent on the Model Y and the Model 3 for most of its sales.

The company has repeatedly cut prices, but analysts say the strategy has lowered its profits without doing enough to stimulate sales. The company has recently modestly raised the prices of some cars in the United States and China. The Model Y starts at nearly $45,000 before federal and state tax breaks, after an increase of $1,000 announced this week.

The quarterly sales figure shows Tesla managers “they need a real sales strategy and can’t rely on cutting price alone,” Gary Black, managing partner of the Future Fund, an investment firm, posted on X.

Mr. Musk, Tesla’s chief executive, has not given a clear indication of how the company plans to regain momentum. At the same time, his polarizing statements and endorsement of right-wing conspiracy theories have alienated many of the left-leaning customers who are most likely to buy electric cars.

Raphaelle Cassens, a Los Angeles resident, gave up her leased Tesla Model Y last year and replaced it with a leased electric BMW i4. Mr. Musk was one reason she switched, she said.

“Honestly, I don’t like him as an individual at all,” said Ms. Cassens, who is a registered Democrat but described herself as nonpartisan. She also said she received poor service from the company. “The attitude from the company definitely reflects the owner,” Ms. Cassens added.

At least one other large automaker is also struggling with electric vehicle sales. G.M. reported on Tuesday that its U.S. sales for the first quarter fell 1.5 percent, in large part because deliveries of battery-powered cars were down by about a fifth to around 16,000 vehicles.

The drop in battery-powered vehicle sales was the result of a sharp decline in sales of the Chevrolet Bolt, which G.M. stopped making at the end of 2023. Sales of other electric models that use G.M.’s newest battery technology rose but not enough to make up for the loss of the Bolt, which was one of the most affordable electric cars in the United States.



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The Paris Olympics’ One Sure Thing: Cyberattacks

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In his office on one of the upper floors of the headquarters of the Paris Olympic organizing committee, Franz Regul has no doubt what is coming.

“We will be attacked,” said Mr. Regul, who leads the team responsible for warding off cyberthreats against this year’s Summer Games in Paris.

Companies and governments around the world now all have teams like Mr. Regul’s that operate in spartan rooms equipped with banks of computer servers and screens with indicator lights that warn of incoming hacking attacks. In the Paris operations center, there is even a red light to alert the staff to the most severe danger.

So far, Mr. Regul said, there have been no serious disruptions. But as the months until the Olympics tick down to weeks and then days and hours, he knows the number of hacking attempts and the level of risk will rise exponentially. Unlike companies and governments, though, who plan for the possibility of an attack, Mr. Regul said he knew exactly when to expect the worst.

“Not many organizations can tell you they will be attacked in July and August,” he said.

Worries over security at major events like the Olympics have usually focused on physical threats, like terrorist attacks. But as technology plays a growing role in the Games rollout, Olympic organizers increasingly view cyberattacks as a more constant danger.

The threats are manifold. Experts say hacking groups and countries like Russia, China, North Korea and Iran now have sophisticated operations capable of disabling not just computer and Wi-Fi networks but also digital ticketing systems, credential scanners and even the timing systems for events.

Fears about hacking attacks are not just hypothetical. At the 2018 Pyeongchang Winter Olympics in South Korea, a successful attack nearly derailed the Games before they could begin.

That cyberattack started on a frigid night as fans arrived for the opening ceremony. Signs that something was amiss came all at once. The Wi-Fi network, an essential tool to transmit photographs and news coverage, suddenly went down. Simultaneously, the official Olympics smartphone app — the one that held fans’ tickets and essential transport information — stopped functioning, preventing some fans from entering the stadium. Broadcast drones were grounded and internet-linked televisions meant to show images of the ceremony across venues went blank.

But the ceremony went ahead, and so did the Games. Dozens of cybersecurity officials worked through the night to repel the attack and to fix the glitches, and by the next morning there was little sign that a catastrophe had been averted when the first events got underway.

Since then, the threat to the Olympics has only grown. The cybersecurity team at the last Summer Games, in Tokyo in 2021, reported that it faced 450 million attempted “security events.” Paris expects to face eight to 12 times that number, Mr. Regul said.

Perhaps to demonstrate the scale of the threat, Paris 2024 cybersecurity officials use military terminology freely. They describe “war games” meant to test specialists and systems, and refer to feedback from “veterans of Korea” that has been integrated into their evolving defenses.

Experts say a variety of actors are behind most cyberattacks, including criminals trying to hold data in exchange for a lucrative ransom and protesters who want to highlight a specific cause. But most experts agree that only nation states have the ability to carry out the biggest attacks.

The 2018 attack in Pyeongchang was initially blamed on North Korea, South Korea’s antagonistic neighbor. But experts, including agencies in the U.S. and Britain, later concluded that the true culprit — now widely accepted to be Russia — deliberately used techniques designed to pin the blame on someone else.

This year, Russia is once again the biggest focus.

Russia’s team has been barred from the Olympics following the country’s 2022 invasion of Ukraine, although a small group of individual Russians will be permitted to compete as neutral athletes. France’s relationship with Russia has soured so much that President Emmanuel Macron recently accused Moscow of attempting to undermine the Olympics through a disinformation campaign.

The International Olympic Committee has also pointed the finger at attempts by Russian groups to damage the Games. In November, the I.O.C. issued an unusual statement saying it had been targeted by defamatory “fake news posts” after a documentary featuring an A.I.-generated voice-over purporting to be the actor Tom Cruise appeared on YouTube.

Later, a separate post on Telegram — the encrypted messaging and content platform — mimicked a fake news item broadcast by the French network Canal Plus and aired false information that the I.O.C. was planning to bar Israeli and Palestinian teams from the Paris Olympics.

Earlier this year, Russian pranksters — impersonating a senior African official — managed to get Thomas Bach, the I.O.C. president, on the phone. The call was recorded and released earlier this month. Russia seized on Mr. Bach’s remarks to accuse Olympic officials of engaging in a “conspiracy” to keep its team out of the Games.

In 2019, according to Microsoft, Russian state hackers attacked the computer networks of at least 16 national and international sports and antidoping organizations, including the World Anti-Doping Agency, which at the time was poised to announce punishments against Russia related to its state-backed doping program.

Three years earlier, Russia had targeted antidoping officials at the Rio de Janeiro Summer Olympics. According to indictments of several Russian military intelligence officers filed by the United States Department of Justice, operatives in that incident spoofed hotel Wi-Fi networks used by antidoping officials in Brazil to successfully penetrate their organization’s email networks and databases.

Ciaran Martin, who served as the first chief executive of Britain’s national cybersecurity center, said Russia’s past behavior made it “the most obvious disruptive threat” at the Paris Games. He said areas that might be targeted included event scheduling, public broadcasts and ticketing systems.

“Imagine if all athletes are there on time, but the system scanning iPhones at the gate has gone down,” said Mr. Martin, who is now a professor at the Blavatnik School of Government at the University of Oxford.

“Do you go through with a half-empty stadium, or do we delay?” he added. “Even being put in that position where you either have to delay it or have world-class athletes in the biggest event of their lives performing in front of a half-empty stadium — that’s absolutely a failure.”

Mr. Regul, the Paris cybersecurity head, declined to speculate about any specific nation that might target this summer’s Games. But he said organizers were preparing to counter methods specific to countries that represent a “strong cyberthreat.”

This year, Paris organizers have been conducting what they called “war games” in conjunction with the I.O.C. and partners like Atos, the Games’ official technology partner, to prepare for attacks. In those exercises, so-called ethical hackers are hired to attack systems in place for the Games, and “bug bounties” are offered to those who discover vulnerabilities.

Hackers have previously targeted sports organizations with malicious emails, fictional personas, stolen passwords and malware. Since last year, new hires at the Paris organizing committee have undergone training to spot phishing scams.

“Not everyone is good,” Mr. Regul said.

In at least one case, a Games staff member paid an invoice to an account after receiving an email impersonating another committee official. Cybersecurity staff members also discovered an email account that had attempted to impersonate the one assigned to the Paris 2024 chief, Tony Estanguet.

Millions more attempts are coming. Cyberattacks have typically been “weapons of mass irritation rather than weapons of mass destruction,” said Mr. Martin, the former British cybersecurity official.

“At their worst,” he said, “they’ve been weapons of mass disruption.”



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'Bad at almost everything': AI wearable panned by reviewers

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A new AI-fuelled gadget has fallen foul of the tech world’s expectations.



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Microsoft Makes High-Stakes Play in Tech Cold War With Emirati A.I. Deal

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Microsoft on Tuesday plans to announce a $1.5 billion investment in G42, an artificial intelligence giant in the United Arab Emirates, in a deal largely orchestrated by the Biden administration to box out China as Washington and Beijing battle over who will exercise technological influence in the Gulf region and beyond.

Under the partnership, Microsoft will give G42 permission to sell Microsoft services that use powerful A.I. chips, which are used to train and fine-tune generative A.I. models. In return, G42, which has been under scrutiny by Washington for its ties to China, will use Microsoft’s cloud services and accede to a security arrangement negotiated in detailed conversations with the U.S. government. It places a series of protections on the A.I. products shared with G42 and includes an agreement to strip Chinese gear out of G42’s operations, among other steps.

“When it comes to emerging technology, you cannot be both in China’s camp and our camp,” said Gina Raimondo, the Commerce Secretary, who traveled twice to the U.A.E. to talk about security arrangements for this and other partnerships.

The accord is highly unusual, Brad Smith, Microsoft’s president, said in an interview, reflecting the U.S. government’s extraordinary concern about protecting the intellectual property behind A.I. programs.

“The U.S. is quite naturally concerned that the most important technology is guarded by a trusted U.S. company,” said Mr. Smith, who will take a seat on G42’s board.

The investment could help the United States push back against China’s rising influence in the Gulf region. If the moves succeed, G42 would be brought into the U.S. fold and pare back its ties with China. The deal could also become a model for how U.S. firms leverage their technological leadership in A.I. to lure countries away from Chinese tech, while reaping huge financial awards.

But the matter is sensitive, as U.S. officials have raised questions about G42. This year, a congressional committee wrote a letter urging the Commerce Department to look into whether G42 should be put under trade restrictions for its ties to China, which include partnerships with Chinese firms and employees who came from government-connected companies.

In an interview, Ms. Raimondo, who has been at the center of an effort to prevent China from obtaining the most advanced semiconductors and the equipment to make them, said the agreement “does not authorize the transfer of artificial intelligence, or A.I. models, or GPUs” — the processors needed to develop A.I. applications — and “assures those technologies can be safely developed, protected and deployed.”

While the U.A.E. and United States did not sign a separate accord, Ms. Raimondo said, “We have been extensively briefed and we are comfortable that this agreement is consistent with our values.”

In a statement, Peng Xiao, the group chief executive of G42, said that “through Microsoft’s strategic investment, we are advancing our mission to deliver cutting-edge A.I. technologies at scale.”

The United States and China have been racing to exert technological influence in the Gulf, where hundreds of billions of dollars are up for grabs and major investors, including Saudi Arabia, are expected to spend billions on the technology. In the rush to diversify away from oil, many leaders in the region have set their sights on A.I. — and have been happy to play the United States and China off each other.

Although the U.A.E. is an important U.S. diplomatic and intelligence partner, and one of the largest buyers of American weapons, it has increasingly expanded its military and economic ties with China. A portion of its domestic surveillance system is built on Chinese technology and its telecommunications work on hardware from Huawei, a Chinese supplier. That has fed the worries of U.S. officials, who often visit the Persian Gulf nation to discuss security issues.

But U.S. officials are also concerned that the spread of powerful A.I. technology critical to national security could eventually be used by China or by Chinese government-linked engineers, if not sufficiently guarded. Last month, a U.S. cybersecurity review board sharply criticized Microsoft over a hack in which Chinese attackers gained access to data from top officials. Any major leak — for instance, by G42 selling Microsoft A.I. solutions to companies set up in the region by China — would go against Biden administration policies that have sought to limit China’s access to the cutting-edge technology.

“This is among the most advanced technology that the U.S. possesses,” said Gregory Allen, a researcher at the Center for Strategic and International Studies and a former U.S. defense official who worked on A.I. “There should be very strategic rationale for offshoring it anywhere.”

For Microsoft, a deal with G42 offers potential access to huge Emirati wealth. The company, whose chairman is Sheikh Tahnoon bin Zayed, the Emirates’ national security adviser and the younger brother of the country’s ruler, is a core part of the U.A.E.’s efforts to become a major A.I. player.

Despite a name whimsically drawn from “The Hitchhiker’s Guide to the Galaxy,” in which the answer to the “ultimate question of life” is 42, G42 is deeply embedded in the Emirati security state. It specializes in A.I. and recently worked to build an Arabic chatbot, called Jais.

G42 is also focused on biotechnology and surveillance. Several of its executives, including Mr. Xiao, were associated with a company called DarkMatter, an Emirati cyber-intelligence and hacking firm that employs former spies.

In its letter this year, the bipartisan House Select Committee on the Chinese Communist Party said Mr. Xiao was connected to an expansive network of companies that “materially support” the Chinese military’s technological advancement.

The origins of Tuesday’s accord go back to White House meetings last year, when top national security aides raised the question with tech executives of how to encourage business arrangements that would deepen U.S. ties to firms around the world, especially those China is also interested in.

Under the agreement, G42 will cease using Huawei telecom equipment, which the United States fears could provide a backdoor for the Chinese intelligence agencies. The accord further commits G42 to seeking permission before it shares its technologies with other governments or militaries and prohibits it from using the technology for surveillance. Microsoft will also have the power to audit G42’s use of its technology.

G42 would get use of A.I. computing power in Microsoft’s data center in the U.A.E., sensitive technology that cannot be sold in the country without an export license. Access to the computing power would likely give G42 a competitive edge in the region. A second phase of the deal, which could prove even more controversial and has not yet been negotiated, could transfer some of Microsoft’s A.I. technology to G42.

American intelligence officials have raised concerns about G42’s relationship to China in a series of classified assessments, The New York Times previously reported. Biden administration officials have also pushed their Emirati counterparts to cut the company’s ties to China. Some officials believe the U.S. pressure campaign has yielded some results, but remain concerned about less overt ties between G42 and China.

One G42 executive previously worked at the Chinese A.I. surveillance company Yitu, which has extensive ties to China’s security services and runs facial-recognition powered monitoring across the country. The company has also had ties to a Chinese genetics giant, BGI, whose subsidiaries were placed on a blacklist by the Biden administration last year. Mr. Xiao also led a firm that was involved in 2019 in starting and operating a social media app, ToTok, that U.S. intelligence agencies said was an Emirati spy tool used to harvest user data.

In recent months, G42 has agreed to walk back some of its China ties, including divesting a stake it took in TikTok owner ByteDance and pulling out Huawei technology from its operations, according to U.S. officials.

Edward Wong contributed reporting.



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