ConocoPhillips beats profit estimates on higher production, prices

(Reuters) – ConocoPhillips beat quarterly profit estimates on Thursday as the world’s largest independent oil producer sold more oil at higher prices, sending its shares up 2 percent before the opening bell.

FILE PHOTO – Logos of ConocoPhillips are seen in its booth at Gastech, the world’s biggest expo for the gas industry, in Chiba, Japan, April 4, 2017. REUTERS/Toru Hanai/File Photo GLOBAL BUSINESS WEEK AHEAD

Total production, excluding Libya, rose 94,000 barrels of oil equivalent per day (boe/d) to 1.31 million boe/d in the fourth quarter.

The company also said it received $85 million from Venezuela’s PDVSA in the fourth quarter as part of a $2 billion arbitration that the company is settling with the embattled state-run producer.

The $85 million brings the total payout under the agreement to $430 million, below the expected $500 million in 2018. Conoco has said that if PDVSA does not continue to meet its obligations, it would renew its efforts to seize the company’s assets around the world.

A Conoco spokesman declined immediate comment on the Houston-based company’s next steps to enforce the arbitration award.

Analyst Scott Hanold of RBC Capital Markets said the company was likely to cover any shortfall in the payout “in kind”, taking oil to sell to the market.

At home, Conoco, like its peers, has been riding a surge in crude production in the U.S. shale basins. The country’s output has reached record levels, overtaking that of Saudi Arabia and Russia to become the top world producer.

Conoco said total realized price per barrel was $53 in the fourth quarter, compared with $46.10 per barrel a year earlier.

“The combination of production and price realizations drove the outperformance,” analyst Hanold said.

In the first quarter of 2019, ConocoPhillips expects to produce 1.29 million boe/d to 1.33 million boe/d.

The company said adjusted net income rose to $1.31 billion, or $1.13 per share, in the fourth quarter ended Dec. 31, from $540 million, or 45 cents per share, a year earlier.

Analysts had expected a profit of $1.01 per share, according to IBES data from Refinitiv.

Shares of the company were up 1.8 percent at $66.85 before the bell.

Reporting by Debroop Roy in Bengaluru; Editing by Maju Samuel

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Boeing profit beats; targets 900 plane deliveries in 2019

(Reuters) – Boeing Co shares jumped on Wednesday as the world’s largest planemaker raised its profit and cash flow expectations for 2019 amid a boom in air travel, while indicating it had overcome supplier delays that snarled production last year.

FILE PHOTO: Employees are pictured as the first Boeing 737 MAX 7 is unveiled in Renton, Washington, U.S. February 5, 2018. REUTERS/Jason Redmond/File Photo

Chicago-based Boeing said it expects to deliver between 895 and 905 commercial aircraft in 2019, up from 806 aircraft it delivered last year, which kept it ahead of rival Airbus SE for the seventh straight year.

Investors closely watch the number of planes Boeing turns over to airlines and leasing firms in a year for hints on the company’s cash flow and revenue.

Boeing’s shares rose 6.4 percent to $388.25 in early trading , helping lift U.S. stock futures.

Boeing raised its full-year core earnings per share forecast to $19.90-$20.10 from $14.90-$15.10, and revenue to a range of $109.5 billion to $111.5 billion, from $98 billion to $100 billion, fueled by strong volume across its commercial, military and services businesses.

Boeing Chief Executive Dennis Muilenburg said the company’s performance provides a “firm platform” to further invest in new innovation as the aviation industry is awaiting a 2019 decision on whether Boeing will move ahead with a new mid-sized aircraft dubbed NMA.

It also said the first all-new 777X widebody flight test airplane completed final body join and power-on, and the program remains on track for flight testing this year and first delivery in 2020.

The company forecast operating cash flow between $17 billion and $17.5 billion in 2019, compared with cash flow of $15.32 billion in 2018, and above analysts’ average estimate of $16.73 billion, according to IBES data from Refinitiv.

It expected 2019 core earnings between $19.90 per share and $20.10 per share, and revenue between $109.5 billion and $111.5 billion.

Those numbers indicate that the fuselage and engine delays at suppliers that dominated last year are largely behind Boeing. Even so, production logjams dragged down quarterly free cash flow to $2.45 billion, below the previous year.

Boeing’s core earnings rose to $5.48 per share in the fourth quarter, from $5.07 per share a year earlier, and came in above Wall Street’s estimate of $4.57 per share.

Quarterly revenue rose 14.4 percent to $28.34 billion, above analysts’ average expectation of $26.87 billion. Boeing’s 2018 revenue surpassed $100 billion for the first time in its 102-year history.

Reporting by Ankit Ajmera in Bengaluru and Eric M. Johnson in Seattle; Editing by Sriraj Kalluvila and Nick Zieminski

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Mnuchin says Huawei case ‘separate issue’ from China trade talks

FILE PHOTO – U.S. Treasury Secretary Steve Mnuchin speaks during a TV interview at the White House in Washington, U.S., May 21, 2018. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) – U.S. Treasury Secretary Steve Mnuchin said on Tuesday he expected to see significant progress in trade talks with Chinese officials this week and that U.S. charges against telecommunications giant Huawei were a separate issue.

“Those are separate issues and that’s a separate dialogue,” Mnuchin said in an interview with Fox Business Network. “So those are not part of trade discussions. Forced technology issues are part of trade discussions but any issues as it relates to violations of U.S. law or U.S. sanctions are going through a separate track.”

Reporting by Doina Chiacu and Susan Heavey

Facebook tightens paid ads rules ahead of EU elections

BRUSSELS (Reuters) – Facebook said on Monday it will beef up its rules and safeguards around political adverts to prevent foreign interference in elections, including those in Europe this year.

Figurines are seen in front of the Facebook logo in this illustration taken March 20, 2018. REUTERS/Dado Ruvic

The world’s largest social network has faced pressure from regulators and the public after last year’s revelation that British consultancy Cambridge Analytica had improperly acquired data on millions of U.S. users to target election advertising.

“We will require those wanting to run political and issue ads to be authorized, and we will display a ‘paid for by’ disclaimer on those ads,” Facebook’s recently-appointed head of global affairs Nick Clegg told a news conference.

Clegg, a former British deputy prime minister hired by Facebook in October last year, said the new tools to be launched in late March aim to help protect the integrity of European Union elections due to be held this spring.

Facebook said that the transparency tools for electoral ads would be expanded globally before the end of June, while the tools would be in launched in India in February before its elections and in Ukraine and Israel before polls in both.

The tools are similar to those adopted for the U.S. mid-term elections, Clegg said, adding that all political ads will be stored in a publicly searchable library for up to seven years.

This will contain information such as the amount of money spent and the number of impressions displayed, who paid for them and the demographics of those who saw them, including age, gender and location.

The new tools, which will be launched in March, will also cover ‘issue ads’ which do not explicitly back one candidate or political party but which focus on highly politicized topics like immigration.

Facebook said it will also set up two new regional operations centers focused on monitoring election-related content in its Dublin and Singapore offices.

Clegg denied that Facebook sells users’ data.

“Selling people’s information to advertisers would not only be the wrong thing to do, it would undermine the way we do business, because it would reduce the unique value of our service to advertisers,” he said.

Reporting by Foo Yun Chee; Editing by Alexander Smith

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Three years later, India’s bankruptcy reform languishes in courts

MUMBAI (Reuters) – When India introduced new bankruptcy resolution rules in 2016, government officials and investors said they expected debt-burdened state-owned banks to clear up some of their bad loans and create a dynamic market in restructured debt.

FILE PHOTO: Commuters walk past a bank sign along a road in New Delhi, India November 25, 2015. REUTERS/Anindito Mukherjee/File Photo

Ultimately, they said, they hoped the reform would remove an impediment to higher economic growth.

Almost three years later, those hopes have been badly dented. Litigation has tied down some big restructuring deals and bankers are starting to sell bad debts at fire sale prices rather than wait for the system to work better.

That is bad news for Prime Minister Narendra Modi, who is keen to get banks lending more to stimulate the economy and create more jobs ahead of an election due by May this year.

“The delay (in resolution) definitely affects the diligence and planning effort of financial investors,” said Vijay Padmanabhan, director of KKR & Co. Inc., one of world’s biggest private equity firms which has said it is keen on investing in India’s distressed assets.

Although Padmanabhan said the current bankruptcy process was faster than before, he cautioned that “litigations have to be contained and timelines have to be maintained to generate serious interest amongst financial investors.”

The Insolvency and Bankruptcy Code, introduced in May 2016, allows even small creditors to file insolvency petitions against a company that had defaulted on debt. Once the petition is accepted by a court, a resolution plan has to be decided within 270 days, failing which the company will be liquidated.

The idea was the law would provide an incentive to owners to negotiate over distressed debt, rather than face an accelerated bankruptcy process over which they would have very little control.

It would also pull in foreign investors seeking distressed investments and potentially high returns, said Siby Antony, chairman of distressed assets resolution business at Edelweiss, which specializes in turning around debt-ridden companies.

Then, the owners of one of India’s biggest defaulters – Essar Steel, which owes 508 billion rupees ($7.11 billion) mostly to state banks – challenged the bankruptcy court’s decision to sell the steel producer to Arcelor Mittal, taking it away from its previous owners, the brothers Shashi and Ravi Ruia.

The nine months set for the process has now stretched to more than one and a half years, leaving creditors still not knowing how much of their money will be returned.

RESTRICTIONS ON LITIGATION

The debt of Bhushan Power and Steel Ltd, Jyoti Structures (JYTS.NS) and scores of other companies are also stuck in similar litigation.

While the bankruptcy code was a step forward, it would have been more effective if it had included restrictions on the scope for litigation, bankers and investors said.

India has 14.5 trillion rupees ($204.16 billion) of distressed assets, of which only around 730 billion rupees ($10.26 billion), or about 5 percent, have been resolved. However, only about half of this sum has so far been recouped by the banks due to legal challenges that have stalled payments.

“It would have been helpful if all the nuances of the law and possible outcomes were thought through,” said Alok Verma, executive director at Kotak Investment Banking, part of the Kotak Mahindra Group which works with clients looking at distressed assets in India.

So far out of 1,198 cases admitted under insolvency process, only 52 have seen approval of resolution plans, and even among those, repayments are still to be made to lenders.

“Most foreign investors are sitting on the fence waiting for the resolution process to stabilize,” said Antony of Edelweiss.

But Anthony does hold some hope that the system will speed up once the Essar Steel issue is resolved as that would set a precedent. “Once the big accounts are cleared the pipeline will move fast,” he predicted.

In the meantime, bankers are now looking to sell some of their bad assets at a steep discount to free up capital.

India’s largest lender State Bank of India is looking to put its 150.4 billion rupees ($2.1 billion) exposure to Essar Steel on the block at 62 cents to the dollar. Other lenders to the company are weighing similar options as prolonged litigation might cost them more in terms of provisions for losses and loss in interest income than any final recovery they might make, one banker to Essar said.

For capital-starved Indian banks, taking such haircuts is costly. But for the economy, it is an even greater cost given banks fund more than 60 percent of India’s credit requirements.

“State-owned banks’ core capital ratios are already very weak and that is the main factor constraining their capacity to lend,” said Saswata Guha, director and head of financial institutions at Fitch Ratings. “It eventually poses a risk to economic growth.”

(GRAPHIC: India’s stressed debt interactive – tmsnrt.rs/1Sf4ij7)

Additional reporting by Euan Rocha; Editing by Martin Howell

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Malaysia probing audit firms’ conduct in 1MDB scandal

KUALA LUMPUR (Reuters) – Malaysia’s securities regulator said on Saturday it was looking into the conduct of auditors of 1Malaysia Development Bhd (1MDB), a state fund that was wound up after losing billions of dollars in a scandal that erupted under the country’s previous government.

FILE PHOTO: A construction worker talks on the phone in front of a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia, February 3, 2016. REUTERS/Olivia Harris/File Photo

“The Securities Commission’s review of the conduct of auditors in relation to 1MDB audits is still on-going,” the regulator said in an emailed statement to Reuters, without identifying the firms involved.

The statement was issued following a South China Morning Post report on Friday that cited sources saying that the regulator was reviewing the work carried out by international auditors KPMG and Deloitte to see if they were “were aiding and abetting in this scandal, or merely negligent.”

KPMG and Deloitte did not respond to requests from Reuters for comment.

Once the review is completed, the Securities Commission and its Audit Oversight Board “will assess the findings and consider the appropriate next course of action,” the regulator said.

1MDB is the subject of money laundering investigations in at least six countries, including the United States and Malaysia. The U.S. Department of Justice has alleged that over $4.5 billion was stolen from 1MDB by top officials of the fund and their associates between 2009 and 2014.

Deloitte audited 1MDB’s financial statements for 2013 and 2014, before it resigned as the fund’s auditor in early 2016.

It had taken over after 1MDB fired its earlier auditors, KPMG and Ernst & Young, authorities have said.

After the Justice Department filed civil lawsuits in 2016 over 1MDB, Deloitte said the 1MDB finance statements it had audited should no longer be relied upon.

In June last year, 1MDB said KPMG had informed the fund that 1MDB’s financial statements for the financial years ending March 2010, 2011 and 2012 audited by KPMG did not provide a true and fair assessment of the company.

Investigations into 1MDB were reopened in Malaysia after Prime Minister Mahathir Mohamad unexpectedly won a general election in May.

The 1MDB scandal was a major reason for former premier Najib Razak’s shock election loss. Najib has since been charged with graft over 1MDB, the fund he founded in 2009. He has pleaded not guilty and has denied any wrongdoing.

Goldman Sachs (GS.N), which helped sell 1MDB bonds, is also facing criminal charges in Malaysia.

Reporting by Liz Lee, writing by A. Ananthalakshmi; Editing by Simon Cameron-Moore

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Oil prices climb as U.S. threatens sanctions against Venezuela

LONDON (Reuters) – Oil prices edged up on Friday as turmoil in Venezuela increased the chances of tighter global supply if the United States makes good on signals that it could impose sanctions on Venezuelan exports.

FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson/File Photo

But fresh data on surging U.S. fuel stocks and worries about U.S.-China trade talks weighed on prices.

Brent crude oil futures were at $61.17 a barrel at 0955 GMT, up 8 cents, or 0.13 percent. Earlier on Friday, the international benchmark crude rose as high as $61.92.

Brent, however, has shed about 2.4 percent since the start of trade on Monday and is on track to post its first week of losses in four weeks.

U.S. West Texas Intermediate (WTI) crude futures were at $53.34 per barrel, up 21 cents, or 0.4 percent.

Amid violent street protests, Venezuela’s opposition leader Juan Guaido declared himself interim president this week, winning recognition from Washington and parts of Latin America.

Nicolas Maduro, the country’s leader since 2013, responded by breaking relations with the United States.

“The oil market is partially pricing in the risk to Venezuela’s crude production, which has been plummeting in recent years,” Vandana Hari of Vanda Insights said.

RBC Europe predicted that sanctions could nearly double projected output shortfalls from the troubled exporter.

“Venezuelan production will decline by an additional 300,000-500,000 barrels per day (bpd) this year but such punitive measures could expand that outage by several hundred thousand barrels.”

Global oil markets are still well supplied, however, thanks in part to surging output in the United States.

Record U.S. production would likely offset any short-term disruptions to Venezuelan supply due to possible U.S. sanctions, Britain’s Barclays said in a note. The bank cut its 2019 average Brent forecast to $70 a barrel, from $72 previously.

The output surge has swollen U.S. fuel stocks, and crude inventories rose by 8 million barrels last week, according to official data released on Thursday.

But demand may start to stutter because of a global economic slowdown, which is likely to dent fuel consumption.

A trade dispute between the United States and China and tightening financial conditions around the world have hurt manufacturing activity in most economies and dragged China’s growth last year to the weakest in nearly 30 years.

According to Reuters polls of hundreds of economists worldwide, a synchronized global economic slowdown is underway and would deepen if the U.S.-China trade war escalated.

(Graphic: U.S. oil output, storage levels – tmsnrt.rs/2GYfhAi)

Reporting by Noah Browning; Additional reporting by Henning Gloystein and Koustav Samanta in Singapore and Colin Packham in Sydney; Editing by Dale Hudson

Renault to name new leaders as scandal-hit Ghosn bows out

PARIS (Reuters) – Renault’s (RENA.PA) board was meeting on Thursday to appoint new leadership, after Chairman and Chief Executive Carlos Ghosn resigned in the wake of a financial scandal that has rocked the French carmaker and its alliance with Japan’s Nissan (7201.T).

FILE PHOTO: Carlos Ghosn, chairman and CEO of the Renault-Nissan-Mitsubishi Alliance, attends the Tomorrow In Motion event on the eve of press day at the Paris Auto Show, in Paris, France, October 1, 2018. REUTERS/Regis Duvignau/File Photo

The French government, Renault’s biggest shareholder, confirmed the board was being asked to name outgoing Michelin (MICP.PA) boss Jean-Dominique Senard as chairman and Ghosn’s deputy Thierry Bollore as chief executive.

Senard and Bollore “will be presented this morning to the board of directors”, government spokesman Benjamin Griveaux said before the meeting began at 0900 GMT.

The widely expected appointments may begin to resolve a Renault-Nissan leadership crisis that erupted after Ghosn’s Nov. 19 arrest in Japan and swift dismissal as Nissan chairman.

They also mark a clear end to one of the auto industry’s most feted careers, two decades after Ghosn was despatched by former Renault CEO Louis Schweitzer to rescue newly acquired Nissan from near-bankruptcy – a feat he pulled off in two years.

After 14 years as Renault CEO and a decade as chairman, Ghosn formally resigned from both roles on the eve of the board meeting, French Finance Minister Bruno Le Maire said.

Ghosn’s arrest and indictment for financial misconduct has strained the Renault-Nissan relationship, threatening the future of the industrial partnership he transformed into a global carmaking giant over two decades.

For two months, the tensions deepened as Renault and the French government stuck by Ghosn despite the revelation he had arranged to be paid tens of millions of dollars in additional income, unbeknownst to shareholders.

Ghosn has been charged with failing to disclose more than $80 million in additional compensation for 2010-18 that he had agreed to be paid later. Nissan director Greg Kelly and the Japanese company itself have also been indicted.

Both men deny the deferred pay was illegal or required disclosure, while not contesting the agreements’ existence. Ghosn has denied a separate breach of trust charge over personal investment losses he temporarily transferred to Nissan in 2008.

Ghosn finally agreed in recent days to step down from Renault, Reuters reported on Tuesday – but only after the French government called for leadership change and his bail requests were rejected by the Japanese courts.

Senard, 65, faces the immediate task of soothing relations with Nissan, which is 43.4 percent-owned by Renault but the larger partner by sales.

Following Ghosn’s arrest, Nissan CEO Hiroto Saikawa had sought to weaken Renault’s control and resisted its attempts to nominate new directors to the Japanese carmaker’s board.

In a possible sign of detente on Thursday, Nissan called an April shareholder meeting to appoint a Renault-nominated board member and formally terminate Ghosn and Kelly’s directorships. It remains unclear whether Renault, as Nissan’s parent, will also name its next chairman.

Nissan currently owns a 15 percent non-voting stake in its French parent and 34 percent in Mitsubishi Motors (7211.T), a third major partner in their manufacturing alliance.

Once its new management is settled, French officials want the alliance to resume work on a new ownership structure to cement the partnership – which Ghosn had been mandated to explore when his Renault contract was renewed last year.

Nissan is wary of any such move. In an interview last week, Saikawa acknowledged shareholders’ concerns that the current structure undervalues their investments, but added that altering it was “really not the current priority”.

Editing by Elaine Hardcastle and Mark Potter

BOJ maintains massive stimulus as Kuroda warns of growing risks

TOKYO (Reuters) – The Bank of Japan cut its inflation forecasts on Wednesday but maintained its massive stimulus program, with Governor Haruhiko Kuroda warning of growing risks to the economy from trade protectionism and faltering global demand.

A security guard walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2019. REUTERS/Issei Kato

Rising pressure from the trade war between China and the United States — Japan’s biggest trading partners — is adding to strains on the world’s third-largest economy and undermining years of efforts by policymakers to foster durable growth.

Data earlier in the day showed Japan’s exports in December fell the most in two years.

“To be honest, if U.S.-China trade tensions are drawn out, there will be a serious risk to the global economy – first to the two countries’ own economies,” Kuroda told a news conference after the end of the two-day policy review.

“For now, that possibility is slim, and I hope they will resolve this soon.”

As expected, the BOJ trimmed its inflation forecasts, reinforcing views that it will have to stick with its unprecedented economic support for some time to come.

But despite rising risks such as trade disputes and Brexit, the central bank also maintained its view that Japan’s economy will continue to expand at a modest pace.

Kuroda struck an optimistic tone, saying the economy would likely continue expanding through fiscal 2020.

However, a recent Reuters poll of economists showed external factors have increased the chances of Japan sliding into a recession in the fiscal year starting in April, making it even harder for the BOJ to reach its elusive 2 percent inflation target.

China on Monday reported its slowest growth in nearly three decades and it is expected to lose more steam in coming months. The International Monetary Fund (IMF) trimmed its global growth forecasts and a survey showed increasing pessimism among business chiefs amid the trade tensions.

“Such downside risks concerning overseas economies are likely to be heightening recently, and it also is necessary to pay close attention to their impact on firms’ and households’ sentiment in Japan,” the BOJ said in a quarterly outlook report released along with the policy decision.

The BOJ reiterated a pledge to continue buying Japanese government bonds and left its short-term interest rate target unchanged at minus 0.1 percent. It also said it would keep guiding 10-year government bond yields around zero percent.

“It will be difficult for the BOJ to discuss policy normalization or an exit strategy for the moment as risks from global economies are rising,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

“The central bank will likely save easing measures for later and it will examine how the Fed policy movement will be and how it will likely impact the yen,” he said.

Concerns about a global slowdown and volatile financial markets have prompted the U.S. Federal Reserve to take a more cautious stance on future interest rate increases after four hikes last year, weighing on the dollar.

LOWER INFLATION FORECAST

In its outlook report, the BOJ’s nine-member board cut its economic growth projections for the current fiscal year to March but raised its growth forecasts slightly for the fiscal years 2019 and 2020, with government spending expected to offset the pain of a planned sales tax hike this October.

The BOJ cut its forecast for core consumer inflation to 0.9 percent in the coming fiscal year from 1.4 percent, reflecting slumping oil prices. It was the fourth downward revision by the central bank to its inflation forecast for fiscal 2019 since it was first issued in April 2017.

That was still above a 0.7 percent forecast by analysts polled by Reuters.

The central bank also trimmed core consumer inflation view for fiscal 2020 to 1.4 percent, from 1.5 percent forecast in October.

Many economists believe the BOJ’s next move will be to start normalizing policy, with steps likely to include expanding its 10-year bond yield fluctuation from 0.2 percent and raising the 10-year yield target from around zero percent.

A majority expect that would happen in 2020 or later.

As part of efforts to prevent financial institutions from sitting on a huge pile of cash, the central bank decided to extend the deadline by one year for lending schemes aimed at encouraging financial institutions to boost loans and support growth foundations .

Slideshow (2 Images)

The BOJ’s radical stimulus program has had some unintended consequences, as years of low rates hurt financial institutions’ profits.

The central bank has also amassed a mountain of Japanese government bonds and exchange-traded funds (ETFs) in its marathon asset buying spree, risking distortions in financial markets.

Many BOJ policymakers are wary of ramping up stimulus, though external shocks or a sudden spike in the yen could force the central bank to do just that if the economy is at risk of sliding into recession.

Reporting by Tetsushi Kajimoto and Daniel Leussink; Additional reporting by Kaori Kaneko and Kiyoshi Takenaka; Editing by Shri Navaratnam & Kim Coghill

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Exclusive: Tesla says it received battery quotes from China’s Lishen but no deal signed

BEIJING (Reuters) – Tesla Inc (TSLA.O) said on Tuesday it had received quotes from Tianjin Lishen to supply batteries for its new Shanghai electric car factory but had not signed any agreement with the Chinese firm.

FILE PHOTO: Visitors are seen at the booth of Lishen Battery at a new energy expo in Beijing, China March 22, 2009. REUTERS/Stringer

Reuters earlier on Tuesday reported, citing two sources with direct knowledge of the matter, that Tesla and Lishen had signed a preliminary agreement and were working on the details.

The companies had yet to reach a decision on how large an order the U.S. electric car company would place, and Lishen was still working out what battery cell size Tesla would require, one of the sources said. The source later reiterated that a preliminary agreement was signed.

The second source said that the certification process for suppliers usually took a long time to be finalised. The sources declined to be identified because the discussions are private.

“Tesla previously received quotes from Lishen, but did not proceed further. We have not signed any agreement of any kind with them,” a Tesla spokeswoman told Reuters.

Lishen said in a faxed statement to Reuters that it had not signed any agreement with Tesla to supply batteries to the factory.

Japan’s Panasonic Corp (6752.T) is currently Tesla’s exclusive battery cell supplier. Its shares closed down 2.7 percent after the Reuters report. It also announced a joint venture with Toyota Motor Corp (7203.T) on Tuesday to make electric vehicle (EV) batteries.

Tesla Chief Executive Elon Musk said in November the U.S. company would manufacture all its battery modules and packs at the Shanghai factory and planned to diversify its sources.

“Cell production will be sourced locally, most likely from several companies (incl Pana), in order to meet demand in a timely manner,” Musk said in a tweet in November.

Panasonic said in a statement it was studying various possibilities with regards to Tesla’s Shanghai plant, but nothing had been decided. It declined to comment on the possibility of losing exclusive-supplier status with Tesla.

Other battery makers in the running for contracts could include Contemporary Amperex Technology Co Ltd (300750.SZ) and LG Chem Ltd (051910.KS).

Tesla broke ground on the $2 billion so-called Gigafactory, its first in China, earlier this month and plans to begin making Model 3 electric vehicles (EV) there by the end of the year.

Musk has said the factory will produce “more affordable” vehicles for the Chinese auto market, the world’s biggest, where the firm is facing mounting competition and risks from U.S.-China trade tensions.

APPLE SUPPLIER

Lishen, which says its clients range from Apple (AAPL.O) and Samsung Electronics (005930.KS) to Geely (0175.HK) and Hyundai Motor (005380.KS), has joined other battery makers in aggressively pursuing contracts with the rapidly growing EV industry.

The Chinese company started mass production of the same type of cylindrical battery made by Panasonic for Tesla’s Model 3 in 2017, in the city of Suzhou about 100 km (60 miles) away from Shanghai.

Panasonic and Toyota on Tuesday announced a joint venture that leverages the heft of one of the world’s largest automakers and one of the world’s biggest battery makers to expand their EV push.

The joint venture builds on the agreement that the pair announced in late 2017 on joint development of batteries with higher energy density in a prismatic cell arrangement.

Slideshow (2 Images)

It would also help Panasonic cut its heavy reliance on Tesla, whose production delays have weighed on the Japanese company’s earnings.

Panasonic planned to shift most of its prismatic battery-related equipment and facilities in Japan and China to the joint venture, while those producing batteries for Tesla would remain under the company, a source said.

Reporting by Yilei Sun and Tom Daly in BEIJING; additional reporting by Makiko Yamazaki in TOKYO; Editing by Brenda Goh and Stephen Coates and Christopher Cushing