Nintendo's long-awaited Switch 2 has been released worldwide
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Hello and welcome to World Business Report from the BBC World Service. I'm David Harper. And in just a few minutes, we're hearing from the car makers facing production line shutdowns as China's restrictions on rare earth materials bite. It's a very serious situation. It's very tough actually getting the necessary approvals and first line shutdowns we're already seeing.

And also coming up, there's Nintendo launched their brand new Switch 2. We'll ask what the future holds for gaming consoles. And we've waited so long for sci-fi style deliveries from autonomous drones. Is it finally becoming a reality?

First, though, rare earth materials. A small number of minerals mined in a small number of areas have become increasingly critical to today's industries. Now, key voices in the automotive industry say that their manufacturing is being threatened by disruptions to supplies, particularly supplies from the leading source for rare earth materials, China, which has been increasing restrictions on exports. David Merriman is research director at Project Blue, a consultancy specialising in critical minerals.

The restrictions that have been brought in by the Chinese government at the start of April have targeted these rare earth elements and scandium, and they impact a wide range of markets, not just the automotive industry, as you mentioned. So manufacturers of robotics products, of electronics materials, generators for renewable energy, all being impacted by these restrictions.

And talking about the restrictions in exporting these from China, what is the motivation behind this? Restrictions were brought in as part of a dual-use control on materials under a treaty designed to target the non-proliferation of nuclear arms.

So this is really being brought in as an effort to protect against the development of these products. But it's having much wider ranging implications for the development of markets producing electric

vehicles, robotics products, wind turbine generators, globally really. And China is doing, impose these measures really to better control the export of these products to the international market. And just how critical is China as a source for this?

China is by far the largest producer of these restrictive products. Main products which are being impacted by this is really the key challenge, I suppose, for the automotive sector in particular, is the export of these magnet materials, of rare earth permanent magnets, where China accounts for 95% of global production overall.

So the real question is, if you're in business and you're having trouble with a supply chain, you look elsewhere. Where realistically could you get these from that isn't China? Well, there's a very limited amount of production capacity for these high performance magnet materials outside of the Chinese market. Japan has some capabilities and there are small amounts of capacity within the European market which could be looked at.

But certainly the capacity at these operations would be unable to replace Chinese production completely. Is that because of where these are available in the ground or is it because of the developed production facilities?

It's really a combination of both. The rare earth supply chain, which is a major feedstock source for the production of these magnets, is very highly concentrated within the Chinese market, both at the mining stage through processing and downstream products. And that really extends and intensifies as you move downstream in the supply chain to these high performance magnet products.

So looking forward, is this likely to change? Are there other parts of the world that could emerge as suppliers and producers of these products? Yes, certainly. In the longer term, there's a number of companies which are targeting the production of these high-performance magnet materials within Europe, within the US, elsewhere within Asia. But it's unlikely that these producers will be able to react in the short term, able to produce material now really, which is what's

consumers are needing as an alternative to the Chinese supply chain. David Merriman there from Project Blue. Well, let's hear a little bit more about those supply issues within the automotive sector. I spoke to two people working at the heart of the car industry, Benjamin Krieger, the Secretary General of CLIPA, the European Association of Automotive Suppliers, and

and Matthias Zink, the CEO of Powertrains and Chassis for the German car parts developer Scheffler AG. I asked Matthias, first of all, whether his area in the car manufacturing chain was being affected.

I have myself about 50 part numbers at risk because of continuous short supplies. So I'm partly directly affected. Only can say it's very serious situation. It's very, very tough actually getting the necessary approvals and more and more the supply chains are draining out or are empty. But first line shutdowns we already see, or at least we're hearing that in our community of suppliers that the first shutdowns are taking place.

But yeah, more and more line stops are likely. Can I ask you as well, Matthias, what exactly is this affecting? What sort of parts are held up by this? It's mainly parts with rare earths, respectively magnets. So main drives for e-cars. So many of these supplies from China are affected by that. I was going to say, there's a lot of talk about this affecting electric vehicles, but this affects traditional internal combustion vehicles as well. Same, same, I guess. And that's

Good that you're saying it. I guess that was underestimated in a way in the beginning. Everybody said, well, that's only reaching out to e-mobility or to the high-voltage drive. It's as well low-voltage actuators of any kind. And that's why it's so far-reaching, yeah. And turning to you, Benjamin...

Just exactly how critical is this supply chain? Because we're hearing that the automotive industry is very much reliant on a limited number of sources. Very much so, yes. Supply chains are not something that you can change from one day to the next one. So even if there's a possibility to switch to other sources, that's not done from one day to the next one. What we are currently experiencing leads to exhaustion of stocks.

and then at some point to a stop of production, which will have then as a consequence, in the worst case, a negative impact on the volume. So in that sense,

We call for engagement. We hope for the support of certainly in our dimension, the European Commission, but also representatives of European member states to raise awareness of the current situation and to negotiate, to look for negotiated solutions that are beneficial for both sides. Because at the end of the day, we are dependent.

We need critical imports. On the other side, there must be an interest also on the side of Chinese suppliers to do business with companies in Europe. And just turning back to you, Matthias, for a moment, is this creating a bit of an unlevel playing field? Are, for example, motor manufacturers in a place like China in a much better off position? Well,

Well, I guess that that's already the case or already would not even say already happened that that's already installed. And I guess the awareness now on this magnitude of dependency that that may be new, but I guess that kind of playing field as it is that's established over over years now. And this this rare earth access and started with mining and magnet manufacturing, I guess that this is in the hands of the Chinese since a while ago.

Is there a movement towards securing alternative sources? How viable is that at the moment to look elsewhere? It's not a short-term option because you need approvals from the customer side. You need competitive prices. There are even developments on going for magnet-free motors, even in the high-voltage area. So I guess the awareness, how dependent one is on those magnets, but short-term, getting out of this lengthy approval process...

The only way is standing in the queue waiting for approval and discussing with authorities how to accelerate. Matthias Stink there and also Benjamin Krieger just talking a little bit of the on the ground experience from those supply chain difficulties in the automotive industry. We're joined on World Business Report today by Emma Wall, who's head of platform investments for Hargreaves Lansdowne. Emma, thank you very much for joining us. Are we seeing an effect on the markets within the automotive industry at the moment?

Not yet, but we would expect the automotive sector to be impacted, particularly with the European listed businesses who, of course, have already faced specific tariffs on the sector from the US. So it's sort of a doubling of negative impact from the tariffs. What I think is really interesting, though, although you've had your two guests explain the impact on autos.

It's far more world-reaching than that. So there's sort of 17 elements that make up rare earth minerals, and they're used across a number of digital and electronic experiences. And I think the really interesting one is actually how much the US military use them. So 70% of the US's own usage comes from China, and they're used in things like submarines, lasers, jets.

And of course, military and defence spending is something that the US is highly committed to. So it'll be really interesting how that tension plays out. But China makes up 92% of global outlook in rare earth minerals. So it's a very difficult thing to uncouple when they have

you know, that significant a proportion of the market. Certainly. And it's certainly something demand isn't going to be going down anytime soon. And as we heard, unlikely to be more sources of these opening up in the short term, at least. Emma, thank you very much. Do stay with us. We'll come back to you in just a moment. You're listening to World Business Report from the BBC World Service. Now, if your teenage years were similar to mine, I suspect you'll probably recognise this music.

Bye.

Because for decades now, Nintendo, the originator of Super Mario, you heard there, amongst many others, has been a major player in the gaming industry. The NES, the Game Boy, the N64, the Wii, and more recently the Switch, have become legendary consoles for generations of people. Well, now they've released the Nintendo Switch 2, and our reporter Mark Chislack went to speak to people queuing on London's Oxford Street to try to get one.

It's just an exciting moment. I mean, it's the first time Nintendo's released anything in, I think, seven years. Honestly, it just feels like something historic, because who knows when we'll get another one. I've had every console since the very first one. Having a new console, it's really exciting. I need to pick up my Switch, too, don't I? I've been waiting forever. Everyone loves Nintendo. I don't know a single person that you go...

that you go, oh, I've got Mario Kart, do you want to play? No one's going to go no. Even your nan's going to say, yeah, go on, let's play Mario Kart. Very good point made there. We're wondering, though, could this be one of the last big console releases? The assumption is becoming that the physical dedicated devices will become unnecessary because of the increase in streaming and cloud gaming, which is likely to take over. But will it really?

We're joined by Caelan McKendry, director of NiGame, who joins us from Belfast. Thank you very much for being with us. Let's first of all talk specifically about this new console, this new device. Tell us, if you would, why the new Switch is so desirable and what has changed since the original one came out.

Yeah, the Nintendo Switch, the original one launched back in 2017, so over eight years ago at this point. That console sold 150 odd million units over the last eight years. It's by far one of the biggest platforms in the world for gaming. And, you know, in the last eight years, there's been over 12,000 games released on Nintendo Switch worldwide.

But yeah, it's reaching the end of its life at this point. So yeah, this new Nintendo Switch 2, it's more powerful, it's going to unlock new gaming experiences and you'll bring higher quality, more in-depth games to the global gamer market. And just for the benefit of the uninitiated, if I've got this right, part of the appeal of the Nintendo Switch is it sort of combines that portable handheld gaming experience and also the home console in one device.

It does, yes. It's a hybrid console, so yeah, you can play it on the go, play it on wherever, or yes, you can connect it into your TV for much gaming with your friends. Let's just go back to that point that people are suggesting the gaming console could be consigned to history. Is there any truth in that? Is it in danger of happening anytime soon?

Well, I think there is a truth to it. I don't think it's going to happen anytime soon. We have seen the rise of game streaming platforms over the last few years. Xbox game streaming, Nvidia GeForce Now, Amazon Luna. They all kind of promise the same thing, which is effectively playing games via the internet as opposed to in a box in your home or in a

console in your hands. And basically what that allows you to do is you pay a subscription to these services and then you can play your games anywhere, whether it's on a TV, a PC or on your phone on the go. So it's basically aligned to streaming services like Netflix in that you'll pay a subscription. You don't actually own a disc or a cartridge or any form of physical media. It's just part of an ongoing subscription.

That's correct. On that front, there are benefits in that you can access these game libraries, you can access it anywhere on any device, but it doesn't mean that we're going to lose that element of owning your hardware, owning your games, and it means if you stop paying description to these services, then you

You lose access to those games and you no longer own the games that you've been paying for. We've been getting a little bit nostalgic in the World Business Report office today, talking about some of the games that have come and gone. And a lot of people will share that nostalgia for names like Atari and Sega, who used to be massive players and have all but disappeared now. Can anybody now challenge? I mean, I suppose it's Nintendo, Microsoft and Sony that are leaving the pack now.

Yeah, I mean, really outside of PC gaming, those three companies have definitely embedded themselves in the world gaming market. There are other players that have popped up and died over the years, but I think the thing to remember is whenever you're looking at the likes of Atari back in the 80s, it was a much, much smaller market than it is now. There's over 3 billion gamers worldwide and to begin to take on those giants, it's almost impossible. And

And it's not just, we should just say quickly, as the gaming industry is keen to stress, this is not just about teenagers in bedrooms now. There's a really broad market, lots of people doing it.

Yeah, I mean, as I say, there's over 3 billion gamers worldwide. We only expect that number to grow. Not everyone is in a basement or in a bedroom playing Fortnite or Call of Duty. Everyone's a gamer at this point. If you played Wordle, if you played Candy Crush, there's such a huge market for games. Yeah, it really spans everyone at every age.

Caelan, thank you very much for joining us and giving us your insight. Caelan McKendry, director of NI Game, speaking to us live from Belfast. Emma Wall from Hargreaves Lansdowne is still here. We hear about these launches of consoles every now and again. How significantly are they treated in the wider business community?

You know what's really interesting is a note out by Bank of America from one of their analysts this morning that showed on average the last seven console launches from Nintendo on average impacted the share price by 54% of the following year. So the most successful of those two launches were the Switch 1, which saw the share price double or more than double, 102% up.

over the following year. And the WE, do you remember the WE? I do. 128% up in the first year. That's the share price. So they have quite a significant impact on the fundamentals of the business. The only thing

console that didn't have that kind of positive impact was the GameCube, which saw the stock fall 44%. I think it's really interesting to note that Nintendo has not released something for seven years. The market is very different. So expecting those kind of returns doesn't necessarily mean it's going to happen. But it's interesting quite how substantial the impact can be on the share price. Yeah, we were comparing, talking about the big players, Nintendo, Sony and Microsoft. And of course, the thing that

separates Nintendo is that Sony and Microsoft have got lots of other industries in lots of other areas. So a release like this for Nintendo is a really big point in its company progress. Absolutely. I mean, doubling the share price in just one year off the back of a single console release is quite something. And the cues that we've already started to see sort of peppering newspapers suggest that actually the demand is very much there for this new release and it could have a similar effect.

I just want to ask you very quickly, we've seen in the last hour or so news from the US that the trade deficit narrowed by the most on record in April, spurred on by the largest ever drop in imports.

Yeah, I mean, this was to be effective, given that we had Liberation Day in April, and I would be really interested to see the May figures, because of course, there was a lag, these things being released, when we had those reprieves. You know, it did what it was intended to do. What will be really interesting, however, is it's a very blunt instrument, and what that goes on to mean for economic growth in the US, which up until this point has been reasonably robust, you know, they still continue to have high interest rates.

you know, good level of growth, fastest growing company in the G7. So, you know, Liberation Day caused quite significant market turmoil. It's managed to stop imports, but it also caused, you know, a slow bond yields to massively spike, the stock market to fall quite considerably. So what this means longer term, I still think we have to see. Let me just ask you very, very quickly about European interest rates, because we saw a cut from the European Central Bank today as well.

Yeah, we did. Now back down to 2%, which they call their kind of neutral rate because it's in line with target. And that's very much because inflation is below target as well. I mean, a very different picture on either side of the pond. In the US, you've got quite robust growth. The consumer holding up despite some challenge and inflation reasonably sticky. In the EU, they're concerned actually about growth. You know, growth looks reasonably anemic. They're worried about stagflation. And so they've been quicker to cut.

And inflation has been quicker to fall. And now they're around the target for both the mutual rate and inflation. What would be really interesting to see from here, however, is where the growth continues to slow and whether they go into recession. And similarly, you know, you want a bit of inflation in the system. So if inflation continues to fall, that's also a problem.

Emma, thank you very much for picking over some of that with us. Moving on now, millions of Muslim pilgrims are performing Hajj, the annual Islamic pilgrimage that kicked off yesterday in Saudi Arabia. Today is the main day of Hajj, the day of Arafat. This five-day annual religious event holds deep significance for Muslims around the world.

And it presents a considerable logistical challenge to transport and accommodate so many people. Only a year ago, a tragic disaster resulted in over 1,300 people losing their lives, many due to extreme heat. The majority of the victims were unauthorised pilgrims. Well, Samir Hashmi is in Jeddah in Saudi Arabia for us. Samir, we can talk a lot about the religious aspects of this, but in terms of the economy, how important is this religious tourism for the economy in Saudi Arabia?

David, it's really significant because if you look at the Saudi economy, it essentially is driven by oil revenues, oil exports. So if you look at the non-oil side of the budget or sorry, the revenues, religious tourism is the largest in that segment. It contributes to about $12 billion annually and that's a conservative number. Many experts think it's higher if you take into account local businesses and how they benefit from religious tourism. Hajj is very significant. You have

more than 1.5 million people performing Hajj right now. But then there is also Umrah, which is a lesser pilgrimage, which is performed through the year. So last year, Saudi Arabia attracted about 19 million pilgrims through the year. So that's quite a significant contributor to the economy.

And give us an idea, if you would, you've talked about how many people do make it there. What sort of an operation, what sort of investments do they have to make to make this happen smoothly, especially in the light of what happened last year?

Hajj is a really, really challenging prospect when it comes to logistics and transportation because you have between 1.5 to 2 million people every year moving within a certain geography, which is near the city of Makkah, and all of them have to move together.

So it does pose a logistical challenge. And then to add on that, you have hajj happening during the summer season. And last year, and even this year, actually, the temperature is about 50 degrees centigrade or close to that, which is why a lot of people actually died last year.

because a lot of them were unauthorized pilgrims who didn't have air-conditioned tents and they were walking and it was quite hot. So this year, the Saudi government, number one, has cracked down on a lot of over 200,000 illegal, unauthorized pilgrims. They were using drone technology for that to crack them down in the run-up to Hajj.

Apart from that, they've invested in new infrastructure. One of the things they've done is they've expanded their new kind of road, which basically is cooler compared to what a normal road is like so that

that the pilgrims don't feel that hot while walking on it. They've installed a lot of trees, air conditions, air-conditioned tents, and also fans which spray water. So they've invested a lot, but nevertheless, it still remains a huge challenge, considering there's so many people walking around. I also spoke to Justin Alexander, who's an expert in this region, to talk about the challenges as well as the potential of religious tourism for Saudi Arabia.

Fundamentally, it's about its duty to host pilgrims, but it is also an important economic driver. With over

what is it, 1.5 billion Muslims globally, all of whom ideally would want to make a pilgrimage at least once in their lifetimes and some who do it multiple times. That's a really strong source of demand and it's a monopoly. There's only one place for them to go. Justin Alexander there and we also heard from Samir Hashmi, our reporter, joining us live from Jeddah in Saudi Arabia.

Now, if you order some food to your house, it might, if you're in parts of Ireland, soon be arriving not by bike or by car, but by drone. After years of planning and regulatory and technical hurdles, there's a trial taking place in the Irish capital, Dublin, so customers can order their takeaway of choice and have it airlifted to them in a matter of minutes. Bobby Healy is the founder and CEO of MANA, the company operating the service, and I asked him how it works.

Well, our customers can go straight to Deliveroo now. They can order anything from any of their favorite restaurants or local stores in the area of Dublin 15. So it's about 150,000 people.

And they order it. The product arrives at the aircraft at our base and we fly directly to the customer's back garden. We hover about 15 metres over their garden and we lower the product gently down to the ground. We've been hearing for quite some time that this is just around the corner and this is the future. Why is this happening in Dublin now?

We're not really trialing. We're a real full production system. We're in Finland, we're in the USA, and we're obviously in Dublin. And we've done over 200,000 deliveries. But why has it taken so long to get to this position?

Primarily for regulatory reasons. We're regulated by the aviation regulator of Europe and in the USA as well. It takes a long time for regulations to get implemented and to become law. And I think that's the primary reason. And then the other reason is it's a very difficult technology problem to solve, to fly safely at scale.

with electric autonomous aircraft. So it takes a lot of capital and billions of dollars have gone into the space. Ourselves, we've invested over $60 million building our aircraft. And so Europe is the leader in drone delivery now. It's taken over from the USA.

And I think certainly over the next 24 months, we would expect to be in many of the important suburbs across Ireland and the UK. You say Europe is the leader. Is that partly down to regulation? Is the EU a more favourable place to do this than, say, the United States?

Irony of all ironies. Yes, it is. In our industry, you need regulations to enable safe flights. Whereas if you look at something like AI, you know, regulations can be perceived to get in the way of progress rather than to assist progress.

But in aviation, because we have to share the airspace with other users, with general aviation, you need regulations. And Europe has invested significantly in a regulatory framework for European traffic of the drone type. And we benefited from that. Why do we need this drone technology, both as a retailer and as a customer?

As a customer, particularly at weekends, it can be difficult for road-based delivery to keep up with demand. And think particularly about suburbs where you don't have the demand density and the restaurant density that the middle of London might have. So distances are longer, times are longer, and the cost of doing a road-based delivery is almost prohibitive for both the restaurant or the small business.

you know, vendor and the delivery company. So where drones come in here is because they're autonomous, we're flying at 88 kilometers per hour as the crow flies. So therefore your pizza or your coffee or whatever it is, is piping hot. So complaints come down, cost comes down, customer satisfaction goes up simply because physics is on our side.

Bobby Healy from MANA, the company operating that drone delivery service. And you can see videos online, in fact, of it in progress with food being lowered down on a rope from a drone hovering in midair. Also, don't forget, 24 hours a day, you can go online, bbc.com slash news for more of the world's business stories, including a revision of the UK's inflation figures because of some incorrect data. A rather interesting read if you get the chance. This has been World Business Report. Thank you for joining us.