Panasonic-Tesla’s Sole Supplier of Battery Packs?

Panasonic expects to be a large beneficiary in Tesla’s future growth.
Published: Mon 02 Jun 2014

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Panasonic expects to be the sole battery manufacturer for Tesla’s multibillion-dollar gigafactory in the US. With Tesla only investing US$2 billion of the US$4 billion-US$5 billion needed to construct the massive factory, partners will be key.

Competition is not a concern

After Tesla made its announcement, many assumed that Panasonic would become the company's major supplier. Panasonic is currently Tesla’s sole supplier of battery packs for the Model S vehicle.

However, it is questionable as to whether Panasonic will continue to have this exclusive relationship and how much it would be involved in the company’s gigafactory plans.

Panasonic, which has been involved in the construction plans of the gigafactory, doesn’t seem to be concerned about any competing battery manufacturers approaching Tesla.

Panasonic does not have a timeframe for a decision on its investment but any expenditure this year would be small, according to Yoshio Ito, senior managing executive officer and president of the Japanese firm's automotive and industrial division. Panasonic doesn’t anticipate a sudden increase in demand so investments will be made gradually. After all, Tesla does not plan to launch its lower-cost car until 2017, and it doesn't expect to sell 500,000 vehicles per year until 2020.) Gradual investments will mitigate risk appropriately, according to Panasonic.

Gigafactory will help Panasonic expand

Panasonic is eager to expand its sales of industrial goods to other businesses and reduce its reliance on volatile consumer markets. This is why Tesla’s gigafactory presents such a huge opportunity for the Japanese firm. While Panasonic is Tesla's main supplier of lithium-ion cells, the company is confident that there will be no other rival battery making a competing bid.

Panasonic does realise however that even if the company became the sole manufacturer at the factory, it is possible that the company would not contribute the majority of the remaining investment.

Tesla Chief Executive Elon Musk has recently announced that Panasonic is expected to become the main partner in the project. An agreement will be finalised before the end of the year, according to Musk.

Tesla is currently in talks with other potential investors and there are other companies, such as suppliers of raw materials that will be involved in the project which is planned to start production in three year’s time.

Panasonic signed a contract last October with Tesla to increase its supply to nearly 2 billion battery cells in the four years to 2017, a big jump from the approximately 200 million cells it was estimated to have supplied to the US company in the last two years.

Panasonic is also set to spend over US$275 million) on auto batteries in 2014 which is twice its current budget. The majority of this will go towards producing lithium-ion batteries for Tesla.

Some of the additional spending will be aimed at supplying large batteries used by other electric vehicle makers. The rest of the money will go towards a new zinc battery production facility in India.

Panasonic is aiming to be the number one producer of auto batteries by the year ending March 2019. The company hopes to make an annual revenue of US4.43 billion-a significant increase on the 130 billion yen it made in the previous business year.

Opportunity outweighs the danger

Recently, Panasonic has been unsure about investing in a high-risk gigafactory and the concerns are certainly justified as the investment risk is large. However, it may be worth taking the risk as the gigafactory plans has the potential to disrupt multiple large markets.

If this project succeeds, it could reduce lithium-ion battery manufacturing costs. This will make them more feasible for electric vehicles and home energy storage. It will also enable Tesla to manufacture hundreds of thousands of electric vehicles annually.

The success of this project has the potential to attract others in the industry who want to pursue similar projects. This will lead to even more large-scale factories that produce low-cost lithium-ion batteries.