Tesla Gigafactory Investment Negatively Impacts Panasonic’s Q3 Results

Tesla Model 3

OCT 31 2018 BY MARK KANE 38

Panasonic invested $1.6 billion into the Gigafactory

The latest investment in the Tesla Gigafactory production lines highly affected Panasonic’s financial results in the third quarter.

Despite overall revenues slightly increasing, the operating profit decreased by 15% to 95.2 billion JPY ($840 million) and net profits decreased by 20% to 56.2 billion JPY ($497 million).

Panasonic explains:

  • Overall sales increased, driven mainly by Energy and Automotive.
  • Operating profit decreased , impacted from one-off income recorded in previous year, along with ramp-up expenses at automotive battery factory in North America, weakening investment demand in China, and sluggish sales of consumer electronics.

The Japanese manufacturer encourages that sales, operating profit, and net profit forecasts for the full year remain unchanged.

The total investment in 35 GWh lithium-ion cell production capacity at the Gigafactory apparently cost Panasonic some $1.6 billion or some $46 per kWh of installed capacity.

“Panasonic has been investing in Tesla’s battery plant as production of mass-market Model 3 cars accelerates. Its $1.6 billion investment to take production capacity to 35 gigawatt hours (GWh) is almost complete, but the business has yet contribute to profit.”

We are not sure how much net income Panasonic gest from each kWh of cell produced, but assuming $5 (or 5% out of $100/kWh on the cell level) it appears to be a long-term investment with a payback period of >10 years (including capital cost).

Panasonic results – Q3’2018 (Japanese FY 2018-Q2)

Source: Reuters

Categories: Tesla

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38 Comments on "Tesla Gigafactory Investment Negatively Impacts Panasonic’s Q3 Results"

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jamcl3

You must mean “$46 per kWh” per year? Units matter.

Viking79

Exactly, have to look at how long that investment is good for, and if I guess a random number of 10 years, then you have to figure that equipment and production capability adds about $5/kWh at the cell level. Material, labor, and other costs will take it up closer to $100/kWh.

Viking79

This thread seems to indicate that the material cost of the cells are about $83/kWh, so add the $5 in from Panasonic’s investment and some profit and you are around $100/kWh. Have to drive down those material costs.
https://www.reddit.com/r/RealTesla/comments/7iqcqm/gigafactory_2170_battery_cell_analysis/

Doggydogworld

That Reddit thread copies a John Petersen Seeking Alpha article which pulls heavily from a Menahem Anderman presentation. Petersen has been spectacularly wrong about Tesla’s battery situation through the years. Also, Anderman has a history of making bad Li-ion battery predictions. He has a lot of contacts in the battery industry, but my guess is his contacts are “old world” companies (e.g. Johnson Controls) and not the ones aggressively ramping volumes and driving costs down.

All that said, the $83/kWh material cost is a good ballpark number. Raw materials alone are $50-60, and the GF doesn’t process raw materials per the original plan. Instead they buy processed NCA powders, graphite and so on and must pay for that processing.

Per my comment above, Tesla probably pays $15-20/kWh to cover Panasonic’s 2170 capex recovery. Add $15 for Panasonic labor and operating expenses plus another $5 net profit and Tesla would pay ~$120/kWh right now. Labor and opex would drift down a little as they scale. Processed powder cost may also decline a little as they scale.

liberty

My expectation is as units have ramped up Labor and operating expenses /kwh have decreased. In 2019 they should be much lower than 2018. My guess is in line with yours that tesla probably pays about $25/kwh over panasonics variable cost to have them recover cap ex and profit. The wild card is what material costs are in the 2170, and what tesla costs are in assembling cells into battery packs. Hopefully by 2023 all of tesla’s costs for packs will fall down to $100/kwh at the pack level.

Pushmi-Pullyu

John Petersen? He’s a long-time top contender for #1 EV basher on the Internet. I would simply assume anything he says remotely related to EVs is a flat out lie. You can’t go far wrong with that assumption!

Viking79

I usually look at the quality of the info over the source, the ballpark of $83 seemed fine and reasonable for making the point that the investment Panasonic has put in is a small percentage of the material cost of the battery. The material costs will drive cell price. At this point I don’t care if it is $40/kWh or $100/kWh for materials, it is an order of magnitude more than the production investment share on cost.

Doggydogworld

I believe they invested $1.6b in the existing capacity, which is in the 20-25 GWh/year range, so more like $70-80/annual kWh. I also believe they have to recover capital cost over ~4 years due to continual market price declines as newer equipment comes online. So I’d guess 2170 cell pricing includes $15-20/kWh of capex recovery.

The original 18650 deal included more capex recovery, maybe $25-40/kWh. That deal is finally finished, so Tesla should be paying a lot less for 18650s now than in the past.

Jason

Under US GAAP, if that $1.6 billion is considered Capex, then the useful amount is depreciated (e.g. think amortized via accrual matching concept) over the useful life. There is no Capex recapture.

US GAAP uses the matching principle of taking the Capex and match it against its expenses (the expense would be depreciation that impacts both the income statement and statement cash flows) — a portion of the “Capex” worn out each year and that is considered expense. We cannot not expense the entire $1.6 billion investment at once and must. We also cannot expense the $1.6 billion investment per cost accounting, matching the investment to per unit of kWh.

Suppose Tesla bought a $90K truck as an asset / investment and has a $10K salvage value at the end of its 4-year useful life. Tesla would be taking $20K charge as depreciation each year over 4 years using straight line depreciation. US GAAP under the accrual matching concept wants to capture the wearing out ($80K loss of value) over its useful economic life. Again there is no Capex recapture.

However, Panasonic uses Japanese GAAP so I am unsure of their accounting.

Benz

“Panasonic has been investing in Tesla’s battery plant as production of mass-market Model 3 cars accelerates. Its $1.6 billion investment to take production capacity to 35 gigawatt hours (GWh) is almost complete, but the business has yet contribute to profit.”

Panasonic will be able to produce a total of 35 GWh worth of battery cells at the Gigafactory in Nevada per year in 2019.

That should be enough battery cells to produce about 500,000 battery packs (mix of Long Range, Mid Range, Standard Range) for the Tesla Model 3 in 2019.

That’s interesting.

Phteven

Plus powerwall/powerpack

Richard

Not just model3 but also powerpacks and powerwalls use some batteries from GF1. So I doubt they will be able to do 500k packs for model3 alone next year. More likely they will ramp up to around 7k model3 plus battery storage packs.
Fremont needs lines to be shut down and rebuilt to get beyond 7k model3 according to Elon

Benz

OK

How about 400,000 battery packs for the Tesla Model 3?

Doggydogworld

Powerwalls and Powerpacks are ~1 GWh this year, maybe half that from GF.

35 GWh goal in mid-late 2019 is ~32 GWh Model 3 and ~3 GWh storage/Semi/etc. 32 GWh is enough for 500k Model 3s per year assuming a 50/25/25 mix of SR//MR/LR.

Panasonic won’t build all 35 GWh until they get a better feel for sustained Model 3 demand.

jm

Will Model S/X switch to using this production and when?

Pushmi-Pullyu

Eventually. We don’t know when. Elon said some time back that they would switch the Models S/X over soon, but then they changed their plans… probably because of the delay in getting the Model 3 production line up and running at speed.

If Panasonic is running not far ahead of demand for Model 3, which appears to be the case, then it may be some months yet before Tesla can make that switch happen. However, I’m sure they’d love to do it soon; they’d save a lot of money on every pack that way!

Dam

Pana is subsidizing its client, Tesla ? weird

Jason

Japanese GAAP is different than US GAAP

Brian

“the business has yet contribute to profit”

That Tesla and Panasonic are investing heavily in the future sometimes seems lost to many analysts. Although I hope that they do soon turn a profit on this business. Otherwise, it is not a sustainable business.

By the way, how is LG Chem doing with their battery investments? It seems that we only hear about Tesla/Panasonic on IEVs and never the other major automotive battery manufacturers.

Doggydogworld

LG Chem and the other Koreans (SK, Samsung) are far behind Panasonic, CATL and BYD. A few smaller Chinese firms are nipping at their heels. LG just raised their 2020 goal to 90 GWh, but it’s not at all clear they have the customers for that.

scott

Whatever LG produces will sell. Don’t worry about that. The demand for high quality lithium batteries ,for storage and transport, is vastly underestimated.

Mike

You have to spend money to make money. I don’t know about the profitability of Panasonic’s other business lines, but being able to sell all your inventory as fast as you can make sounds like an enviable position. Unless there are some other underlying problems at Panasonic, I would chalk the stock decline up to people’s ridiculous focus on quarterly profits.

theflew

This tells the risk Panasonic took supporting Tesla. As Tesla grows so will Panasonic. It will be interesting to see how Panasonic’s decision to attach to a single manufacturer plays out against LG Chems multi manufacture approach with GM being their base.

REXisKing

So, this translates to: Time to Buy Panasonic Stock too.

Mister G

Don’t forget about battery recycling Panasonic. It might be a cost reducer in a few years.

Ziv

I don’t think recycling will be profitable unless there are external credits assigned to the recycling company. Umicore and Retrev are doing it in small amounts but it is a money losing proposition given the low price of the recycled/harvested materials and the expense of recycling them in an environmentally conscious manner. Maybe China or Mexico will do recycling in a quick, cheap and dirty way, but it doesn’t look like it will work in Europe, the USA or Canada any time soon.

John

It’s interesting to me how the critical crowd focuses on the short-term negative impact of long-term capital investment. Investing for the future always takes up-front money. Those companies in the industry who care more about today’s bottom line continue to let aggressive, forward thinking companies leave them behind simply because they can’t see the long game. Paralysis by analysis.

Brian

Analyst must get paid to say one thing and paid again to do another. No way they can be this stupid.

Doggydogworld

This isn’t about capital investment. This is mostly about operating expenses. Tesla was way behind schedule in Q2 until the very end when they more than double production almost overnight. Panasonic went from sitting around waiting to mad scramble mode. They struggled to hire and train enough people in Reno’s tight labor market, had to fly people over from Japan, etc.

Q4 will be much less hectic, and they expect to show profits.

John

If they were caught unprepared then someone should be fired. Because although Tesla’s recent production increase has been dramatic, it’s been trending only one way for the last couple years.

ffbj

“Tsuga, speaking at the company’s post-earnings conference, said Panasonic – the exclusive battery cell supplier for Tesla – was in talks with the automaker to boost capacity at its Nevada Gigafactory capacity beyond 35 Gigawatt hours (GWh).” –Yahoo Finance.
I guess they’re not that concerned.

David Wolff

Sounds like Pro sports owners. The company grows massively and could sell for an increase that far outweighs the operational loss…and it’s reported as LOSING money. I’d ask what they think their inflation rated net worth is today compared to last year.

SJC

They only made half a billion net profit, oh my.

sola

An investment negatively impacted a quarterly result?

Wow, this is unbelievable.
/s

We could also put a headline like this: “The sky is blue, the grass is green”

Pushmi-Pullyu

The actual quote from Panasonic cited three different reasons for the quarterly decline in profit, which was still $497 million net profit!

You have to put a really strong amount of spin on that to make it seem like Panasonic is losing money on its investment in Gigafactory 1.

AnonyMouse

Wrong again Pu-Pu. Reading comprehension isn’t your strong suit! The only spin here is yours.

The $497 million net profit is from all of Panasonic’s different business lines and battery factories combined (i.e.: income of the entire company). With regards to the Gigafactory alone, the article directly quotes Panasonic stating that their investment in the Gigafactory had not yet contributed to profit.

Here’s the direct quote from the article above:

“Panasonic has been investing in Tesla’s battery plant as production of mass-market Model 3 cars accelerates. Its $1.6 billion investment to take production capacity to 35 gigawatt hours (GWh) is almost complete, but the business has yet [sic] contribute to profit.”

William L

Question. Does the $1.6 billions Panasonic invested in GF1 part of GF1 cost?? or it’s on top of the 5 billions Tesla said it’s going to cost?

Roy_H

I believe it should be included. Figures published were for total cost, with no conditions on where the money came from.