Panasonic’s Only Profitable Electric Car Battery Deal Is With Tesla

NOV 20 2018 BY MARK KANE 46

Tesla is the most valuable battery customer to Panasonic.

According to Nikkei’s article, a source affiliated with Panasonic says that Tesla is “just about the only place it can secure solid profitability in car batteries.”

Panasonic is supplying lithium-ion batteries to multiple carmakers in Japan, Europe and North America, but it seems that the volume and prices in Tesla deals are the most satisfying.

So far, Tesla relied only on Panasonic, which produced cells for the Roadster, Model S and, Model X in Japan, and produces cells for the Model 3 at the Tesla Gigafactory. The production goal potential for the Gigafactory in Nevada is set for 35 GWh annually by the end of this year.

The topic about Tesla and Panasonic arose after Elon Musk said that the new Tesla Gigafactory 3 in China will have multiple cell suppliers, including Panasonic.

“Tesla will manufacture all battery modules & packs at China Giga, as we do today in California & Nevada. Cell production will be sourced locally, most likely from several companies (incl Pana), in order to meet demand in a timely manner.”

It changes the situation for the Japanese manufacturer, which now maybe will have to compete with other manufacturers for Tesla contracts, at least in some markets.

Source: asia.nikkei.com

Categories: China, Tesla

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46 Comments on "Panasonic’s Only Profitable Electric Car Battery Deal Is With Tesla"

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I wonder if either Tesla or Panasonic might offer a takeover bid of the other company to offer more streamlined production.

Not a chance. Wouldn’t solve anything if Tesla took over Panasonic as it would probably drive other automakers away. Panasonic is much bigger than Tesla, but Elon would never sell his company to anyone, not even friendly Panasonic.

Panasonic Market Cap 22.88B
Tesla Inc Market Cap: 59.71B

To be fair, Panasonic does about $70 billion a year in revenue and Tesla is at an annualized rate of about $27 billion a year.

To be fair, Tesla is growing revenue over 50% YoY and Panasonic is not.

Tesla will pass Panasonic in revenue in 2020 or 2021.

Tesla is only projected to have $40 Billion Revenue by 2020.

That 50% YOY rate is only for the early years.

Also, at $80K per car average price, you would have to sell 500K per year to reach that number.

Tesla won’t have that much capacity by then.

Teslas sales growth this past year has been phenomenal, but perhaps it is a once in a lifetime growth rate for them. But what a year!

Market Cap is meaningless as it moves daily.

NVDA just lost half of its market cap in the last 3 months..

Why other carmakers by drive away if Tesla buy Panasonic? Business are business, look at Apple buying screens from Samsung the top competitor, even they have law suits against each other and the still doing business. I don’t think automakers are different.

Do Not Read Between The Lines

Neither has the money to take the other over.

That is when all stock deals come about.

Another example of the scale required to be profitable, and justification for others to be hesitant to enter the market.

It depends how you think.

This is a perfect example OF WHY LEGACY CARMAKERS NEED TO PRODUCE BATTERIES AT HIGH VOLUME LEVELS.

Tesla is maxed out trying to build 125,000 Model 3s per year and Panasonic is humming along hiring workers and making good profits. Volume means less money paid in materials which translates to lower costs per cell. This translates to lower costs and increased profits for Tesla.

Rinse, repeat. TESLA pours profits into a new factory (Shanghai) and hopefully soon a Gigafactory 4 here in the United States for Model Y and pickup.

It’s a no-brainer that legacy auto companies don’t want to evolve. It’s very hard and in their eyes unessecary. They just keep on making ICE trucks and SUVs and telling consumers they are high tech. Margins are slim to none or even negative if they only buy enough batteries for 20,000 packs, Tesla and Panasonic show us the Model for electric car success.

Do Not Read Between The Lines

Tesla is maxed out trying to build over 240,000 Model 3 per year.

That’s why Tesla is building a new Gigafactory — including auto assembly plant — in China.

Europe to follow, probably within a year or two.

Automakers have spent years developing their specialized knowledge which is rendered useless when they move to producing electric vehicles. They see the transition to electric as very costly and full of short-term pain (lower profits). They are trying to satisfy their shareholders who are expecting profits and growth and don’t want to hear that these companies will have reduced profitability in the future. The automakers understand that if they produced compelling electric vehicles alongside their current offerings, that the market for these legacy vehicles would collapse and the lower profitability of EVs will hurt their bottom line.

They can only delay their EV offerings and hope no one else comes along with a desirable EV. Now that the Model 3 has arrived and is starting to take market share, the legacy automakers are starting to worry. They still won’t produce a great EV until regulations force them to do so (Europe and China in 2020-21). In the meantime, they will claim the sky isn’t falling when it is and hope their investors don’t arrive in their corporate suites waving pitchforks.

I don’t why Musk would have multiple battery suppliers in China.My understanding is Panasonic invested in the Gigafactory in Nevada. I guess I assumed that they would have purchased and installed the equipment for the cells and have the patents on the cell technology. Wouldn’t other manufactures have there own cell patents and technology? I mean if all the cells are all identical wouldn’t all BEV’s have the same efficiency?

Tesla has its own cell patents. The Chinese government may require Tesla to source cells from Chinese companies in order to close the Chinese GF deal, to qualify for subsidies,to qualify for low interest loans, or to qualify for tariff free access.

On top of Panasonic not being Chinese it is Japanese. China’s least favorite foreigner.

Right. Tesla sourcing batteries from Chinese manufacturers will not be because Tesla doesn’t want to do more business with Panasonic; it’s because China is trying to pressure auto makers in China to use Chinese battery cells, and because China is hostile to Japan and to Japanese businesses in China… and Panasonic is a Japanese company.

And yet we read China picked CHAdeMO and not CCS Combo. Go figure.

actually is Chademo that joined the GB/T consortium asking them to include a backward compatibility with chademo in the new High power GB/T standard

Panasonic has several plants in China and already agreed to work with Tesla in China.

Earlier in the year China made moves that removed incentives from cars that used batteries from non-Chinese suppliers. This hit LG Chem and Samsung SDI the hardest.
Geely/Volvo got around it by building the batteries themselves under license from LG Chem.
https://insideevs.com/geely-electric-cars-use-lg-chem-cloned-batteries/

Who knows if such a loophole will continue to work. Better to have multiple suppliers. Tesla’s pack is flexible enough to accommodate multiple chemistries. Similar to how with Roadster they had Sanyo/Panasonic cells, but later packs they used Samsung. The specific cell design I believe is a Tesla patent (other than general specs like 18650 and 2170 which is universal), but they can use chemistry from different suppliers (and even have the supplier build cells to spec).

For various reasons, none of the other manufacturers are using a pack design like Tesla (instead they favor prismatics), so technology transfer isn’t as big a risk.

Do you have a citation for this claim? So far as I know, every single Tesla car was built using Panasonic batteries exclusively. The only exception I know of is the Samsung cells which Tesla used for the upgrade pack for the original Roadster; the “Roadster 3.0” pack.

If Tesla ever used Sanyo cells, this is the first I’ve seen any reference to that.

There are many references to supply agreements with Sanyo in Tesla’s SEC filings. Here’s one example:
https://www.sec.gov/Archives/edgar/data/1318605/000119312510017054/dex1027.htm

Of course Panasonic later bought Sanyo, so this became Panasonic later on.

South Korean Companies are persona non grata in China at this time due to the missile defense system provided by the US that China fought against, Why Hyundai and Kia have very low sales in China and Samsung/LG etc are also “diseased”

The design spec is identical, but the quality of produced product can vary wildly. Tesla realizes that battery tech is the key to this business, and it’s still very early days, so they want to be heavily involved in directing the R&D. Other companies like LG Chem have multiple product lines beyond batteries so research and engineering compromises will be made. Tesla is laser focused on improving the performance/cost ratio of batteries.

Right. They describe this as their core technology. Their batteries are already good and cheap enough for enormous levels of sales success but the future direction (e.g. solid state/next gen cells) is hard to predict so makes sense for them to stay right in the thick of R&D. Being able to understand this stuff quicker and better than competitors is what will keep them ahead.

I thought the Prius NiMH battery is from Panasonic as well. Did they not making money on those?

That was gen 1-3 Prius. The introduction of gen-4 brought about lithium for all but the ECO model. The 7-seat Prius wagon and the gen-1 plug-in already used lithium prior to that and obviously gen-2 plug-in does. For Camry hybrid, the LE model uses lithium.

Do Not Read Between The Lines

And Panasonic sold all but a 1% stake in the JV that made the NiMH batteries when it bought Sanyo at the end of 2009.
They have a different agreement for the lithium ion batteries with Toyota.

Let’s just hope Chinese production doesn’t lead to Chinese quality… we’ve seen that before in other industries…

Chinese quality in iPhone is just fine.

Yeah, and I’ll bet Apple spends a lot of resources doing a large volume of quality checking, both of Chinese parts and of Apple products assembled in China. The amount of counterfeit parts shipped from Chinese vendors, especially electronic parts, is shocking.

But as I understand it, most of the parts in Apple’s products (such as iPhones) come from other Asian countries such as S. Korea and Taiwan. iPhones are assembled in China, but most of the parts don’t come from there.

So, that is basically saying that if one manages the supply chain properly, it won’t have counterfeit parts. And if one does the quality checking, then it won’t have lower quality, regardless whether it is Chinese or not.

Those things are taken for granted in the US productions. That is why it often cost more. But Chinese can ensure that quality too if they are “paid sufficiently” for it.

When people expect $10 quality from a $1 production cost, then they will sure be disappointed. If you want $10 quality, then you pay $10 for it. Of course, those aren’t the final retail price but production price we are talking about here.

China produces almost all of the iphones, and most of the other smart phones. Quality is related to price point.

It is incredible that Chinese factories can manufacture outstanding smart phones, and yet nearly every other item built in China is complete cra*. You get what you pay for, and the companies that source their manufacturing in China pay as little as possible for production and end up with horrible products. The frightening thing is that Haiti and Honduras produce much higher quality items than China. This isn’t solely China’s problem it is also a big problem for the companies that choose to buy product from cra* factories in China. They are making short term profits but building long term ill will/negative brand equity.

I understand that the material and start up cost are higher for batteries, but I would assume that a Corolla’s engine, transmission and exhaust system has to cost about $7,000. I’m guessing the battery pack for a TM3 at about $15,000. Am I way off on my guess?

UBS/Munro put cost of more powerful VW Golf Wolfsburg TSi power train at $4k (I can’t recall exact number but it was working a few hundred bucks of 4k).

I’d estimate Tesla’s cost (not price) for the LR TM3’s battery pack at about $10k-11k.

A Toyota Corolla’s MSRP is under $20k, so I’m pretty sure your estimate of $7k for engine, transmission and exhaust is also overestimated. I’d guess closer to half that amount or even less.

Toyota may sell those systems individually for that total price, but that’s far above their unit price cost.

Thanks but if this is true it seems like there should only be about an $8,000 difference between a ICE and a BEV.

That’s right. Bottom spec Camry is 24,000. Bottom spec Tesla Model 3 will be $35,000. Difference $11,000.

The motor(s), transmission, and inverters are not free.

These are manufacturing costs, which are typically 50-70% of consumer price.

Most china battery suppliers have sub par tech. Panasonic can will as long as China government allows it to. After all what’s stopping China from demanding x% if barriers be sourced from China majority owned enterprises? May be why Tesla tries to proactively diversify.

Panasonic has said that they are “prioritizing” supplying batteries to Tesla in the US.

I could speculate on what that means. They don’t want to get involved in a race to the bottom in China and/or they want to protect the IP on chemistry that goes into GF1 batteries.

We will just have to wait and see what Tesla does in China.