Panasonic Will Survive Its Tesla Codependency
(Bloomberg Opinion) -- If you’ve been tied to the hype around Tesla Inc., it can feel difficult to untether. But Panasonic Corp., one of the carmaker’s longest-standing associates and the world’s largest supplier of electric-car batteries, is showing how the perils of a relationship could outweigh the benefits.
This week, Panasonic said Tesla was retreating from an agreement to buy all the solar cells and modules it makes at Tesla’s solar facility – the so called Gigafactory 2 -- in Buffalo, where it is investing almost $300 million.
As part of the agreement signed less than two years ago, Panasonic was expected to cover capital costs and Tesla signed up to a 10-year purchase commitment, according to filings. Now, Panasonic is being forced to diversify its customers –effectively removing the exclusivity with Tesla, and selling to potential competitors.
That move is understandable. After all, Panasonic has spent hundreds of millions on its partnerships with Tesla. It’s been laying out about 220 billion yen ($2 billion) annually in recent years on auto batteries, rising to 240 billion in the current year through March 2019. That includes spending on its Japanese plant and a new one in Dalian in China, but Tesla’s Nevada Gigafactory 1 is still probably consuming a third of the total.
In recent months the perils of the relationship have come into focus. Panasonic’s energy business – a unit that includes batteries, but not solar – posted operating losses in the first quarter of its fiscal year, after earnings were hit by costs relating to the Nevada Gigafactory, in spite of higher sales. Tesla’s attempts to ramp up production aggressively rather than gradually have been a big “burden” on Panasonic’s profits, management said on an earnings call. Delays in shipments to Tesla also played a part.
The company’s chief financial officer Hirokazu Umeda said the energy unit posted a loss in the first quarter, but expects to move into profit by the end of the year. That seems optimistic at this point, given Tesla’s on-going production problems that will only be prolonged by Elon Musk’s latest buyout-by-tweet preoccupation.
This may seem a lot of fuss about a business that accounts for only 8 percent of Panasonic’s total sales, but much of the company’s future in recent years has been pinned to hopes around its ramp-up in Nevada.
The relationship with Tesla helped define Panasonic’s new image as the company tried to reposition from its traditional territory of appliances and televisions toward automotive and industrial systems and batteries. Autos now account for more than 20 percent of Panasonic’s sales, with the overall automotive and industrial segment amounting to about a third of the total. It’s also partnering with other car companies to develop assisted-driving cockpits with camera sensing and intelligent rear-view mirrors.
Still, perhaps Tesla rolling back its commitment to Panasonic on the solar business is a good thing. There are plenty of other levers for the Japanese company’s management to pull in search of growth: In China, its Dalian plant will make auto batteries for what’s already the world’s largest electric car market, while a Porsche Design washing machine due to go on sale next month will keep its appliances division busy. In its home market, it’s inked an agreement with Toyota Motor Corp. to look at making rechargeable batteries, deepening an existing relationship.
Panasonic’s share price has collapsed over 20 percent since its peak late last year, although news of the agreement break with Tesla nudged it up a little Friday. Compared to its global battery peers, it still trades at a discount of as much as 44 percent, on a forward price-to-earnings multiple of just over 11 times.
Investors were perhaps too quick to treat the start of Panasonic’s dalliance with Tesla as a transformational boost. As that relationship sours, they’re not giving the Japanese company enough credit for how attractive it could be to other partners.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
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