Elon Musk's Unlikely Partnership With Old Japan Is Blossoming, For Now
Panasonic made a big bet on Musk and sank $1.8 billion into making batteries for the Model 3 at Gigafactory 1.
(Bloomberg) -- They’re the oddest of couples: Elon Musk, the free-wheeling co-founder of Tesla Inc., and Kazuhiro Tsuga, the buttoned-up salaryman who runs Japan’s Panasonic Corp.
Yet against all odds, an unlikely partnership built in a dusty Nevada desert appears to be working. Just two years after the two began operating a giant battery factory on the outskirts of the aptly-named town of Sparks, Panasonic in November said the business will soon be profitable. The Japanese firm’s methodical discipline -- some workers back home still start the day with the corporate anthem -- is meshing with Tesla’s hard-charging sensibilities.
It’s the culmination of a years-long overhaul spearheaded by the Panasonic chief, elevating a struggling electronics house to a potentially prime position in future mobility. Musk’s larger-than-life persona and antics hog the headlines but if he succeeds at bringing electric cars to the masses, a lot of the credit goes to Tsuga. Panasonic was already a supplier to Tesla when he took the helm in 2012, but it was the 62-year-old who made the big bet on Musk and sank $1.8 billion into making batteries for the Model 3 at Gigafactory 1.
At one of their early meetings in 2012 in California, Tsuga grilled Musk about prices and product roadmaps. All he got was a blank look before the billionaire checked off his strategy: be first to start and first to reach volume. His confidence won over Tsuga, who’s since made Tesla a critical plank of Panasonic’s revival strategy.
“I was impressed. Where the average person might be too scared to do anything, he’s flooring the gas pedal,’’ Tsuga said in an interview in Tokyo. “Without someone like him, adoption of electric vehicles will have a really hard time.’’
Panasonic was then just emerging from a rough couple of decades. Profit peaked in the 1980s alongside its last hit: the VHS video player. It bought the Universal film business only to pull out in five years. Then, it lost billions on plasma TVs, on which Tsuga last worked before taking the top job. Tsuga describes the subsequent, wrenching restructuring he led as “self-denial,’’ killing plasma TVs and shifting from consumer electronics to business customers. Now, he’s steering the company again toward choppier waters -- beyond mercurial swings, Musk also has a penchant for missing targets and surprising investors, as with the Model 3 price cut last week.
Others worry about the billionaire’s decisions, including smoking pot on a popular podcast and tweeting out a potential take-private price of $420 that regulators say has significance in marijuana culture.
“What makes the partnership so unusual is that Panasonic is taking a risk just as Japanese companies have become more risk-averse,’’ said Michael Cusumano, a professor at the MIT Sloan School of Management. “Most Japanese executives would be afraid of Elon Musk, because he’s too unpredictable and radical.’’
Tesla representatives pointed to a Musk tweet about the partnership but declined to comment further for this story.
To get Panasonic onboard, Tesla let the product speak for itself. It threw the doors of its Tokyo showroom open to hundreds of Panasonic employees, from interns to senior management, who filed through to test-drive the sporty Roadster. The idea was to get people excited about their batteries, essentially a commodity, powering something cool. (Tsuga, a car aficionado, still prefers the sound and vibration of a combustion engine.)
In 2014, Tesla broke ground on the Gigafactory site, an arid expanse dotted by wild horses. The “alien mothership” is aligned on true north so equipment inside can be mapped by GPS, and to make the most of rooftop solar panels. Not yet complete, it’s already so massive that from certain points the ends of aisles vanish from sight.
Inside, it’s divided into two worlds. Tesla’s side is more chaotic because it adjusts processes on the fly, sometimes running out of space. Workers get an ice cream machine, and T-shirts for meeting weekly quotas. Panasonic’s enclave is a study in orderliness: workers use a sign-in sheet for tools so they never waste time locating gear, according to workers.
Many staff start 12-hour shifts with five minutes of calisthenics and a recitation of the company mission, an American adaptation of Japanese practices. “On our side, it’s ‘good job, man,’ because it’s your job,’’ said Joshua Davis, a shift lead at Panasonic. “Also, Tesla gives stock options and we don’t.’’
The Japanese company struggled with cultural barriers in the beginning. Panasonic dispatched technical advisors from Osaka, most of whom spoke little English. American workers wore cards around their necks with Japanese phrases and relied on Google Translate. Things were even tougher on the factory floor, because engineers worked in a cleanroom environment and were wrapped head-to-toe in white protective suits.
“Some Japanese would just yell, flop their hands up and down, or do a big X to stop something,’’ said Eric Sanson, who joined in 2017 as a machine operator and was one of the first Americans. “To someone who just started, it looks like a dance.’’
After glitches that set back output targets by about a year, the two companies are finally emerging from what Musk called “production hell.” Panasonic has said the operations are about to turn profitable, while Tesla hit a milestone of manufacturing 5,000 sedans a week.
Tesla may have inched away from the brink but it’s far from clear if Panasonic’s bet will pan out, and Musk remains a wild card. In a recent interview with CBS’s “60 Minutes,” he said that even if Tesla went bankrupt, he would still consider it a success because of a contribution to sustainable transport. “The problem with Musk is that he puts his idealism above his company,’’ Cusumano said. “If I were Panasonic, I would certainly worry.’’
Musk was in China this week to break ground on Gigafactory 3 outside of Shanghai. He plans to begin production by the end of the year and has already talked about another plant in Europe. While he hasn’t specified a battery partner, Panasonic would be a natural choice. Tsuga said he’s unfazed by Musk’s behavior because they haven’t impacted production, but stumping up more money compounds the risk.
“In the worst-case scenario, if Tesla were to stop making cars, it would be a challenge finding a way to utilize that equipment,’’ he said. “We would be stuck with a large chunk of the world’s battery capacity and finding a buyer for it would not be easy.’’
--With assistance from Jason Clenfield.
To contact the reporters on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net;Masatsugu Horie in Tokyo at mhorie3@bloomberg.net;Yuki Furukawa in Tokyo at yfurukawa13@bloomberg.net
To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Reed Stevenson
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