OSAKA – Tesla and Panasonic freeze plans to expand the capacity of their Gigafactory 1, the world's largest EV battery plant, on Wall Street mounting on the weakening demand of Elon Musk's car dealership.
The partners had planned to increase capacity by 50% next year, but financial problems have forced a thought that Nikkei has learned.
Tesla is a top manufacturer of electric cars, and Panasonic is one of the largest manufacturers of the batteries driving them. These companies are changing their strategy, reflecting the thin line of business of the EV industry.
It also highlights a problem that can only be solved by attracting more buyers, which in turn requires further innovation to reduce production costs.
Gigafactory has been producing batteries for model 3, Tesla new small sedan since January 201[ads1]7. Panasonic produces the cells, and Tesla assembles them in battery packs.
The companies were planning to expand the plant's capacity to 54 gigawatt hours per year by 2020, up from 35 GWh at present.
Tesla and Panasonic have invested $ 4.5 billion in the facility. Six months ago, Panasonic president Kazuhiro Tsuga said in October that the company would consider "further investments in North America, in line with Tesla." It was reportedly considering adding another 100 billion yen to $ 150 billion ($ 900 million to $ 1.35 billion) to Gigafactory.
Panasonic's Tesla EV battery company had operating losses of over 20 billion yen in the fiscal year ending March, up from a year earlier. The losses were exacerbated by delays at the start of Model 3 production.
Tesla's unit sales fell by about 30% in January to March compared to the previous quarter, damaged by slower growth in China, less tax breaks for electric cars and problems with logistics. This has made the companies more cautious about the future, even though they plan to continue the joint operation of the plant.
Wall Street analysts recently raised concerns about weaker demand for model 3. In a April 4 report, Goldman Sachs analysts said, "The volume expectations of the company's products in 2019 are too high, with consumer demand likely to be lower as US subsidies. "
Tesla plans to launch a small SUV, model Y, which is likely to use the same batteries as model 3. The two companies will reassess their expansion plans for Gigafactory by 2020 or later, depending on how well the models are selling.
"Of course, we will continue to make new investments in Gigafactory 1 as needed," a Tesla spokesman told Nikkei.
Panasonic will also suspend its planned investment in Tesla's integrated car battery and EV plant in Shanghai. Instead, it will provide technical support and a small number of Gigafactory batteries. Tesla is committed to buying batteries for the cars that were built at the Shanghai plant from a number of manufacturers.
Prices for Tesla cars start at $ 35,000 for model 3, the lowest model. Batteries make up about half the cost of an EV.
Given the relatively small profit margin of these cars, it will be difficult to reduce battery prices without further technological advances. And reducing sticker prices is crucial to getting more EVs on the road.