Tesla needs the battery manufacturer. A cultural conflict threatens their relationship.

Five years after committing to invest billions of dollars in a shared battery plant in the Nevada desert, Panasonic has a strained relationship with the electric car pioneer. Gigafactory was to increase profits, cement Panasonic's future in automotive electronics and give Tesla easy access to the most important – and expensive – component of the vehicles.

Instead, the partnership has faced a cultural clash between the conservative, century-old Japanese conglomerate accustomed to consensus and the 16-year-old Silicon Valley startup built around Mr. Musk's vision for upwards of 1[ads1]00 years of car tradition.

Their shared business causes headaches. The managers of both companies point fingers at each other over the handling of battery production. And Mr. Musk's behavior has plagued Panasonic's top brass to the extent that anyone is still worried about linking the company's fortunes too closely to Mr. Musk and his Silicon Valley car company.

Mr. Musk has pushed Panasonic to cut what it charges for battery cells while Tesla is building another expensive factory in China. Panasonic CEO

Kazuhiro Tsuga

has resisted price requests, and says he is hesitant to enter China with Tesla. Production has fallen according to plan, and the race to catch up has thrown the Panasonic battery unit deeper into the red.

At this year's annual meeting in June, shareholders criticized Panasonic for getting its head around. Panasonic has hurt the Tesla problems and has seen the stock fall almost 50% since the start of last year.

For its part, Tesla needs Gigafactory to continuously improve efficiency and reduce production costs so that it can lower its car prices, which it considers critical to mainstream success.

Mr. Tsuga, 62, a traditionally reserved Japanese leader, speaks less sanguine about the partnership than he once had. Asked if he has regretted investing in Gigafactory, he asked in September: "Yes, of course." When he made the decision, he said, "It was the only rational option to supply batteries to Tesla."

The tension with Tesla pushes Panasonic CEO into the uncomfortable position of trying to make the huge investments with Tesla while facing a growing faction of executives who are unhappy with Gigafactory. Other Panasonic executives say they have no future with Tesla.

Mr. Musk said in an email that there was no breakdown in the partners' relationship. He shared a recent message he received from Mr. Tsuga stating "it is not an easy business environment for both of us, but I have great faith that we need to strengthen our partnership even more."

Separately, both companies issued a statement showing their longstanding relationship and commitment to working together on "our shared vision for a more sustainable future."

The relationship began in Tesla's early days. In 2008, Tesla began delivering its first electric vehicle, the $ 100,000 plus Roadster two-seater sports car. Mr. Musk, 48, sank a lot of his money into the company, took over as CEO and set his next bold goal: an electric luxury sedan to compete with BMW and Mercedes-Benz.

Mr. Musk wanted a partner who was able to produce mass-scale lithium-ion batteries. Each Model S car would require the stringing of thousands of battery-sized finger cells, the type commonly used in laptops and other consumer electronics.

The timing was happy for Panasonic. It had taken a controlling interest in Tesla battery supplier Sanyo. Panasonic was not an iconic consumer electronics brand in America, losing $ 4 billion in the year ended March 2009 – the first in six years – when games on cell phones and plasma TVs were dead. It desperately needed a hit business.

In 2010, Panasonic agreed to make batteries for the Model S. The car received high reviews, and Panasonic was pleased to be ahead of the evolution of the electric car.

Mr. Tsuga became CEO in 2012, just as the Model S rolled off the track. He bought Mr. Musk's next big game: Model 3, Tesla's first car for the masses.

Mr. Musk wanted to create a unique battery factory to supply the hundreds of thousands of cars Tesla planned to build. In 2014, Tesla announced that they would partner with suppliers to invest as much as $ 5 billion to build Gigafactory, which would be owned and managed by Tesla, and persuaded Panasonic to come on board. Panasonic said it could contribute up to $ 1.6 billion over time.

Mr. Musk said it would eventually be the largest building in the world after footprints, spanning more than 100 football fields, though not as big now.

Within Panasonic, Gigafactory was controversial. Panasonic had sold batteries to automakers that

Toyota Motor Corp

for decades, but it was used to fill orders at its own factory, with its own managers in charge. Now it had to make its batteries in a factory controlled by Tesla.

Mr. Musk had been unhappy with the price of batteries Panasonic exclusively supplied to the Model S and had made plans for Tesla to build its own, according to people familiar with the effort. After months of work, however, the costly plan was scrapped, and the two companies worked closely to produce the Model S, followed by the Model X sport utility vehicle in 2015.

An early source of tension between Tesla and Panasonic executives, including Tsuga , were missed deadlines. Panasonic would rush to be ready to deliver Tesla's production targets just to find the carmaker behind the plan, say people familiar with the effort.

Finally,

Yoshihiko Yamada,

Panasonic's executive vice president at the time demanded to look at Tesla's factory so he could inspect the progress of preparing the assembly lines, one of the people said. Mr. Yamada had helped the lobby internally for the deal. Yamada did not respond to a request for comment.

On the Tesla side, the relationship was partly held together

Kurt Kelty,

an American who had spent almost 12 years on Panasonic, including in Japan, before joining the carmaker during his early days.

Mr. Kelty's fluent Japanese experience with Panasonic helped Tesla navigate the supplier bureaucracy, according to people who worked with him. He would sit in meetings between Mr. Musk and Panasonic leaders and act as a filter for both sides, and soften the tone when the rhetoric was heated, these people say.

Against objections from his deputies, Mr. Tsuga emphasized the benefits of working with America's hottest startup of electric vehicles. Engineer in training, and he had developed a taste for fast cars while studying computer science in the 1980s at the University of California, Santa Barbara. People familiar with his thinking said he believed Tesla would inject an entrepreneurial spirit into Panasonic's consensus-driven culture.

"If Tesla succeeds and the electric vehicle becomes mainstream, the world will change and we will have many opportunities to grow," Mr. Tsuga told the magazine in early 2016. At that time, the factory was under construction, and Tsuga had tied his fate to Mr. Musk.

Tesla unveiled Model 3 to overwhelming interest, and led Mr. Musk to try to accelerate production plans. At an event to celebrate the grand opening of Gigafactory in 2016, he promised the facility would be able to make enough batteries for 500,000 cars by 2018 – two years ahead of the original plan, which meant the battery plant had to speed up the plans, according to people familiar with the effort.

Speed ​​Demon

Tesla CEO Elon Musk has put pressure on Panasonic by increasing production forecasts.

Musk persuades Panasonic to invest in Gigafactory, which announces that Tesla will need 500,000 battery cells vehicles in 2020.

Gigafactory begins. Musk speeds up the promise of 500,000 cars for 2018 and forecasts a million for 2020.

The Musk tweeter company will make around 500,000 cars in 2019 at an "annual production rate" based on last week's year.

Musk pushes Panasonic to invest more in Gigafactory to increase capacity while also asking for help to build a factory in China.

Musk persuades Panasonic to invest in Gigafactory, announcing that Tesla will need 500,000 vehicle battery cells by 2020.

Gigafactory begins. Musk accelerates the promise of 500,000 cars for 2018 and forecasts a million for 2020.

The Musk tweeter company will make around 500,000 cars in 2019 at an "annual production rate" based on last week of the year.

Musk is pushing Panasonic to invest more in Gigafactory to increase capacity while also asking for help to build a factory in China.

Gigafactory begins. Musk speeds up the promise of 500,000 vehicles for 2018 and forecasts a million for 2020.

Musk persuades Panasonic to invest in Gigafactory, announces that Tesla will need 500,000 vehicle battery cells by 2020.

Musk pressures Panasonic to invest more in Gigafactory to increase capacity while also asking for help to build a factory in China.

The Musk tweeter company will produce around 500,000 cars in 2019 at an "annual production rate" based on last week.

Musk persuades Panasonic to invest in Gigafactory, announcing that Tesla will need 500,000 vehicle battery cells by 2020.

Gigafactory begins. Musk accelerates the promise of 500,000 vehicles for 2018 and forecasts a million for 2020.

Musk is pushing Panasonic to invest more in Gigafactory to increase capacity, while also asking for help to build a factory in China.

The Musk tweeter company will make around 500,000 cars in 2019 at a & # 39; annual production rate & # 39; based on the last week of the year.

In a 24-hour operation, Panasonic workers on one side of the factory assemble millions of cylindrical battery cells, similar to large AA batteries. Autonomous carts then deliver the batteries to the other side of the factory, where Tesla workers and robots stuff thousands into a special battery pack installed in each car.

In the weeks before Model 3 began production in 2017, Mr. Kelty left Tesla as the companies struggled to meet deadlines. The departure of the main Panasonic ally, along with later departures from other top executives in Tesla, hampered the company's relationship, people familiar with the matter said. Mr. Kelty declined to comment.

Mr. Yamada, who had spent many years cooking Panasonic out of a relationship with Tesla, left the company because he reached retirement age. He then joined Tesla to help lead the Gigafactory project and assumed Mr. Kelty's role as a guide. Panasonic's Mr. Tsuga was now without the agreement's biggest spokesman in Japan.

Inside Panasonic, opposition to the alliance was heated. While Tsuga liked the way Mr. Musk would set a difficult goal and fulfill it – at least sometimes – other Panasonic executives and board members found the entrepreneur's antique disgusting. That included the September 2018 incident where he appeared to smoke pot in a video interview with comedians

Joe Rogan.

In Japan, the use of marijuana is a serious crime, and celebrities who are found with it are often forced to apologize publicly.

Mr. Musk's leadership style also plagued Panasonic. With hundreds of thousands of employees, Panasonic became accustomed to giving its units autonomy to solve problems. These units can move slowly and seek consensus in Japanese style, but they didn't have to kick everything up to the executive suite in Osaka.

Tesla did not work that way. Musk, a self-described “nano-manager”, seemed to have his hands on everything. Employees at Gigafactory say they found that even small changes to improve efficiency had to receive written approval from Tesla executives, who lived in fear of Mr. Musk.

Mr. Tsuga, frustrated with the structure from top to bottom, decided that he needed to deal with the problems personally, CEO to CEO. This year, he began traveling to the United States once a quarter to meet Mr. Musk in Nevada, Bay Area or Los Angeles.

"If the Gigafactory project did not succeed, we would both fail," Tsuga magazine said in June.

At a news conference in May, Tsuga said that a high-speed line at Gigafactory was still not at full capacity. A person familiar with the facilities says that the fast "fast lane" to which Tsuga referred was a request from Tesla – an attempt to limit the cost of pushing more production into the same room. Panasonic reluctantly accepted the idea, even though it had not built such a line before.

A battery factory must check the humidity in the air to ensure battery safety. In trying to identify the source of rapid production problems, Panasonic sought to fix the channels that supply dry air to the factory by moving them or adjusting the amount and velocity of air that blows into the so-called dry room, said the person familiar with the facilities.

In April, Mr. Musk blasted Panasonic in a tweet saying that the Japanese company was operating at a pace that limited Model 3 production.

At the news conference in May, Mr. Tsuga Panasonic and Tesla compared a family who quarreled but worked out the differences. The reason it took so long to increase production, he said, was that the factory was managed and operated by Tesla, leaving Panasonic limited freedom to try out steps to improve efficiency. But he said the two companies had a good relationship.

"Increasing profitability is priority # 1," Tsuga told shareholders in June.

Mr. Musk often requires Panasonic to lower its battery prices, call Mr. Tsuga's cellphone directly and email and text him, according to a Panasonic executive with knowledge of the matter.

Mr. Tsuga will not bow. During his recent meeting with Mr. Musk, he said that Panasonic wanted to get more paid for the batteries as soon as Tesla is surely profitable, according to a person familiar with the matter.

"Elon makes these repeated price requests, and once I told him we would consider a complete withdrawal of my people and facilities from Gigafactory in response," Tsuga said in his September comments to reporters. "That's the way a deal with Tesla goes."

Some executives say that Tsuga becomes a lonely voice when he claims the Tesla relationship is worth saving. Mr. Yamada, who had been so helpful in mediating problems between the two companies, left Tesla in July.

Mr. Tsuga was scheduled to meet with Mr. Musk in September. He says he discontinued the trip when the car company canceled at the last minute. In his recent email to Mr. Musk, he opted out with an optimistic tone: "Hope to see you soon."

Write to Tim Higgins at Tim.Higgins@WSJ.com and Takashi Mochizuki at takashi.mochizuki@wsj.com