Tesla steps back from joint Panasonic battery production plans

Tesla has stepped back from plans to jointly invest with Panasonic to expand battery production lines at its factory in Nevada as uncertainty hangs over the outlook for its electric vehicles. Shares in the US electric carmaker fell 3 per cent on Thursday after the Nikkei newspaper reported that the two companies were freezing plans to raise capacity at the $5bn Tesla “gigafactory” in the Nevada desert by 50 per cent by next year due to “financial problems”. The companies had earlier said the plant would have production capacity of 35 gigawatt hours a year by the end of March. Tesla chief executive Elon Musk had hoped to raise that to 54GWh by 2020, according to people close to the companies. In a statement following the report, Panasonic said it will watch the demand situation and “study additional investments over 35GWh in collaboration with Tesla.” The US carmaker said it would continue to invest in the gigafactory “as needed”. “However, we think there is far more output to be gained from improving existing production equipment than was previously estimated,” Tesla added. Tesla later issued a second statement as it tried to defuse worries about flagging demand, pointing to short-term pressures on the gigafactory. It said that “demand for [battery] cells continues to outpace supply,” and added: “It remains the fundamental constraint on Tesla vehicle and Powerwall/Powerpack production.” However, Tesla would not comment on the report that a big expansion in capacity envisaged for next year was no longer part of its plans. Tesla executives had previously talked of plans to add further lines at the Nevada plant, which is only about 30 per cent developed. The change in stance follows a slump in deliveries of the company’s Model S and Model X in the first quarter of this year, raising worries that demand is flagging. Deliveries also dropped from its new Model 3, though the company blamed the fall on delays in shipping vehicles to its first international customers. As part of a shift away from consumer electronics to focus on more profitable batteries, car parts and industrial hardware, the Japanese group had committed up to $1.6bn for the gigafactory. In return, it became the exclusive supplier of batteries for Tesla’s mass-market Model 3 car. But people close to both Panasonic and Tesla described “rising tensions” between the two companies as the Japanese company bridled at the low margins it was making on the output of the US gigafactory and the perceived threat from Tesla’s deepening relationship with battery producers in China. People close to the Japanese company also said Panasonic was not in a position to increase investment in Tesla’s gigafactory. Investors are already frustrated that its costly investments are not paying off as quickly as the company had originally anticipated. The group’s earnings outlook has darkened amid a fall-off in Chinese demand for its automotive components and electronic devices that led to a cut in its operating profit forecast. Analysts have also said Tesla appears to be drifting away from Panasonic as Mr Musk plans to start producing its Model 3 vehicles in Shanghai by the end of the year. The US group is reportedly exploring supplying from local players with Panasonic cautious about investing in its Chinese factory. The Japanese group is concerned that the vehicles from the Chinese factory could be sold internationally rather than just in China, creating new competition for the supply of batteries coming from the US gigafactory, said the people close to the companies. Tensions are also rising around the Panasonic's joint venture with Toyota to produce new batteries for electric vehicles — a move, said people familiar with the situation, that has caused Tesla to question the exclusivity of its EV battery relationship with Panasonic.