Panasonic has reached a deal with Tesla to manufacture lithium-ion cells at a joint battery manufacturing plant, while Tesla will use the cells to assemble battery packs for its electric vehicles. Telsa will "prepare, provide and manage the land, buildings and utilities". Separately, Tesla has announced a loss of USD62 million on increasing R&D costs.
IHS Automotive perspective | |
Significance | Tesla and Panasonic have been in talks over the battery production plant for several months, after electric vehicle (EV) manufacturer Tesla announced the facility in February. This announcement clarifies the role of each of the companies in the venture, though the location, date of construction, and specific investment amounts have not been disclosed. While the site selection was not part of the announcement, Tesla confirmed it has broken ground on construction in Nevada (United States) at a site that might “potentially” be the location. |
Implications | Tesla's announced role is largely as a facilitator, with Panasonic committing to investing in equipment, machinery and manufacturing tools necessary to build the battery cells. An undisclosed network of suppliers is "planned" to produce the required precursor materials. Output is being planned for 35 GWh of cells and 50 GWh of packs per year by 2020; Tesla projects employment of 6,500 at the plant in the same time frame. The cells, modules, and packs produced are destined for the stationary storage market, as well as Tesla vehicles. Meanwhile, Tesla has announced losses in the second quarter doubled to USD61.9 million from the same period of 2013, though revenues increased to USD769.3 million. |
Outlook | Tesla envisions the plant will supply batteries for more than simply its vehicles, which is a strategy that could reduce its costs while fulfilling the company's general target of expanding acceptance of EVs in the mass market. Under the deal, Tesla will largely act as landlord and manager of Panasonic's manufacturing site, but has also committed to continue sourcing battery cells from Panasonic's factories in Japan. Tesla's second-quarter results reportedly include R&D expenses, which have doubled as the company prepares to launch the Model X, while the Model 3 is in development. |
Tesla and Panasonic have announced an agreement to work together to create a "Gigafactory", as the US-based electric vehicle (EV) manufacturer calls it, dedicated to large-scale battery production. The two companies have not confirmed the amount of investment to be provided by each, only that the pair will continue to negotiate details, including sales and investment. Japan-based electronics giant Panasonic will reportedly build cylindrical lithium-ion batteries and provide equipment, machinery, and other tools for the project, said the two companies in a joint statement yesterday (31 July). Panasonic's possible financial contribution to the facility has been estimated by Tesla at up to USD5 billion by 2020.
In a joint statement, the companies said the Gigafactory is being created to enable "continuous reduction" of the cost of long-range battery packs for EVs in parallel with the manufacturing volumes Tesla projects it will need for the Model 3 and the Model X. "The Gigafactory will be managed by Tesla, with Panasonic joining as the principle partner responsible for lithium-ion battery cells and occupying approximately half the planned manufacturing space," the statement said. Key suppliers and Tesla's module and pack assembly will occupy the other half of the facility. "We will reach a plan that is profitable. We will do step-by-step investment to meet the gradually growing needs," Panasonic's chief financial officer, Hideaki Kawai, was quoted as saying.
Tesla's chief technical officer and co-founder, JB Straubel, said: "The Gigafactory represents a fundamental change in the way large-scale battery production can be realised. Not only does the Gigafactory enable capacity needed for the Model 3 but it sets the path for a dramatic reduction in the cost of energy storage across a broad range of applications."
Panasonic executive vice-president Yoshihiko Yamada said: "We have already engaged in various collaborative projects with Tesla toward the popularisation of electric vehicles. Panasonic's lithium-ion battery cells combine the required features for electric vehicles such as high capacity, durability and cost performance. And I believe that once we are able to manufacture lithium-ion battery cells at the Gigafactory, we will be able to accelerate the expansion of the electric vehicle market."
The companies cite optimised manufacturing processes driven by economies of scale "previously unobtainable" as goals of the project, as well as manufacturing cells optimised for electric vehicle design by co-locating suppliers and eliminating packaging, transportation, duty, and inventory costs. The two companies expect the new location will offer reductions in utility and operating expenses as well.
Groundbreaking in Nevada
Tesla has also announced that it has broken ground near Reno, Nevada (United States), for the Gigafactory, according to Bloomberg. The site is in the Tahoe Reno Industrial Center in McCarran, nine miles east of Reno. The centre, which covers 107,000 acres, has 30,000 developable acres pre-approved for industrial and manufacturing uses, according to its website. The EV-maker added that it was still reviewing sites in California, Texas, Arizona, and New Mexico, each of which is competing to snare the project, arguably the single largest new industrial project in the US. "On the Nevada side, the ball is in the court of the governor and the state legislature," said Tesla's chief executive, Elon Musk, adding that he expects the state to provide about 10% of the factory's cost.
Tesla's Q2 results
According to various reports, Tesla's second-quarter financial results included a net loss of USD61.9 million, versus USD30.4 million in the same period last year. Research-and-development (R&D) expenses jumped to USD107.7 million, from USD52.3 million a year ago. Tesla has also temporarily shut down its production plant, as it prepares for the launch of the Model X and increases capacity in Freemont, California (United States). The facility change, Tesla says, will increase output to 1,000 vehicles per week in the fourth quarter, from 800 per week currently, and to 100,000 vehicles per year by the end of 2015; however, the change will also reduce production by about 2,000 units in the third quarter. Tesla posts its results outside traditional generally accepted accounting practices (GAAP), under which the company posted a net income of USD16 million on USD858 million in revenue during the second quarter. The non-GAAP calculations exclude stock-based compensation and non-cash interest expenses, as well as adding back deferred revenue and related costs for cars sold with the resale value guarantee. Tesla says worldwide deliveries reached 7,579 units in the second quarter, with production reaching 8,763 units, and says it was unable to keep pace with demand.
Panasonic's Q1 results
Panasonic has posted a 28.2% year-on-year (y/y) rise in operating profit to JPY82.3 billion (USD803 million) for the first quarter (April-June) of fiscal year (FY) 2014/15, beating analyst expectations, on growing demand for its automotive parts and household fittings, reports Reuters. The company's net profit, however, fell 64.8% y/y to JPY37.9 billion, following the jump in profit a year earlier due to a one-off gain related to its pension programme, as well as reduced personnel costs. Panasonic posted a sales growth during the quarter of 1.5% y/y to JPY1.85 trillion. For the full fiscal year to March 2015, Panasonic kept its forecast unchanged, projecting JPY310 billion in operating profit (up 1.6% y/y), JPY140 billion in net profit (up 16.2% y/y), and JPY7.75 trillion in sales (up 0.2% y/y).
Outlook and implications
Tesla first announced its intention to create the Gigafactory in February (see United States: 27 February 2014: Tesla plans USD6-bil battery plant). From the beginning, Panasonic was expected and rumoured to be the partner, but the automotive supplier's involvement took longer to settle. Panasonic, which owns 1.1% of Tesla, signed a preliminary agreement to participate in the project in May after expressing reluctance about the level of investment risk (see United States - Japan: 26 May 2014: Panasonic's contribution to Tesla battery plant still uncertain). Panasonic's participation in the project comes after Tesla raised about USD2.3 billion in March to help fund it. Tesla, which also faces scepticism over the building of a factory with sufficient scale to cut battery costs by about 30%, was slapped with a junk credit rating in May by Standard & Poor's, with the ratings agency citing "significant risk" in its Gigafactory plans.
Tesla said during an annual shareholder meeting in June that it was studying potential sites for the Gigafactory in the US states of Arizona, California, Nevada, New Mexico, and Texas and it might initially select three for preparation work. Tesla plans to launch the Model X early in 2015, followed by its fourth and most affordable Model 3 sedan in 2016. This plant is, Tesla says, critical for getting the costs of battery packs down. IHS Automotive forecasts sales of the Model 3 will be about 50,000 units per annum (upa). Tesla is looking for that vehicle to sell for about USD35,000, and for it to break through barriers to mass-market acceptance of EVs.
With Tesla committing to manage the facility and pay for support needs, such as plant utilities, Panasonic can maintain control of its processes, machinery and, likely, control or strong input into which customers the plant ultimately supplies, as well as which suppliers. Among the interesting elements of the deal is Tesla's commitment to continue to source battery cells from Panasonic's Japan plants - helping Panasonic ensure the new facility will not put the old facility out of business before the Gigafactory has built up a sufficient customer base.
Tesla is, again, pushing the industry to re-think the basics of how automakers approach the industry with the structure this project provides, as Tesla's involvement is largely one of facilitation. Tesla will assembly the battery packs, but does not necessarily own the power source for the vehicle. As partners, the two will work closely together and the facility should benefit both companies. The target of creating battery cells that can be used for stationary storage has the potential to drive down costs, as well as generate a revenue stream for both Tesla and Panasonic, and focusing on the stationary market prevents the Gigafactory from supplying Tesla's direct OEM competitors - a situation probably as unpalatable for the competition as for Tesla.
Tesla's second-quarter results, reflecting increased investment in the business, are consistent with the company's current focus. Without the investment, it will not be able to achieve the production increases it needs. Increases in revenues and sales bode well for the overall business situation, and the production being installed should deliver greater revenue in periods to come. Panasonic's FY 2014/15 operating profit projection of JPY310 billion, if achieved, would be its highest in seven years. Panasonic is in the middle of comprehensive restructuring efforts to shift its focus to industrial markets from less profitable consumer products.