Panasonic: profits depend on Tesla as client not competitor
Panasonic has been dreaming of this day ever since it established a battery gigafactory joint venture with Tesla. For the first time since its electric car battery production began four years ago, the business has turned profitable on an annual basis.
Celebrations should not be overdone. As a key supplier for Tesla, Panasonic faces a dilemma. Growing demand for car batteries means that capital spending will remain high. The fast evolving industry and constant need for more battery capacity means modifications on production lines are frequently required. As changes are made, production must be temporarily suspended. This, plus pandemic-related disruptions, led to an 11 per cent decline in sales for the year to March.
Moreover, while profitable, batteries remain the smallest contributor to group profits. The automotive business, which includes the car batteries unit, contributed a fifth of total sales but less than 1 per cent of group adjusted operating profit.
The Japanese electronics group’s earnings forecast is upbeat. It expects a 27 per cent increase in net profit for the fiscal year to next March.
But such confidence ignores the fact that Panasonic has not yet addressed its continued reliance on a handful of large customers such as Tesla. Automakers are increasingly keen on making their own batteries. As the most expensive component of an electric car, moving production and technology in-house could have a significant impact on margins.
Tesla chief executive Elon Musk has signalled that battery production is an important goal for the carmaker. He says battery supply constraints have made it hard to scale up production of Tesla Semi trucks. Other automakers, including Ford, have also started to invest in making their own batteries.
Shares of Panasonic have gained 57 per cent in the past year. Unfortunately this is less to do with the company’s restructuring efforts to exit low margin business and more to do with booming Tesla sales. For Panasonic, holding on to gains means holding on to Tesla.
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