Can Panasonic and Tesla's battery supply relationship be maintained for a long time?

Panasonic, which has been silently supporting Tesla through all its ups and downs, has recently been involved in a Twitter complaint with Elon Musk. From this, we can seriously evaluate the future development of this relationship and what kind of battery supply relationship can be maintained in the future.

1) Panasonic’s position and considerations

At present, almost all the demands of car companies are calculated according to XXGWh for the future, which means a lot of investment. However, the money of battery companies does not come from the wind, but needs to be raised through financing and capital investment to turn it into production capacity.

Since 2014, Panasonic has invested $1 billion in Giga Factory

In 2016, Panasonic issued corporate bonds to raise up to 400 billion yen (about 3.86 billion U.S. dollars), a large part of which was used to build a Gigafactory battery factory with Tesla.

During this time, we have seen Panasonic's energy business continue to grow at Tesla, and we expect that as demand from other automakers weakens, the proportion will increase.

The report of the Nihon Keizai Shimbun shows the other side of the coin, that is, the relationship between Panasonic's forecast in October last year and the forecast in February this year. Tesla has exceeded Panasonic's elastic range in terms of demand scheduling and capacity matching. In order to meet Tesla's capacity problem in Model 3, Panasonic has made many improvements, which are beyond its expectations from the perspective of planning.

In fact, Tesla's forecast shows that in terms of total volume, there is a gap between the demand in October 2018 and the actual demand in February 2019.

Note: Only a part of the cylindrical battery cells are reflected here, but a large part of others may be due to the lack of expected orders or the fact that the production capacity is not fully utilized.

From the results, Panasonic's current perspective:

Tesla's production plan is highly volatile, and peak production capacity requires additional costs, which also increases Panasonic's expenses in upstream and production. The operating profit of the entire business is not up to expectations.

The current 35GWh production capacity may be broken down according to monthly production. If there are production fluctuations, the actual result may be 24GWh as Elon Musk mentioned. The on-demand production of vehicles has disturbances in battery production. The integrated factory buffer area is extremely limited. There are contradictions here that were not originally considered.

The investment in Gigafactory 1 needs to fully consider the needs of the United States and Europe. This factory in Shanghai can actually cover the needs of all of Asia. After the expansion, it is not clear how the subsequent Model Y pickup trucks and other products will perform, and whether the market demand that can be squeezed out is smooth.

According to Panasonic, Tesla's plan to produce 3,000 Model 3s per week in China is actually very aggressive and requires a lot of investment. Tesla is also looking for second and third suppliers.

All of this means Panasonic needs to be cautious.

In particular, Panasonic CEO Tsuga "frequently" receives direct calls from Tesla asking him to "lower battery prices," despite mounting start-up costs and repeated delays in Model 3 production plans. In the process of maintaining production capacity, they are constantly asked whether you can lower prices. This must have made the Japanese particularly frustrated.

2) Tesla’s perspective

In the future, there will be so many fuel vehicles that need to be replaced by electric vehicles. When I need them, your production capacity cannot keep up, and I have no choice but to find a second supplier. This shows the domineering attitude of controlling the demand side.

Elon Musk

There are 2.5B cars & trucks on Earth. Even replacing 1% of that fleet would require making 25M vehicles per year. Tesla will make over 500k cars in next 12 months, but that’s a mere 2% of 25M or 0.02% of global vehicle fleet. Car industry slow -> demand >> supply.

Pana cell lines at Giga are only at ~24GWh/yr & have been a constraint on Model 3 output since July. No choice but to use other suppliers for Powerwall/Powerpack cells. Tesla won’t spend money on more capacity until existing lines get closer to 35GWh theoretical.

There is 35 GWh/yr “theoretical capacity”, but actual max output is ~2/3. It was physically impossible to make more Model 3’s in Q1 due to cell constraints.

Summary: I personally think that at this stage, the gap between the two sides is still difficult to bridge. In fact, not only on the demand side of Tesla, but also on the demand side of Volkswagen, Hyundai Nissan, and Nissan Renault, there is demand on the supply side. This requires leveraging social capital to increase battery production capacity, and the expansion capacity of a single battery supplier is insufficient. The capacity advantage of battery companies that invested early will inevitably have to consider the return on previous investments. The current electric vehicle business is in a state where costs must be considered and the battery price range must be constantly adjusted. There is really a dilemma here. The money invested in battery production capacity may not have a stable return, but the society must have this money to promote electric vehicles. Who will pay for it?