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Inside Panasonic's Strategic Deal with Tesla

Posted by Mary Grace Figuracion | June 22, 2016

How will Panasonic benefit from being the exclusive supplier of batteries for Tesla?

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Panasonic As Tesla’s Sole Supplier of EV Batteries

It was recently reported that a shipment of 120 tons of Samsung SDI battery cells arrived at a California Tesla development facility in April, destined for the company's factory in Palo Alto. As soon as the report was published, different speculations filled the Internet that Samsung will be supplying EV batteries for Tesla’s Model 3 vehicles. Tesla Motors CEO Elon Musk has since clarified that Panasonic will be the exclusive supplier for Model S, the Model X, and the upcoming Model 3. What will be the implications of this exclusivity to Panasonic?

Opportunity for Profit

Panasonic has been supplying lithium-ion cells to Tesla for its Model S car since 2012, and their role has expanded through an agreement to supply automotive-grade battery cells to Tesla over the course of four years. Although the company has made strategic moves such as the closure of its TV panel production in order to focus on profitability, it is willing to spend around US $1.6 billion on the Gigafactory, Tesla’s large-scale battery manufacturing plant. It stands to profit from Model 3’s sales, which reached around 400,000 pre-orders in just a week.

Market Value

Tesla Motors is a driving force among automobile-component suppliers in Asia. After reports were released about Samsung SDI supplying for Tesla’s Model 3, Samsung’s shares rose 4.1 percent. There was an 8 percent decline in Samsung after Elon Musk took to Twitter to deny the reports. In response, Panasonic added around US $800 million to its market value. Although Panasonic being Tesla’s sole EV battery supplier serves as an opportunity to increase its market value, the company needs to be cautious of its scaling capabilities. Panasonic doesn’t want to experience what happened to Tesla’s sole gearboxes supplier, Hota Industrial Manufacturing, which shares got beaten up in April after reports that the automotive manufacturer was looking for a second supply source.

Opportunity For A Major Shift

There are reports that Panasonic is now trying to reduce its dependence on some of its consumer electronics businesses that don’t produce that much profit such as a phones and razors. Currently, Panasonic manufactures batteries for nearly all major hybrid and electric cars including Toyota Prius. This could be the window that the company is waiting for to lead to a  major shift in strategy as it tries to shift more focus to a more stable automotive industry.

 

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