Expansion and investment plans frozen, after deliveries of Teslas
plunged in Q1.
The core of every Tesla is the battery, and the core of the battery is the
battery cell technology, and that technology doesn’t belong to Tesla. It
belongs to Panasonic, which makes the battery cells that Tesla packages into
its battery packs. The Gigafactory in Nevada is a joint operation between
Panasonic and Tesla.
But now, according to the Nikkei,
the partners have frozen the planned 50% expansion of the Gigafactory in
Nevada, and Panasonic has suspended its investment in Tesla’s Shanghai plant
that is currently under construction.
These decisions are driven by the uncertainty about demand for Tesla
vehicles, after the miserable first quarter, and the financial problems that
arise from the decline in demand.
Panasonic has been the largest manufacturer of battery cells for EVs,
along with a Chinese company, CATL, followed by a bunch of other Chinese
companies. But the operating losses of Panasonic’s Tesla battery business
grew to $180 million in its fiscal year through March 31, from a smaller loss
in the prior year, according to the Nikkei, proving just how tough it is to
make a profit in the EV space.
And now there is this awful question about demand for Tesla vehicles
hanging over the battery plants, as deliveries plunged
31% globally in Q1 from Q4, to 63,000 vehicles:
- Model S and X in Q1 deliveries plunged 56% from Q4 to
just 12,100 vehicles. And it’s not just a seasonal blip: this was down a
catastrophic 44% from Q1 2018.
- Model 3 deliveries in Q1 dropped 19% from Q4 and 8% from
Q3, to 50,900 cars.
After having saturated its Model 3 pent-up demand, created during years of
hype, the company is now facing the issue that every automaker is facing in
the US: Total car sales have plunged over 30% since 2014, while truck and SUV
sales have boomed. “Carmageddon” is what I have long called this process.
It’s an industry shift, and automakers are struggling with it.
With the Model S, Tesla faces an additional problem: it is an expensive
luxury car that is seven years old and is getting stale and needs an update
or redesign.
Now all hopes are on Tesla’s far-off compact SUV, the Model Y whose recent
media pony show had been totally underwhelming. It’s based on the Model 3.
But the hopes are that it will be able to benefit from the generally strong
demand for compact SUVs – if Tesla can get the price point down to where the
market is.
Meanwhile back at the ranch in Nevada, so to speak, when demand for Tesla
vehicles backs off, demand for the batteries in them automatically slows
down. So it’s apparently time to be cautious and rethink the expansion plans
of the Gigafactory.
Panasonic and Tesla had originally invested $4.5 billion in the plant and
had planned to expand battery production from the current capacity of 35
gigawatt hours a year to 54 gigawatt hours a year by 2020.
Last October, Panasonic President Kazuhiro Tsuga said the company would
consider “further investment in North America, keeping in step with Tesla.”
According to the Nikkei, Panasonic had been considering investing between
$900 million to $1.35 billion in the Gigafactory. But now it has frozen those
plans.
Model Y production and deliveries are still on the distant horizon and –
given Tesla’s rock-solid history of overpromising and underdelivering – will
likely remain on the distant horizon for a lot longer than planned. But if
and when sales reach sufficient momentum, proving that sustainable demand for
the Model Y is there, the two companies will reevaluate their expansion plans
for the Gigafactory.
And Panasonic will also suspend its planned investment in Tesla’s
Gigafactory in Shanghai, which is currently being built. It’s an integrated
battery production site and EV plant. According to the Nikkei, Panasonic will
instead provide technical support and a small quantity of batteries from the
Nevada Gigafactory. Tesla has already committed to buying the batteries for
the cars it might assemble at the Shanghai plant from various Chinese battery
makers.
Upon the good news, Tesla shares dropped 3% this morning to $267 a share.
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