March 27, 2014

Panasonic hesitant to commit to Musk’s Tesla battery gigafactory.

Panasonic Corp. (6752), Tesla Motors Inc. (TSLA)’s primary supplier of lithium-ion cells for its electric Model S sedans, hasn’t committed to investing in a massive U.S. battery plant proposed by Tesla’s Elon Musk.

Joining Tesla’s “Gigafactory” battery project would raise investment risks, Panasonic President Kazuhiro Tsuga told reporters at a briefing in Tokyo. Tesla, which announced plans for the facility in February, said it’s reviewing potential sites in four southwestern U.S. states. The plant may require as much as $5 billion to build and employ about 6,500 people by 2020, the Palo Alto, California-based company said.

“Our approach is to make investments step by step,” Tsuga said yesterday. “Elon plans to produce more affordable models besides Model S, and I understand his thinking and would like to cooperate as much as we can. But the investment risk is definitely larger.”

Musk, who is also Tesla’s co-founder and biggest investor, has said Panasonic may be involved in the factory. However, the Osaka, Japan-based company’s participation is “not 100 percent confirmed,” he told Bloomberg Television last month.

“Having Panasonic as a joint venture partner would facilitate strategic access to Panasonic’s supply chain and reduce risks,” Craig Irwin, a New York-based analyst at Wedbush Securities Inc., wrote in a note yesterday.

Irwin, who has an outperform rating on the stock, trimmed his share-price estimate for Tesla to $275 from $295.

Critical Batteries

Texas, Arizona, New Mexico and Nevada, the four states Tesla identified as possible factory locations, have started lobbying efforts to win the plant. Tesla has raised about $2 billion in a convertible bond sale to help fund the plant and for product development.

Musk, 42, has said the plant is critical to helping Tesla drive down battery costs and to expand lithium-ion cell supplies to allow the carmaker to sell hundreds of thousands of electric vehicles annually. Tesla also wants to make batteries for home storage of electricity generated by solar panels, allowing customers to reduce use of power from utilities.

Tesla relies on Panasonic for the battery materials, said Menahem Anderman, president of Total Battery Consulting Inc., in Oregon House, California. If Panasonic isn’t involved, that will make the factory much more of a challenge, he said.

“Our battery production depends on Tesla’s sales, so we have been closely monitoring them,” Tsuga said. “We exchange our opinion on future sales on a monthly basis with Tesla.”

Panasonic fell 2.7 percent to 1,159 yen as of the midday trading break in Tokyo. Tesla declined 2.6 percent to $207.32 at yesterday’s close in New York, trimming its gain this year to 38 percent.

Written by Grace Huang and Alan Ohnsman