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Panasonic to Opt out of Tesla's Gigafactory?

Zacks Equity Research

Tesla Motors, Inc.’s (TSLA) battery supplier Panasonic Corporation (PCRFY) might not be a partner in its Gigafactory, per media reports. According to Panasonic’s President, the factory has a lot of investment risk. The revelation comes as a surprise as Panasonic was widely assumed to be one of the partners for Tesla’s Gigafactory.

While it is not yet definite, Panasonic’s absence from the project might make things a little difficult for Tesla. The electric carmaker will be able to use Panasonic’s supply chain as well as technical know-how in case the battery supplier agrees to come on board.

Tesla is planning to construct the Gigafactory to produce lithium-ion batteries for its cars in collaboration with various partners. The automaker expects the factory to provide economies of scale and reduce production costs based on innovative manufacturing techniques, reduced logistic wastes, optimization of co-located processes and lower overhead costs.

The automaker will be initiating the construction work this year and expects to finish the factory by 2017. The factory will supply lithium-ion batteries to Tesla's assembly plant in Fremont, CA.

By 2020, Tesla expects the annual lithium-ion battery production of the Gigafactory to exceed the global production in 2013. The factory will produce enough battery packs to allow Tesla to build around 500,000 electric cars by 2020. Also, by the end of the first year of manufacture of the planned mass market vehicle, the per kWh cost of production of battery packs is expected to be reduced by over 30%.

Tesla will invest $2 billion in the factory, whose construction will require $4–$5 billion. The rest of the funds will be provided by Tesla’s partners.

Tesla currently carries a Zacks Rank #2 (Buy). Some other automobile stocks worth considering are Tata Motors Limited (TTM) and Daimler AG (DDAIF), both of which sport a Zacks Rank #1 (Strong Buy).

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