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Tesla, Panasonic Temper Expansion Plans for Battery Factory

Pavel Alpeyev
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Tesla, Panasonic Temper Expansion Plans for Battery Factory

(Bloomberg) -- Tesla Inc. and Panasonic Corp. are reportedly tempering expansion plans for the battery gigafactory they’ve plugged billions into the last few years, deepening concerns about demand for the carmaker’s electric vehicles.

The maker of the Model 3 sedan said Thursday that while it’s going to continue making new investment as needed in its plant outside Reno, Nevada, existing equipment may be able to produce far more output than previously estimated. Panasonic said it will study additional investment in collaboration with Tesla, following a Nikkei report that said the two had frozen spending plans.

Tesla shares slumped as much as 3.8 percent Thursday, extending their drop this year to 20 percent. A record decline in deliveries during the first quarter stoked concerns about slackening demand for the Model 3, the company’s newest and least-expensive car. While Chief Executive Officer Elon Musk last week reiterated a forecast for 360,000 to 400,000 vehicle deliveries in 2019, investors remain cautious given Tesla’s history of missing ambitious projections.

“The environment for Tesla is getting tougher and there are question marks on Tesla’s ability to deliver sustainable profits,” said Sven Diermeier, a Frankfurt-based analyst at Independent Research GmbH. “Other major manufacturers are readying their own electric lineups, and are able to cross-finance battery cars with the higher returns from combustion-engine cars.”

Tesla and Panasonic had intended to raise capacity at the gigafactory by about 50 percent by 2020, but financial problems have forced a re-think, the Nikkei said, without citing its sources.

A Tesla spokesman said both companies continue to invest substantial funds into the plant, but that the focus has shifted to boosting output using existing lines and equipment. The maker of electric cars and storage batteries said cell supply remains a production constraint, including for its Powerwall and Powerpack products.

The Nikkei also reported that Panasonic intends to suspend planned investment in Tesla’s battery and electric vehicle plant in Shanghai, and instead provide technical support and a small number of batteries from the existing gigafactory.

But it’s unclear whether Panasonic’s involvement in the Shanghai plant was ever formalized. Bloomberg News reported last month that Tesla was in talks with top Chinese battery producer Contemporary Amperex Technology Co. Ltd. about supplying cells for the Model 3 cars it will assemble at the new factory.

In a Feb. 19 regulatory filing, Tesla said it expected to need additional production from the Nevada gigafactory to support the start of Model 3 manufacturing at the plant in Shanghai.

Tesla’s financial strength has been a concern for investors. The company had to pay off a $920 million convertible bond in February, which ate into the about $3.7 billion of cash and equivalents it held at the end of last year.

Musk warned in late February that Tesla probably would lose money during the just-ended first quarter, and the carmaker has a $566 million note coming due in November. The company, which reports first-quarter earnings on April 24, has said it has enough money to pay off debt obligations with cash flow.

The Model 3 has been available in the U.S. since 2017, though the pace of sales in the market has slowed following the shrinking of federal tax incentives, and the company has struggled to get the car quickly into Europe and China. In the March quarter, Tesla delivered 63,000 vehicles, down from 90,966 in the final three months of 2018.

Panasonic President Kazuhiro Tsuga’s bet on Tesla has also been a source of concern as the carmaker went through what Musk called “production hell” ramping up output of the Model 3 last year. While production at the gigafactory in Nevada has improved and sales have climbed, the business has yet to become a major contributor to earnings.

(Updates with information from Tesla 10-K filing in seventh paragraph.)

--With assistance from Anthony Palazzo, Elisabeth Behrmann and Dana Hull.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net;Edwin Chan at echan273@bloomberg.net;Anthony Palazzo at apalazzo@bloomberg.net

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