Tesla and Panasonic to suspend spending on $4.5 billion Gigafactory

Panasonic Corp

Tesla and Panasonic are freezing plans to boost the capacity of their Gigafactory 1, the largest EV battery plant of the world, as concerns mount on Wall Street regarding sales at Tesla dipping below estimates.

The partners had planned to increase capacity 50% by next year, but with sales of electric vehicles performing less than the expectation, the two companies concluded that a significant investment at this stage poses enough risk.

Tesla’s plans of becoming a mass producer of electric vehicles, on the order of 1 million cars annually, will be pushed back for now.

The decision shows the difficulty that the EV industry is currently facing. Bringing down production costs — the key to drawing more buyers — needs major investments in technology. But that is hard under the thin profits that EVs generate.

Panasonic is also going to suspend its planned investment in Tesla’s integrated automotive battery and EV plant located in Shanghai. Instead, it will offer technical support and a small number of batteries from the Gigafactory. Tesla is committed to purchasing batteries for the vehicles constructed at the Shanghai factory from a number of makers.

The Gigafactory, in the U.S. state of Nevada, has been building batteries for the Model 3, Tesla’s new small sedan, since January 2017. Panasonic, among the world’s biggest producers of electric vehicle batteries, produces the cells, and Tesla combines them into battery packs before assembling the vehicles in their California plant.

The Gigafactory right now is said to have the capacity to supply over 500,000 cars per year. The companies had intended to boost the capacity to the equivalent of 54 gigawatt-hours a year by 2020, increasing from 35 GWh at present.

Tesla sold 245,240 vehicles in last year. This year it prepares to sell 360,000 to 400,000 cars, but deliveries have been delayed because of production bottlenecks. Since last summer, Tesla executives have stopped mentioning a target date for reaching 1 million cars per year. 

Tesla and Panasonic have invested $4.5 billion in the plant to this day. Six months ago, Panasonic President Kazuhiro Tsuga stated the company would think about more investment in North America, keeping in step with Tesla. It was reportedly thinking about putting an additional 100 billion yen to 150 billion yen ($900 million to $1.35 billion) into the Gigafactory.

But Panasonic’s Tesla EV battery business had operating losses crossing 20 billion yen in the financial year that finished in March, up from a year ago. The losses were aggravated by delays in the start of production of the Model 3.

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