Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter
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 dog-and-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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