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Companies


PANASONIC LOGS RECORD PROFIT BUT SLASHES JAPAN EV BATTERY PRODUCTION

Company reaps U.S. subsidy windfall, vows to find new uses for idled lines


Analysts warn that Panasonic faces fast-moving rivals in the EV battery
business.   © Reuters
RYOHTAROH SATOH, Nikkei staff writerOctober 30, 2023 16:21 JSTUpdated on October
30, 2023 21:18 JST | Japan
CopyCopied


TOKYO -- Japan's Panasonic Holdings said Monday it is slashing domestic electric
battery production by 60% due to slower than expected sales of some models to
key client Tesla.

The move comes as the company announced a record net profit of 288 billion yen
($1.9 billion) for the six months through September, helped by a hefty subsidy
for its EV battery business in the U.S.

Group CFO Hirokazu Umeda announced the domestic cuts in an online earnings call
on Monday, saying the company had already stopped some production lines in Japan
to reduce battery stockpiles. The 60% reduction is from first-quarter levels and
will likely last at least until March next year, according to the company's
online presentation.



"We are talking with many other [potential domestic] customers," Umeda said.
According to him, the company reduced its supply of older model 1865 batteries
to Tesla in the second quarter and would like to use the production capacity
this has freed up to serve new customers.

"We are thinking of many uses [for the battery capacity]," said Umeda, hinting
that future customers may not be limited to carmakers. Panasonic's older
batteries are used in Tesla's Model X and Model S, according to Umeda.

Domestic EV battery production capacity accounts for around 20% of the group's
global total. Umeda added that production in Japan "will not grow as well as at
the American factories" in the future.

Panasonic's record first-half profit came despite a slowdown in consumer
electronics in Asia and factory automation equipment in China, thanks in part to
the 27.6 billion yen subsidy from the U.S. federal government in the second
quarter, according to the company.



Panasonic is splitting the government subsidies with Tesla, with which it
operates the Gigafactory battery plant in Nevada. The Japanese company forecasts
the subsidy will add 110 billion yen to its annual net profit. Panasonic also
said the government funds will help lift its full-year net profit by 73% to an
all-time high of 460 billion yen.

Its first-half earnings were also pushed up by increasing demand for automobile
parts and equipment for airplanes.

In addition, the company had a one-off profit from dissolving an LCD panel maker
in the first quarter, a move that contributed 110 billion yen.

However, the company downgraded its forecast for sales and operating income. It
now foresees annual operating income increasing 38.6% to 400 billion yen,
compared to its July forecast of a 49% increase. The change was due in part to
sluggish demand for consumer electronics countries like China and Japan and for
factory automation equipment in China. Demand growth for heating and AC systems
in Europe was also slow.

Analysts say the company's established position in the U.S. has enabled it to
benefit from government support there.

"Panasonic was able to get government support faster [than other makers
investing in the U.S.]," said Masashi Okada, a principal at the Arthur D. Little
Japan consultancy.

Panasonic is one of the biggest and oldest sources of EV batteries in the U.S.,
with the Gigafactory having been in operation since 2017. Because the size of
the subsidy is based on actual rather than planned production levels, Panasonic
has been one of the biggest beneficiaries, alongside South Korea's LG Energy
Solution, Okada said.

Panasonic says it will decide on a potential third factory in the U.S. by March,
and plans to quadruple its global EV battery production capacity by 2031. The
company is also increasing production in Nevada, to cash in on growing demand
and the subsidy.

EV battery unit Panasonic Energy accounts for 12% of the Panasonic group's
sales. But over the next three years, "60% of the increase in profit factor will
be due to [Panasonic] Energy's contribution," according to Ryosuke Katsura of
SMBC Nikko Securities.

Market reaction to Panasonic's heavy battery reliance has been mixed. Its share
price shot up in June after Panasonic Energy announced plans to further expand
its U.S. business, but it dipped in October as Tesla, its major customer, posted
disappointing results and concerns about the U.S. economy grew.



Analysts are also concerned about what they see as Panasonic's slower pace of
investment compared to other Asian battery makers. Panasonic's South Korean
rivals have partnered with Western automakers -- LG Energy Solution with General
Motors, SK On with Ford Motor and Samsung SDI with Stellantis -- to build
multiple battery factories in the coming years.

In a surprise, Toyota Motor, a joint partner to Panasonic, said it has made a
deal with LG for the top South Korean battery maker to spend about $3 billion to
build a production line at its Michigan plant to serve the automaker.

"I certainly think Panasonic has a window of opportunity to be a secondary
supplier to the U.S. and European automakers in the U.S. market," UBS analyst
Tim Bush, told Nikkei. "But I haven't seen any evidence that Panasonic has
really entered serious talks with other automakers."

The Japanese company says it will supply Lucid Group in the U.S. and possibly
Mazda, but these makers produce a fraction of the vehicles that GM and Ford turn
out.

Bush also raises concerns about whether the favorable environment created by the
"incredibly generous" subsidy will continue until the official end date of 2032.
The budget for the subsidy would have to swell considerably to accommodate all
the factories planned by Asian companies. If the Republican candidate wins the
2024 U.S. presidential election, the party could also revisit "certain aspects"
of the policy, including its favorable terms to Japan, Bush said.

He added, "There's a lot of uncertainty on how many years the credit will be
available."









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