Panasonic is a $70 billion giant with strongly rising profitability and a place in the first division of battery manufacturers greatly boosted by its acquisition of Sanyo. It has shipped over 180 billion batteries since 1931. In Lithium-ion batteries, Panasonic sits alongside leader LGChem of Korea, which may be installing the most capacity for them at 50GWh in 2020. Other leaders are $13 billion BYD of China installing similar capacity to the Tesla Gigafactory by 2020, Samsung SDI of Korea and AESC of Japan. BYD recently sold nearly $2 billion of new equity to help it make more batteries and design new cars.
Tesla is not a cell manufacturer
Tesla, wanting a lot of large lithium-ion batteries for its own use, needed to form a partnership with one of these large players with their deep knowledge, vast number of patents and large production facilities. There is no other way a newcomer can rapidly get up to speed and this is compounded by the fact that the cell formulations keep changing: vital in achieving greater range and lower cost for the vehicles. Pure electric car manufacturers BYD and Tesla have recently announced doubling in range for their mainstream cars but not by huge battery improvements, simply by almost doubling the amount of battery, effectively pinning a huge amount of investors' money to each vehicle. Tesla did it in the most extreme way with the planned Tesla 3 so it attracted nearly 400,000 reservations. Toyota told analysts IDTechEx that it could not carry such losses if it acted similarly. Investors love BYD and Tesla so they can sell at huge losses for a while but they must urgently get battery price to halve or it all ends in tears.
How to get costs down
Gigafactories and vertical integration help - BYD is even getting into lithium - but they are not enough. The leaders in lithium-ion batteries are all adopting silicon-loaded anodes and high energy cathodes such as nickel manganese cobalt with extra nickel - difficult if life and other properties are not degraded. Later come challenging non-flammable electrolytes. See the new IDTechEx reports, Lithium-ion Batteries 2016-2026, Lithium-ion Batteries for Buses 2016-2026 and Advanced and Post Lithium-ion Batteries 2016-2026: Technologies, Markets, Forecasts.
Tesla chose Panasonic to set up production of lithium-ion cells in its Gigafactory, partly because it will hugely invest. Panasonic retains the intellectual property, hired its own staff, installs its own processes and effectively sells the cells to Tesla. When Executive VP of Panasonic Yoshihiko Yamada was sceptically assessing Tesla's proposal in 2013-4, many companies were installing extra production capacity for lithium-ion batteries but failing to get the orders to fill them but Yamada took a leap of faith. He risks being seen as so close to Tesla that his competitors may cease to buy from him just as BYD has some difficulty in selling batteries to its car, bus and stationary power competitors. On its part, Tesla is hoping that Panasonic will always give it the best new chemistry on time.
Initially, Panasonic is gambling $1.6 billion of the $5 billion plus Gigafactory cost. However, Panasonic has just announced that it is considering to sell corporate bonds and raise $3.91 billion. Senior Managing Director at Panasonic Corporation said during the earnings call, "In the near term, strategic investment (from the money raised) would be mostly in Tesla's Gigafactory. There is a need to speed up investment."
The two companies have worked closely for years. Tesla buys cylindrical cells from Panasonic in Japan. Elon Musk recently said that he sees scope to erect gigafactories in Europe, China and maybe India and clearly Panasonic would like to be involved in all of that. Tesla is bringing forward its production target to 35 GWh of capacity in 2018. That is around the level of total global production of lithium-ion batteries in 2014. Yoshio Ito, Panasonic's head of automotive and industrial systems (AIS) division, said, "We will do our best to move up the schedule if requested."
Changing the shape and the chemistry
Tesla needs to progress from making its battery packs with tiny cylindrical cells that do not compactly pack together and have enormous numbers of connections to go wrong. Competitors use much bigger cells. It is therefore asking Panasonic to manufacture a larger 20700 cell format - compared to the current 18650 so the battery cells that will be produced at the factory later this year - taller (70mm) and wider (20mm) than the current cells used. Chemistry will be improved too.
Panasonic is far from being wholly dependent on Tesla for its sales of lithium-ion batteries. Knowing that the biggest value market for them is currently not cars but buses, over 75% of which are made in the protected Chinese market for buses, it is trying to manufacture there. Foreign companies wanting to manufacture products in China are required to work with a local partner, inevitably leaking intellectual property. Samsung and LGChem set up partnerships in China to make their batteries that are superior to ones made in China in storing more electricity in a given space but the Chinese government said this design will not be supported by government subsidies to the vehicle makers using it until "safety" is confirmed. The Ministry of Industry and Information Technology MIIT effectively suspended EV buses from using a type of battery that use a combination of nickel, cobalt, and manganese (NCM) in the cathode. All the leading foreign suppliers make NCM batteries and they had built up over 10% market share in China. Last year XAAR of the USA even announced a billion dollar order for such batteries from just one Chinese bus maker and 10 percent of EV buses produced in China used NCM batteries in 2015. See the IDTechEx report, "Electric Buses 2016-2026". IDTechEx and other analysts sees the trade barrier being to help Chinese competitors catch up. Chinese manufacturers interviewed by IDTechEx confirmed this.
Worse followed. In June, the Chinese government decided to leave LG Chem and Samsung off a list of licensed suppliers. That may disqualify them from subsidies despite producing the power units in China. MIIT rejected applications by the two battery makers - who together control one-third of the global EV battery market -saying they failed to make the cut to be included in a list of suppliers who met the country's battery standards for electric-vehicles enacted in May 2015, without giving a reason. The ministry has given the green light to 57 battery makers by June 20, but no foreign companies have made it to this list.
KwanHyeung Kim, Samsung EV marketing director, China, says he is not sure why the company's application was rejected. LG Chem said it has not received an explanation. Both will resubmit later. It left them and their Chinese partners in the lurch. LG Chem's supplies automakers SAIC and Chery. SAIC is now considering replacing the LG Chem battery in a new hybrid model. 10 Chinese automakers using batteries from Samsung are waiting to see whether the battery license would become a compulsory prerequisite to qualify for subsidies typically as half the vehicle's price. Anhui stopped producing an electric SUV using Samsung batteries due to subsidy concerns. Panasonic has a joint venture in China to make other things but it will have got the message on batteries. Neither Tesla nor its supplier Panasonic can be sure of major success in China.
Double or bust
Over the last five years, Panasonic has been strongly recovering from overdependence on television and large displays. If Tesla succeeds and keeps Panasonic as partner it may lead the battery maker to be the largest in Lithium-ion batteries by a comfortable margin in 5-10 years but if they fail they have Sony as a warning. That company failed to invest in the best chemistry and production and failed to compete in the large lithium-ion batteries that form most of the market projected by IDTechEx and other analysts. Recently, Sony sold its total lithium-ion activity to Murata. It is out of the business. Panasonic, Samsung and Murata present at the 3500+ delegate IDTechEx Show! in Santa Clara, Silicon Valley November 16-17.
Top image: Tesla