Economy

More trouble for Tesla as Panasonic freezes Gigafactory investments

More trouble for Tesla as Panasonic freezes Gigafactory investments

Panasonic Corp is studying further investments in battery production at its Gigafactory venture with Tesla Inc, the company said, responding to a media report that the two companies had frozen previous plans.

Once the Nikkei report surfaced, shares of Tesla dropped almost three percent because of what the report implies: EV demand may not be growing as quickly as expected and in that case, costly upgrades to produce more batteries wouldn't be needed.

Panasonic's hesitation to pour more money into Gigafactory may be less of an indictment of Tesla, which reported a significant slowdown in the first quarter of this year, than it is on the status of EV and battery production. Tesla has seen a record decline in deliveries during the quarter ending in March, which has led to fears about lack of demand for the company's Model 3 sedan.

Battery-giant Panasonic put a damper its planned investment of hundreds of millions of dollars to expand Tesla's Gigafactory site in Nevada, raising concerns that slowing investment could slow the pace of progress for EVs. One would assume that any automaker buying Panasonic batteries would receive the same level of support.

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Panasonic Corp and Tesla Inc will continue to make new investments in the US electric carmaker's Gigafactory as needed, but believe they can squeeze more out of existing resources than previously planned, Tesla said on Thursday.

Panasonic and Tesla planned to raise the capacity of the plant by 50 percent by the year 2020, but financial problems have reportedly halted these plans.

"However, we think there is far more output to be gained from improving existing production equipment than was previously estimated", Tesla added.

Panasonic commented on the decision stating: "Panasonic will study additional investments over 35 GWh in collaboration with Tesla". At the same time, it has also decided with Tesla to freeze spending to expand Gigafactory 1, which has manufactured Model 3 batteries since 2017. Only Tesla would have better insight into demand planning than the maker of its battery packs, which are said to cost upwards of 40 percent of the cost of the vehicle.