Panasonic Will Invest More on Making Tesla’s Batteries - Barron's

Panasonic is going to make even more batteries for Tesla.

The most bullish interpretation of the news is that it is a positive signal for coming Tesla demand. That might be going too far, based on a single data point, and given that capacity decisions are typically made well in advance of sales, but the news is still a chance for electric-vehicle investors to review what is happening in battery development.

The Nikkei Asian Reviewreported that Panasonic (6752.Japan) will invest another $100 million in its joint-venture Tesla (TSLA) Gigafactory in Nevada. The report says plant capacity will rise about 10%, to 39 gigawatt-hours year.

Tesla and Panasonic weren’t immediately available to confirm the report.

Tesla previously reported that Gigafactory capacity had reached 20 gigawatt-hours in mid-2018. And CEO Elon Musk talked about battery production being a constraint on EV growth during the company’s second-quarter earnings conference call.

“The real limitation on Tesla growth is cell production at an affordable price,” he said. “....We expect to expand our business with Panasonic, with CATL, with LG, possibly with others. And there’s a lot more to say on that front on Battery Day.”

Panasonic—Tesla’s main partner—sold about $4.5 billion worth of automotive batteries in 2019. LG Chem (051910.Korea) said it sold about $7 billion worth. The other company Musk mentioned— Contemporary Amperex Technology Limited, or CATL, (300750.China)—also makes EV batteries. Total sales at CATL topped $6.4 billion in 2019.

Musk’s battery technology day happens in September. Investors and analysts will want to hear about manufacturing capacity, as well as charging life and cost. It should be an event that moves the stock.

Many EV numbers are still foreign to traditional car investors who never worry about the availability of, say, engines or gasoline when considering an investment in General Motors (GM).

That’s why looking closely at EV numbers can be a useful exercise. Many electric cars, for instance, have an 85 kilowatt-hour battery pack. Giga has nine zeros after the 1; kilo has three. That means a 39 gigawatt-hour a year plant can make 39,000,000 kilowatt-hours of batteries, or enough to power 400,000 to 500,000 EVs.

This is rough math, but illustrates why Musk brings it up on conference calls.

Musk also talked about battery affordability. Battery costs are falling, and the lower they go, the closer EVs get to costing the same, up front, as gasoline-powered cars.

“[Cost] depends on [battery] chemistry,” Ulrich Kranz, CEO of the EV startup Canoo, tells Barron’s. “And $100 per kwh for a cell is possible.” That is just the batteries, and doesn’t including packaging, connecting, and managing the power output.

He knows both electric and traditional cars. Before Canoo, he worked at BMW (BMW.Germany) for 30 years and helped develop the all-electric i3.

There are caveats in Kranz's numbers. Battery costs are still difficult to pin down, but $100 per kilowatt-hour is a good level for the industry and a good number for investors to remember.

At $100 per kWh and with an 85 kilowatt-hour battery pack, the batteries in an EV cost roughly $8,500. Then there are the electric motor and integration to consider.

Used engines and transmissions can run $2,000 to $4,000 combined. That is more rough math. It’s only useful as a little context to compare battery costs.

The deal bringing Canoo to market is valued at $1.8 billion. That’s a fraction of Tesla’s $350 billion market value.

Tesla stock, of course, has been on an incredible run in 2020. Shares are up about 350% year to date, crushing comparable returns of the Dow Jones Industrial Average and S&P 500, as well as those of other auto companies.

Tesla stock closed down 0.5% at $1878.53 Wednesday. Coming into Wednesday, shares had risen for five straight days.

Write to Al Root at allen.root@dowjones.com

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