The relationship between Panasonic Corp., (OTCMKTS: PCRFY), the world’s largest electric car battery manufacturer and its long-standing partner, Tesla Inc., (NASDAQ: TSLA) has started to sour amidst the hype surrounding the later.
Apart from Elon Musk’s tweet that Tesla is “going private,” the other reason for the souring partnership between the companies is “Tesla retreating from the agreement of buying all the solar cells and modules that Panasonic makes at Tesla’s solar facility.” The so called Gigafactory 2 was established in Buffalo at Tesla’s Solar facility where Panasonic has already invested $300 million.
About two years ago, the two companies signed an agreement in which Panasonic agreed to cover the capital costs of the new facility and Tesla agreed to purchase all the components manufactured at the facility for the next 10 years. As a result of Tesla retreating from the agreement, Panasonic will now be forced to look at other options, may be selling its solar cells and modules to Tesla’s potential competitors.
If Panasonic makes this move, it is only understandable as it has been spending as much as $2 billion every year on increasing the production of its auto batteries. This year the company has prepared to invest more than $2 billion up until March 2019 to further increase its production, of which the major chunk was planned to be invested at Tesla’s Nevada Gigafactory 1.
In spite of generating higher sales, and generating good revenue, Panasonic’s energy business posted operating losses in the first quarter of its fiscal year, courtesy Nevada Gigafactory.
According to analysts, Tesla pulling back from its agreement can prove to be beneficial for the Japanese company as there are plenty of other options in the market to pull up its growth from. The news of the company breaking up with Tesla have helped its share gain a little and is now up by 0.20% ending at $12.30.
So, now may be the right time for investors to think about investing in the company’s stock as it might not be investing anymore in the Gigafactories and redirect its revenue to other beneficial sectors it owns.
Image Credit: Tomohiro Ohsumi/Bloomberg