Economy

Tesla Gigafactory expansion reportedly on hold as Panasonic ponders the future

Tesla Gigafactory expansion reportedly on hold as Panasonic ponders the future”

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. Nikkei's report claims that it's now too risky to make major investments like those mentioned, blaming the pause on both thin operating margins in the industry and EV sales that are "performing below plans".

The upgrade has been deemed too costly for the benefit it would provide, and many fear that lagging demand for Tesla's Model 3, which enjoyed a huge backlog of preorders throughout 2017 and 2018, may be coming back down to earth.

Giving no details of its sources, Japanese financial daily Nikkei reported earlier on Thursday that financial issues had led Tesla and Panasonic to rethink plans to expand the capacity of Gigafactory 1 by another 50% next year, having together invested US$4.5 billion in the plant.

According to Nikkei, Panasonic will also freeze investment in Tesla's battery and EV plant in Shanghai, providing technical support and a small number of batteries instead. "A Tesla representative told Nikkei that the companies will "[.] continue to make new investments in Gigafactory 1, as needed".

Neither company had made public detailed future development plans for the site, although Panasonic said here in July a year ago it would consider further investment in the Gigafactory if requested by the US electric carmaker. That said, we do believe there is far more output to be gained from improving existing production equipment than was previously estimated.

"Watching the demand situation, Panasonic will study additional investments over 35 GWh in collaboration with Tesla". Slowdowns in production of Tesla's Model 3 sedan, its most affordable electric auto, ate into Panasonic's profits and reflected a reality for mainstream EV producers-lower prices require higher volumes for profitability.

Tesla shares finished the day down 2.8 percent, at $268.42.

The report about moderated expansion plans for Gigafactory 1 comes a week after Tesla reported lackluster vehicle deliveries numbers for the first quarter of 2019. "It remains the fundamental constraint on Tesla vehicle and Powerwall/Powerpack production".



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