Is the Tesla-Panasonic Battery Deal in Trouble?

Elon Musk-led Tesla Inc. (TSLA) seems to be hitting the wrong notes in all directions. Earlier, it was bad quarterly results, then it was Musk’s improper reaction to analyst’s question, and now there’s trouble brewing with partners. (See also, Elon Musk: Famous or Infamous?)

Panasonic-Tesla Battery Production Partnership

A few Panasonic executives have reportedly expressed concerns about the new investments with Tesla in their joint battery manufacturing program, the Nikkei Asian Review reports.

The noted Japanese conglomerate and the famous American electric vehicle maker have a partnership program for battery and vehicle manufacturing. Under the deal signed in 2014, they are jointly building a vast battery production facility, called the Gigafactory One, in the U.S. state of Nevada. The facility is expected to mass produce 35 gigawatt-hours' worth of Panasonic's electric car batteries per annum that will power Tesla's electric vehicles, such as the Model 3 sedan. The joint investment by the two companies in the plant is to the tune of $5 billion, which will be spread through the year 2020.

Panasonic already exclusivly supplied battery cells for other popular Tesla cars like Model S, Model X and Model 3. Their joint venture has fended off competition, like Contemporary Amperex Technology in China and LG in South Korea. 

Panasonic has already borne the investment worth $1.82 billion in the joint venture. Though it is reported to be open to further investments, it intends to "decide based on a frank assessment of the situation," an executive familiar with the matter told Nikkei Asian Review.

Along with the Nevada factory, the two companies were earlier expected to start a new factory in China that would support combined production of vehicle as well as the lithium ion battery from a single location. However, Panasonic executives told Nikkei Asian Review that plans were "not solidified yet" and "nothing is set in stone."

Tesla’s Production Problems

Despite the last year’s high-profile launch of the much awaited Model 3 at a modest price tag of $35,000, Tesla has suffered major challenges in ramping up production. Last month, leading investment bank Goldman Sachs Group Inc’s (GS) research analyst David Tamberrino issued a sell recommendation citing the company’s inability to meet its production target for its Model 3 car. It led to a challenging response from Musk, who responded by tweeting “Place your bets …,” daring the investors to exit the stock. (For more, see Elon Musk Challenges Goldman on Negative Report.)

The earlier stated output target of 5,000 units per week has been deferred to June, and the slow pace has hit Panasonic’s operating profit by 20 billion yen (around $182 million) in the recently ended fiscal year. Situation turned out to be worse for Tesla as it posted its worst-ever quarterly operating loss for the January-March period. The problem was compounded as Musk refused to entertain a question from an analyst calling "boring bonehead questions are not cool."

The reaction led to a plunge in Tesla share price, and a displeased Panasonic executive said "He's in no position to say something like that." (For more, see Is Elon Musk Making Things Worse for Tesla?)

Tesla shares were trading at $306 apiece during Friday morning pre-market hours.

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