Panasonic’s Q1 profits at Tesla’s Gigafactory boost investor confidence in EV market

On Tuesday, following Panasonic Corp’s first quarter report, shares of Asian companies in Tesla Inc’s battery supply chain surged. Panasonic’s battery venture with Tesla has boosted investor confidence in the U.S. electric vehicle (EV) maker.

Panasonic’s first quarterly profit from its $1.6 billion investment in Tesla’s Gigafactory is also another validation of Tesla founder Elon Musk’s bet against established automakers such as General Motors Co.

“When you look back, say two to three years ago, there were doubts about whether the EV era would arrive,” said Kang Dong-jin, an analyst at Hyundai Investment & Securities in Seoul. “But now there is more viability about the sector thanks to Tesla’s strong sales and Europe’s tougher emissions regulations”.

In early trading on Tuesday, Panasonic’s shares jumped by more than 9% following its previous day report of first quarter profits at Tesla’s Gigafactory.

The results also drove up Tesla’s share price by 20% overnight marking its largest one-day jump since 2013.

Incidentally, Panasonic is ceding its battery cell exclusivity with Tesla and has entered into partnerships with LG Chem Ltd and CATL as well.

In a stock exchange filing on Monday, CATL reported, it has signed an agreement with Tesla to supply batteries from July 2020 through June 2022.

With Panasonic’s first quarter reports reaching the market, shares of LG Chem also rose by 9% to touch its highest intraday level in around 10 months, underpinning hopes of a turnaround in its money-losing EV battery business.

On Monday, South Korea’s LG Chem stated, it expected a mid-single-digit profit margin in its EV battery business this year, citing regulatory push in Europe.

Shares of POSCO Chemical Co Ltd, which recently signed a $1.6 billion deal to supply battery-making materials to LG Chem, also rose by 4.6% in early trade.

Shares of China’s CATL briefly rose by 10%.

Tesla’s diversified battery sourcing strategy provides the U.S. carmaker the upper hand on battery costs, opine analysts.

“This is likely to put pressure on Panasonic to improve yield and efficiency,” wrote Atul Goyal, an analyst at Jefferies in a note to clients.

In an earnings call, Panasonic Chief Financial Officer, Hirokazu Umeda, said, the company expects to stabilize profit at the Gigafactory by 2021; there is also lot of room to improve production efficiency.

In 2009, Panasonic had first entered into a battery supply agreement and had invested $30 million in Tesla to deepen its partnership.


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