Tesla’s battery suppliers feel shock

From Musk’s cost-cut push.
Image: Jasper Juinen/Bloomberg

Tesla’s Elon Musk cast a shadow of uncertainty over the sales prospects of his suppliers in Asia after unveiling a push to lower the cost of batteries for electric vehicles and underscoring the point by signaling that it will eventually start producing its own cells.

Shares of LG Chem Ltd. slid as much as 5.5% in Seoul, while Contemporary Amperex Technology Co. dropped 4.7% in Shenzhen and Panasonic Corp. dropped 4.3% in Tokyo. The world’s three top EV battery makers all supply Tesla, according to Bloomberg’s Supply Chain Analysis.

The maker of the Model S, X and 3 electric cars will still need to increase battery purchases from the trio but still sees “significant shortages” from 2022 if it doesn’t start producing itself, Chief Executive Officer Musk said in a tweet.

Speaking at Tesla’s much-awaited Battery Day event at a plant in Fremont, California, Musk also said the company plans to manufacture a $25,000 car in about three years’ time. The substantial discount compared with the company’s currently cheapest model at $37,990 is to be achieved by halving costs for batteries, the most expensive component in EVs.

Atul Goyal, an analyst at Jefferies Japan Ltd., lowered his rating on Panasonic to underperform from hold, saying Musk’s announcements increase the downside risks for the Japanese electronics maker’s unprofitable battery business.

“This is likely to put Panasonic (and other suppliers) under pressure to catch up to Tesla’s technology/process and to reduce costs,” he said. “With added pressure to improve efficiency and/or reduce costs, Panasonic may need to step up more R&D and is unlikely to have pricing power, even if Tesla’s in-house cells are not ready to replace Panasonic cells in the immediate term.”

Panasonic’s shares are down 10% this year, as the coronavirus has hurt profits across its business lines. Meanwhile, CATL Ltd.’s shares are still up 85% and LG Chem’s have almost doubled on high expectations for Tesla-related business. LG Chem’s stock has dipped recently however on its plan to split off its battery business, snubbing retail investors that had bought the stock on the EV theme.

Yayoi Watanabe, a spokeswoman for Panasonic, declined to comment on Musk’s remarks. “We value our relationship with Tesla and look forward to enhancing our partnership,” she said.

© 2020 Bloomberg

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It is normal to lower costs of tech goods with the use of new technologies and processes.

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