Tesla Inc. and Panasonic Corp. are tempering expansion plans for the massive battery factory they’ve plugged billions into the last few years, deepening concerns about demand for the carmaker’s electric vehicles.
The maker of the Model 3 sedan said Thursday that while it’s going to continue making new investment as needed in its plant outside Reno, Nev., existing equipment may be able to produce far more output than previously estimated. Panasonic said it will study additional investment in collaboration with Tesla, following a Nikkei report that said the two had frozen spending plans.
Tesla shares fell 2.8 percent to close at $268.42 on Thursday, extending their drop this year to 20 percent. A record decline in deliveries during the first quarter stoked concerns about slackening demand for the Model 3, the company’s newest and least-expensive car. While CEO Elon Musk last week reiterated a forecast for 360,000 to 400,000 vehicle deliveries in 2019, investors remain cautious given its history of missing ambitious projections.
“The environment for Tesla is getting tougher and there are question marks on Tesla’s ability to deliver sustainable profits,” said Sven Diermeier, a Frankfurt-based analyst at Independent Research GmbH. “Other major manufacturers are readying their own electric lineups, and are able to cross-finance battery cars with the higher returns from combustion-engine cars.”
Tesla and Panasonic had intended to raise capacity at the so called "gigafactory" by about 50 percent by 2020, but financial problems forced a re-think, the Nikkei said, without citing its sources. Panasonic also intends to suspend planned investment in Tesla’s battery and electric vehicle plant in Shanghai, and instead provide technical support and a small number of batteries from the existing gigafactory, the newspaper reported.
It’s unclear whether Panasonic’s involvement in the Shanghai plant was ever formalized. Bloomberg News reported last month that Tesla was in talks with top Chinese battery producer Contemporary Amperex Technology Co. about supplying cells for the Model 3 cars it will assemble at the new factory.
Tesla’s financial strength has been a concern for investors. The company had to pay off a $920 million convertible bond in February, which ate into the about $3.7 billion of cash and equivalents it held at the end of last year.
Musk warned on Feb. 28 that Tesla probably would lose money during the just-ended first quarter, and the carmaker has a $566 million note coming due in November. The company has said it has enough money to pay off debt obligations with cash flow.
The Model 3 has been available in the U.S. since 2017, though the pace of sales in the market has slowed following the shrinking of federal tax incentives, and the company has struggled to get the car quickly into Europe and China. In the March quarter, Tesla delivered 63,000 vehicles, down from 90,966 in the final three months of 2018.
Panasonic President Kazuhiro Tsuga’s bet on Tesla has also been a source of concern as the carmaker went through what Musk called “production hell” ramping up output of the Model 3 last year. While production at the gigafactory in Nevada has improved and sales have climbed, the business has yet to become a major contributor to earnings.