Friday, August 3, 2012

Panic Sonic

A play on the name Panasonic the famous Japanese electronics brand.  Panasonic was also known as Matsushita and as National.  Recently Panasonic bought Sanyo another famous Japanese electronics brand. 

Panasonic is now panicking as a result of the massive losses it has sustained in the flat panel high definition TV business.  Last year the company reported losses approaching $10 billion.  Ten big boys is no small potatoes! 

But I will deal with a $30 million investment Panasonic made in November 2010 here in the San Francisco Bay Area.   Panasonics invested in Tesla to become the preferred vendor of lithium ion batteries for Tesla’s electric vehicles.  Sounds like a great investment back in November 2010. 

This was pre the grossly sad Fukashima earthquake.  Japan had 50 nuclear power stations running and had surplus electricity on their grid during off-peak nighttime hours.  Japan had great plans for having a fleet of millions of electric vehicles that would connect to the grid at night for recharging and the country would save massively on their oil import bill.  The sad event of Fukashima completely eradicated the plans for these millions of electric vehicles in Japan. 

Teaming up with Tesla in November 2010 also seemed like a great idea as Tesla led the world in the high price segment for plug in vehicles using lithium ion batteries.  Tesla had a wonder kid running the company who was a star and who already had Stevie Wonder at the US Department of Energy loaning Tesla money left, right and center starting in mid-2009. 

Also NEC a competitor to Panasonic had already tied up with Renault whose Chairman Carlos Ghosn was even more optimistic than young Elon Musk that EV’s would rule the future of personal transportation.

OK so we have Panasonic making a $30 million investment in Tesla and this is chump change for a company of this size.  Of course the whole symbiotic relationship was based on the cost of batteries coming down with experience increasing along the learning curve of manufacturing batteries.  Panasonic probably knew this was a pipe dream but Elon probably was clueless about the real cost structure of battery manufacturing.   

Per Bloomberg Elon has subsequently stated that “There are few industries with more BS than the battery industry,” Musk said of battery makers, without elaborating. “It’s quite remarkable.”

Of course Elon would know BS as he only speaks pure thermodynamics and has never hyped any of his companies or his accomplishments.

My guess is that by June of 2012 after almost 20 months of the strategic relationship between Panasonic and Tesla Elon was feeling pretty frustrated that the batteries were still as expensive as day one when the relationship was sealed with Elon’s words:
"It is an honor and a powerful endorsement of our technology that Panasonic, the world's leading battery cell manufacturer, would choose to invest in and partner with Tesla. Panasonic offers the highest energy-density cells and industry-leading performance with cutting edge Nickel-type cathode technology. Our partnership with them will enable us to further improve our battery pack while reducing cost."

I can imagine the speech that Elon will make in May of next year when he announces that the company is as dead a doornail, that the costs could not be reduced, the DOE loans cannot be paid back, and that Panic Sonic will write down the $30 million investment in Tesla to precisely zero.  My bet is by the time the doors close again on the Fremont California assembly plant, Tesla will have sold fewer Model Ss than what Delorean sold.   

 The 150 people that remain in the finance department at Panasonic’s empty HQ in Osaka will say sayonara to their investment in Tesla. 

Incidentally the 1957 film Sayonara starring Marlon Brando was filmed at what is now the Osaka International Airport also called the Kansai Airport.


  1. Lindsay, great article! Can you explain a bit why battery costs won't come down with volume - I assume because costs are related to materials, which don't fall dramatically with scale?

  2. Paul

    Approx 85% of the cost is materials. The periodic table cannot be changed and the valence of the Lithium metal will always be 1. Therefore for a certain mass of materials one will pretty much get a constant amount of electrons and electricity. Of course there will be some substitution of materials in the elctrodes but very little can be substituted to bring down costs by much. On that basis the only components of cost that can be reduced are the labor and capital investments that account for perhaps only 20% of cost. Now if they can may a lithium air battery and the battery does not need all the cehmicals (materials) to provide the oxidation reaction then the cost can drop as air is essentailly free.