Tesla Motors (s TSLA) and Panasonic (s PC) cozied up this week, with the Japanese electronics giant investing $30 million in the upstart electric vehicle maker and agreeing to “explore” joint marketing of battery modules built by Tesla with Panasonic cells. The move deepens one of a growing number of alliances being formed among car companies, battery makers and other technology developers in hopes of creating an electric vehicle powerhouse.
After all, high battery costs are one important barrier to mass market adoption of these cars, and it’s the heavyweights with high-volume production who will be able to reduce cost the most through economies of scale. But Panasonic’s investment in Tesla is also an affirmation of the power of branding at this nascent stage of the electric car market, and of the hope that creating the impression of a powerhouse in these early days will be something of a self-fulfilling prophecy.
According to Peter Fannon, VP of technology policy for Panasonic Corp. North America, one overriding goal of this week’s deal with Tesla is to nourish demand for its lithium-ion battery technology. Panasonic isn’t the first battery maker to take this tack; plug-in car developers Fisker Automotive and Think have each drawn investment from their respective battery suppliers, A123 Systems (s AONE) and Ener1 (s HEV). But as Lux Research analyst Jacob Grose put it, Tesla is “not just a customer, but an important bellwether of EV technology.” Yet for Panasonic, he said, it’s a “high-risk, high-reward investment.”
Tesla’s slick brand and claim to fame as the first company to commercially produce a federally compliant, highway-capable, electric vehicle has been enough for many people to keep rooting for the company despite a lot of ups and downs (from the founders feud, to Roadster delays, to layoffs, to slapping Roadster customers with charges for previously standard features, to recalls). The company has sold only about 1,300 cars, and while that’s “1,300 more than most of their competitors,” noted Grose, “a lot of questions remain” about whether Tesla will prove successful in its bid to manufacture and sell electric vehicles for the mass market. “Thirty million dollars is another win for Tesla,” he said, “but it’s not a slam dunk yet. Being the next GM doesn’t come cheap.”
Tesla and Panasonic first announced plans back in January of this year to work together developing nickel-based, lithium-ion battery cells for electric vehicles, and for Panasonic’s cells to be used for Tesla’s “current and next-generation EV battery pack.” According to Fannon, the companies began talking about closer collaboration and possible investment at that time.
For Tesla, Panasonic’s investment comes as “a powerful endorsement of our technology,” Tesla CEO Elon Musk said in a statement Wednesday. “Panasonic offers the highest energy-density cells and industry-leading performance,” he added, and Tesla believes the partnership will enable it “to further improve our battery pack while reducing cost.” Fannon commented that the investment could “help propel awareness” for the electric vehicle market, and “help develop the market for Tesla itself because of our own standing.”
What Panasonic Gains
Panasonic sees risk in this week’s investment having more to do with the electric vehicle market at large than Tesla in particular. “The EV business itself is just beginning to grow around the world,” noted Fannon. Panasonic wants to be “close enough to EV makers to understand their evolving needs,” helping the company to get in on the ground floor of a growing market for hybrid, plug-in hybrid and electric vehicle batteries. In August, as Reuters reports, Panasonic said it was in talks with as many as 20 automakers about supplying cells for lithium-ion batteries.
Already Toyota’s (s TM) joint venture partner for hybrid battery production, Panasonic has shown it’s serious about trying to grab a foothold in the green energy market. In late 2008 the consumer electronics giant announced plans to buy a majority stake in Sanyo. The deal closed in December 2009, leaving Panasonic poised to have more bargaining power with electric car makers and be at the leading edge of an industry shakeup, analysts told Bloomberg, in which “the auto and electronics industries fuse.” Several months later, in July, Panasonic announced plans to buy out Sanyo and take 100 percent control as part of an effort to go greener, faster.
The pressure’s on: As Panasonic President Fumio Ohtsubo (one of our Top 15 Connected Car Influencers) explained in a statement this summer, the rapid expansion of “environment-related and energy-related markets and the burgeoning emerging markets,” presents somewhat of a double-edged sword for the company. Businesses opportunities are presenting themselves as a result of these changes, said Ohtsubo. Yet at the same time, “competition with Korean, Taiwanese and Chinese companies as well as Japanese, U.S. and European companies, etc. has intensified not only in the Digital AVC Networks segment, but also in the fields of rechargeable battery, solar cell and electric vehicle-related business.”
By 2015, Panasonic aims to capture 40 percent of the global market for lithium-ion batteries (in automotive and other applications), up from 10 percent today, said Fannon. When it comes to green cars, Tesla is the ultimate poster child of high performance. As a result, said Fannon, working together offers both companies an “opportunity to demonstrate the real value of EV modules that we create together.” Down the road, he said, Tesla and Panasonic plan to jointly market battery packs and modules to other electric car makers.
By working with Tesla, said Grose, Panasonic may acquire “some general info” about battery technology for electric vehicles, but insight gained from the partnership will mostly be specific to working with Tesla. When it comes to the interplay between batteries and electronics, he explained, “each EV maker has its own tech.”
The potentially bigger reward for Panasonic, said Grose, is that if Tesla does well, it will provide “great marketing material” for Panasonic’s energy storage business. “It’s a lot about the image.”
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