TOKYO – Panasonic sure knows how to add insult to injury as Japan Inc limps through 2020.
The iconic, Osaka-based tech giant just heaped another US$100 million onto Elon Musk’s Tesla to create new battery lines. And yes, that is the same Tesla that is determined to drive Toyota and its ilk off the road on its way toward world domination.
It’s a wise investment. And it is one that Japan Inc would be better off learning from than scorning.
Depending on your metric, Toyota is still the dominant species – the Goliath to Musk’s David. Toyota sells an impressive 10 million cars per year, dwarfing the 367,500 vehicles Tesla delivered in 2019.
And when was the last time anyone spotted one of Musk’s cars in Osaka or Tokyo? His Japan sales are too small to bother reporting.
It irks Toyota’s brass greatly, though, that Tesla’s stock market capitalization makes traditional industry giants look like a Renault Twizy. Tesla is worth $443 billion to Toyota’s $185 billion.
Moreover, its valuation dwarfs the combined worth of General Motors, Ford and Fiat Chrysler, an avalanche of greenbacks that rivals Norway’s annual gross domestic product.
Even more important is why Panasonic is moving further into Tesla’s orbit by boosting its production capacity of electric vehicle batteries.
It’s not like Toyota, Honda and Nissan don’t have huge designs for the EV market. Or vast potential to sell less carbon-emitting models in the years ahead.
Yet Panasonic is making a Wayne Gretzky business decision. As the ice hockey legend famously said, he thrived by knowing where the puck was going next. Panasonic is putting its money where the market is heading.
Not a massive amount, mind you, but enough to make sure investors understand its thinking. And vice versa.
In 2014, when Musk was building his original lithium-ion Gigafactory – where Tesla designs and makes it wares in the Nevada desert – Panasonic was one of his first calls.
That was a bow to the company’s storied history. Panasonic’s many decades worth of inventions and advancements in lighting, radios, televisions, appliances and, especially, its fabled research and development on cutting-edge rechargeable batteries made it an obvious partner.
However, the relationship has had its ups and downs. In April 2019, for example, Musk blamed Panasonic – via Twitter, of course – for holding up production of his Model 3 sedans.
As he tweeted: “Pana cell lines at Giga are only at ~24GWh/yr & have been a constraint on Model 3 output since July. Tesla won’t spend money on more capacity until existing lines get closer to 35GWh.”
To translate into plain English: Panasonic wasn’t making batteries with sufficient power fast enough.
Even so, the relationship is now back on the road and shifting into a higher gear.
“Tesla is not only prevailing, Elon’s company is stomping all over the market,” says analyst Michael Dunne of ZoZo Go.
That has more investors sensing that success might beget success.
The market is “now starting to believe that Tesla can make mass-volume electric vehicles, and automakers, battery makers and suppliers can make money from EVs,” said analyst Cho Hyun-ryul of Samsung Securities.
Yet during a recent call with investors and analysts, Musk said Tesla “will not succeed” in nudging the car industry to raise its game if it doesn’t build ever more affordable EV models. Pricey batteries are a major cause of the sticker shock.
That’s where Panasonic comes in. The gist of its new investment: adding another production line to the existing 13 at Tesla’s US plant, boosting capacity 10% to 39 gigawatt-hours per year. Panasonic’s move will add 5% of storage to batteries being made at the Nevada Gigafactory.
The upgrades could, in theory, help Tesla get to 500,000 delivered vehicles in 2020. They also could ensure greater capacity at a new Tesla factory in Austin, Texas, where Model Y SUVs will be built.
The Austin facility may help Tesla get annual production capacity up to the 1 million vehicles mark by 2021.
Panasonic’s Tesla tie-up offers timely lessons for Japan as its economy stumbles through 2020.
The global turmoil unleashed by Covid-19 has Prime Minister Shinzo Abe leaving office on a low note. The economic revolution he promised in 2012 never quite arrived, leaving aging, uncompetitive Japan plunging at a 27.8% annualized rate in the April-June quarter.
The Panasonic-Tesla combo should encourage Abe’s replacement to prioritize two areas of reform. One is a more progressive and pro-growth energy policy. The other is rekindling the innovative mojo that propelled Japan into the major leagues.
There’s lots of crossover between these two goals, of course. In Japan’s case, these reforms are on very different tracks.
The challenge became worse on Abe’s watch since late 2012. His Liberal Democratic Party, in power for an almost-but-not-quite uninterrupted stint since 1955, has always been a nuclear power crowd.
It oversaw the creation of the “nuclear village” – the nexus of pro-reactor politicians, companies and investors that drives national priorities the way the military-industrial complex does in America.
All good until a 2011 earthquake precipitated the Fukushima radiation crisis that still festers 238 kilometers from Tokyo. Rather than pivot to safer energy sources, Abe doubled down on the nuclear reactors his 127 million people fear.
Helping Hitachi and other Japan Inc icons sell their nuclear hardware became a key plank of the Abenomics revival scheme. Yet posterity will remember that decision as one of Abe’s greatest failures.
This brings us to reason number two, which the Panasonic-Tesla duo personifies nicely. Panasonic’s battery R&D, and the halo of sorts that Tesla bestows on its work, reminds us that most of Japan Inc has lost sight of where the hockey puck is going.
If you think about what Japan did really well since the 1970s, it’s all been commoditized at blistering speed. South Korea already has Japan’s biggest names on the run in electronics, ships and robots, not to mention popular entertainment. When was the last time J-pop excited global culture?
China presents an even bigger wake-up call for Tokyo. Epic investments in EVs, self-driving technology, robotics, automation and software are the core of President Xi Jinping’s “Made in China 2025” extravaganza.
Can anyone seriously doubt that China will soon produce a decent, affordable mass-market car that shakes up Toyota City and Detroit?
Japan must be careful not to miss the real boom market of tomorrow: inventing and commercializing ways for China, India, Indonesia, the Philippines, Vietnam and elsewhere to develop their economies without choking on rapid growth.
Abe’s nation has long been a leader in energy efficiency and innovation, and opportunities abound as neighboring economies boom around it.
This is why Panasonic and its electric batteries – a major future growth sector – get a halo dynamic from Musk, a man as idolized as any in technology-disruptor circles.
“At this point, Tesla is the EV incumbent,” says analyst Sam Korus of ARK Investment Management LLC.
As time goes on, “traditional automakers likely can’t compete on traditional metrics like range and 0-60 performance economically,” he says. “Perhaps the best vector for their survival is to try and disrupt.”
As Tesla veers in whatever direction it might next, it will be doing so with the help of the Japan Inc icon. Panasonic’s move should remind its hometown peers how to stay relevant in a rapidly changing world.