Panasonic: Finding new customers should come before high capacity spending

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Tesla’s supplier, Panasonic, was once best known for its liquid crystal display televisions. Over the past decade, his focus has shifted to electric car batteries. The pivot so far has paid off handsomely. Yet now it risks scaling up investment too quickly.

The Japanese electronics group is planning to do this more than double capital expenditures for the fiscal year through March to a record 700 billion yen ($5.1 billion). More than half of that amount will be spent on ramping up the production of electric car batteries.

That’s an ambitious plan for a company that has operating margins down to just about 3%. US tax credits account for a large chunk of this year’s net income increase. The shares are up more than a third this year but continue to trade at a significant discount to regional competitors that make electric batteries, with future earnings 12 times higher.

Switching to electric car batteries was the right strategy. panasonic it became the world’s fourth largest manufacturer and one of Tesla’s largest suppliers. Most of its batteries are supplied to the US automaker. As a result, he has invested heavily in the United States. It has a plant in Nevada and is spending up to $4.3 billion on another in Kansas.

Placing heavy bets is a hallmark of Panasonic. Its record profits in 2008 were the result of similar all-in bets on plasma and LCD televisions. But its heavy investment in manufacturing capacity ended in failure after Chinese competitors piled into the market. Panasonic ended up pulling out of all LCD panel manufacturing in 2021. It also pulled out of solar cells and sold off its semiconductor business.

A drums The investment fortune is ongoing fueled by subsidies and shortages. But the excitement can run out as quickly as an electric car’s charge in cold weather. Chinese competitors including BYD and CATL have rapidly increased market share in recent years. The latter is reportedly Tesla’s partner of choice for its US battery plant. Panasonic should also spread its bets.