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Electric cars in China

Tesla hints at seeking new battery suppliers in blow to Panasonic

Elon Musk says Shanghai factory will 'most likely' draw on multiple sources

Panasonic is now the only supplier for automotive batteries used in Teslas, but the electric vehicle maker is looking to branch out. (Photo by Akira Kodaka)

OSAKA -- Tesla is looking to obtain automotive batteries from multiple sources for its first overseas car-assembly plant, even as current sole supplier Panasonic doubles down on the partnership and plans to move its battery operations to the U.S.

Earlier this month, Tesla CEO Elon Musk wrote on Twitter that cell production for its so-called Gigafactory in Shanghai "will be sourced locally, most likely from several companies," including Panasonic. While both sides had known this was a possibility, it is nevertheless a blow to Panasonic's battery business, which will now face greater competition from rivals.

Musk's tweet came just after Panasonic's second-quarter earnings announcement late last month, when President and CEO Kazuhiro Tsuga struck an upbeat tone on the partnership. He said Panasonic would "reach 35 gigawatt-hours within fiscal 2018" at U.S. battery facilities jointly operated with Tesla, achieving full output capacity, and would "consider further investments in North America" while continuing to cooperate with the electric-car maker.

Osaka-based Panasonic has been planning to transfer the production of Tesla batteries from an in-house company for automotive and industrial systems to a new U.S.-based unit starting next April. It aims to deepen its relationship with the automaker as Tesla's Model 3 sedan finally gets on track for mass production, after prior delays.

"There's no way a single company could cover all the immense need for auto batteries," Yoshio Ito, the head of Panasonic's automotive and industrial systems company, said in response to Musk's tweet. "We'll discuss the matter with Tesla, but we're envisioning a range of options." 

Panasonic makes an array of batteries -- such as for hybrid vehicles -- for clients beyond just Tesla. But its dealings with the U.S. company are "just about the only place it can secure solid profitability in car batteries," according to a source affiliated with the Japanese manufacturer. Panasonic tends to enjoy a healthier margin on the high-capacity batteries it supplies for Teslas than on products designed for cheaper hybrids, for instance.

Panasonic has also hit the gas on its partnership with compatriot Toyota Motor. The two companies have found success working together on hybrid batteries, and said last December that they were looking into cooperating further in the field, primarily on high-capacity products for electric vehicles.

Still, Tesla remains at the heart of Panasonic's growth strategy. The U.S. automaker's decisions could significantly impact Panasonic's fate in China, the world's biggest electric-vehicle market.

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