Case Study 02
Should Tesla Keep its Partnership with Panasonic?
Tesla is a company that has made a name for itself. Led by the famous CEO and co-founder
Elon Musk, who also designed the American aerospace manufacturer SpaceX, Tesla has
received public attention for what the company’s future endeavors are. But what does Tesla
actually specialize in? Tesla is a company that specializes in electric car manufacturing.
In 2018, Tesla announced plans to build a $5 billion manufacturing factory in Shanghai, China,
in order to build about 500,000 electric vehicles every year by the 2022–2023 fiscal year. The
plans for this factory are grandiose, in fact, it will be built on an 864,885 square-meter plot
that, according to Musk, will be the size of Tesla’s Fremont factory and the current Reno,
Nevada, Gigafactory1 combined. Due to the massive undertaking of this project and the
ongoing Sino-American Trade War tariffs, this plan had to be discussed in great length with
the local government in Shanghai. But, nonetheless, the project was approved.
Tesla and Panasonic
It is important to note that Tesla relies heavily on lithium batteries to power their vehicles.
For all of their American cars, Tesla has partnered with the consumer electronics company,
Panasonic, for the electric batteries in the cars. This relationship, established in 2013, has seen
great strides in North America since both companies relocated to the Nevada Gigafactory1.
This collaboration seemed to be symbiotic and well-received. However, since entering China,
this collaboration has sailed into rough waters.
As a result, Tesla settled with the South Korean company, LG Chem, to be their battery
supplier for the gigafactory in Shanghai. The South Korean mega-corporation focuses on
technology and chemical production for the batteries. Since entering the Chinese market in
2017, LG Chem is a fairly new supplier of batteries in China and partnering with Tesla is turning
out to be their Chinese cash cow.
The LG Chem battery-making factory for Tesla will be located about 200 miles away from
Shanghai itself, which means there needs to be coordination between LG Chem and Tesla to
get the correct auto parts to the right places.
To add more salt to the wound of the Tesla–Panasonic situation, Tesla also announced that
they would partner with other localized entities in supplying other parts for cars, excluding
Panasonic from these opportunities in China.
What are the reasons for this strained relationship that is pushing Tesla away from Panasonic
and possibly seeking new collaborations in China? One reason came from Musk himself, who
claimed that Panasonic has recently had a slow-down in production, particularly on a certain
model of battery, the Model 3. Apparently, the battery cell production rate had slowed
drastically, which in turn slowed the production of vehicles in Tesla’s Nevada Gigafactory1.
Musk reported, in many interviews, that Panasonic had promised a much faster production
rate, and this was a wrench in their relationship.
Another reason for Panasonic losing favor in the eyes of Tesla is due to the inside reports that
Panasonic employees were ignoring crucial procedures while manufacturing Tesla products in
the Nevada Gigafactory1. These actions normally went without notice and, if they were, did
not attract punishment or negative repercussions.
Yet another reason is that the amount of waste material Panasonic is generating is quite
alarming. According to reports, over half a million pieces of shrapnel and scrappage are tossed
out each day. This waste is due to the procedures not being followed (as mentioned above),
according to one employee. For a company that is collaborating with an electric car company
whose overarching goal is to go green, Panasonic must understand Tesla’s core values as a
company.
Due to these reasons, Tesla, in fact, halted future spending on Gigafactory1 in Reno, Nevada,
where it actually saw stock prices go down. The investors and stockholders knew that this was
not a positive outcome in regards to the strategic partnership of Panasonic and Tesla.
Resolution: Is There One?
Is there a way to mend the strained relationship between the two large companies? It is tough
to say, but as was already noted, Tesla seems to be looking in another direction, since they
are looking to other sources for lithium batteries in China.
Apart from the reasons mentioned previously, Tesla might be trying to curry favor with the
Chinese government and local suppliers to boost name recognition and brand awareness in
China. This new direction is largely due to the fact that the electric vehicle industry is booming
right now, and China has a growing middle class, which in turn has a growing need for vehicles.
Case Discussion Questions
Ask yourself this: If you were Elon Musk, would you abandon Panasonic and look for other
collaborative opportunities or find ways to work past differences?
What is the best way to structure these relationships with outside partners?
