Panasonic’s decision to sell its entire stake in Tesla for about $3.6bn marks a dramatic shift in the relationship between the two longstanding partners.
The Japanese tech group invested in Tesla in 2010, long before it became a household name. It acquired 1.4m shares for about $30m. Shares have since made a 17,000 per cent return.
But the relationship between the two companies has since soured. As a battery maker, Panasonic had big ambitions for its collaboration with Tesla. Together they invested more than $4.5bn in the Gigafactory joint venture. As Tesla’s sole battery supplier early on, Panasonic hoped to benefit by increasing capacity to match Tesla’s growing sales.
This did not happen. On an annual basis, Panasonic has booked a loss every year for its electric car battery business since production started at the Gigafactory four years ago. Its first profit has only appeared in the last year that ended in March. On the other hand, Tesla has diversified suppliers to LG Chem and CATL. It now plans its own battery cell production.
For Panasonic, cashing out now means big gains. The Tesla stake was valued at $730m in its annual report for the year to March 2020. Shares rose more than fivefold the following fiscal year.
Panasonic has plans for the profits. It is already boosting investments in software, including buying US software developer Blue Yonder for $7.1bn. Though Panasonic’s balance sheet has a net cash position, its gross debt has more than doubled over the past five years. Return on equity has dipped in recent years to 7.5 per cent, the lowest since 2013.
Panasonic claims the share sale will not change its relationship as Tesla’s business partner. But that clearly has already changed. Automakers know that batteries are central to lowering the cost of electric cars. In-house production is an irreversible trend. Panasonic needed to diversify away from its reliance on Tesla. Thanks to Tesla’s astonishing share price rise it now has more capital to do so.
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