Panasonic expects Tesla’s battery business to ‘contribute to profit’ amid Model 3 ramp

Tesla’s exclusive battery supplier and partner Panasonic Corp announced on Tuesday that its first-quarter net profit saw an increase of 17.6% due to growth in its automotive-related business. Panasonic saw its net profits from April to June rise 17.6% to 57.4 billion yen ($515 million), up 15% from last year’s 48.8 billion yen ($440 million).

The Japanese battery maker and tech company credits the emerging market for clean energy vehicles as one of the key factors behind its profit increase during the first quarter of the fiscal year. In a briefing on Tuesday, Panasonic Chief Financial Officer Hirokazu Umeda stated that its battery business with Tesla could contribute to the Japanese company’s profit starting October, thanks to the American carmaker’s ongoing production ramp of the Model 3 sedan.

“Production at Tesla is gaining momentum. We are ramping up a new battery production line now and expect the business to contribute not just to our revenue but also to our profit from the second half starting in October,” the Panasonic CFO said.

Being the exclusive battery provider for Tesla’s electric cars and energy products, Panasonic has experienced firsthand the “production hell” and bottlenecks that surrounded the American carmaker’s Model 3 ramp. During Tesla’s burst production week at the end of June alone, Panasonic reportedly had to use battery cells intended for Tesla’s energy storage products to manufacture more battery packs to meet the carmaker’s target of producing 5,000 Model 3 in one week.

As Tesla aims to sustain its optimal production rate for the Model 3, Panasonic is looking to add three new battery cell production lines at Gigafactory 1, which would allow the company to support the Model 3 ramp. Panasonic expects its battery output from Gigafactory 1 to increase by 30% with the addition of the three new lines. Last month, Yoshio Ito, the chief of Panasonic’s automotive business, also stated that it would consider additional investment in Tesla’s Gigafactory 1 if needed.

With Tesla’s target of building 5,000 Model 3 per week being met at the end of Q2 2018, it is now up to the electric car maker to prove that it can sustain its optimal level of the production from Q3 moving forward. If Tesla Senior Director of Investor Relations Aaron Chew’s meeting with investors and analysts last month is any indication, however, it appears that Tesla is looking to adopt a more gradual ramp for the Model 3 in the following quarters. During the meeting, Chew reportedly stated that Tesla is targeting a sustained production rate of 5,000-6,000 Model 3 per week in Q3, followed by an increase to 7,000 units per week on Q4 2018 and an even more gradual ramp to 10,000 vehicles per week by mid-2019.

Considering Tesla’s goals for the Model 3 and its plans to ramp the manufacturing of its residential energy products, Panasonic’s three additional production lines at Gigafactory 1 could very well be the tip of the iceberg in a long line of additional investments for the Nevada facility. After all, if there’s anything that the electric car maker proved during the end of Q2 2018, it is the fact that while its growth has been significant over the years, it is only getting started. Being Tesla’s partner, Panasonic has to prove that it can adapt and ramp at the breakneck pace that the electric car maker has exhibited over the years.

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