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OM in the News: Tesla Needs Its Battery Maker, But a Culture Clash Threatens

October 14, 2019

A Tesla Model S being fitted with a battery pack

In 2008, Tesla began delivering its first EV and wanted a partner capable of manufacturing lithium-ion batteries on a mass scale. But years after committing to invest billions of dollars in a shared battery factory in the Nevada desert, Panasonic has a strained relationship with Tesla. The Gigafactory was supposed to boost profits, cement Panasonic’s future in automotive electronics and give Tesla easy access to the most important—and expensive—component of its vehicles. “Instead,” writes The Wall Street Journal (Oct. 8, 2019), “the partnership has exposed a culture clash between the conservative, century-old Japanese conglomerate  and the 16-year-old Silicon Valley upstart built around Mr. Musk’s vision for upending 100 years of automotive tradition”.

Musk has pushed Panasonic to cut what it charges for the battery cells as Tesla builds another costly factory in China. Panasonic has resisted the pricing requests, and is hesitant to go into China with Tesla. Production has fallen behind schedule, and the race to catch up has thrown the Panasonic battery unit deeper into the red. Tesla, for its part, needs the Gigafactory to continuously improve efficiency and reduce manufacturing costs so it can lower its car prices, which it sees as critical to mainstream success.

An early source of tension was missed deadlines. Panasonic would rush to supply Tesla’s production targets only to find the auto maker behind schedule. Tesla unveiled the Model 3 to overwhelming interest, leading Musk to try to speed up production plans. In 2016, he promised the plant needed to make enough batteries for 500,000 vehicles by 2018—2 years ahead of the original plan. That meant the battery factory had to speed up plans in a round-the-clock operation. In April, 2019 Musk blasted Panasonic, saying it was operating at a pace that constrained Model 3 production, even though it appears Tesla will sell only 400,000 EVs this year.

Classroom discussion questions:

  1. Unhappy with the price of batteries Panasonic supplied for the Model S, Tesla made plans to build its own. But after a few months the plan was scrapped. Why do you think this happened?
  2.  Describe the relationship between these 2 companies.
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