May 9, 2019 / 6:17 AM / a month ago

Panasonic flags first profit drop in eight years, EV battery costs bite

TOKYO (Reuters) - Panasonic Corp warned profit this financial year would fall for the first time in eight years as costs to boost battery output rise and it moves to overhaul some businesses amid investor pressure to find new avenues of growth.

FILE PHOTO: The Harley Davidson LiveWire electric motorcycle, developed in collaboration with Panasonic Automotive, is displayed during a Panasonic news conference at the 2019 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S. January 7, 2019. REUTERS/Steve Marcus/File Photo

The Japanese conglomerate expects operating profit for the year through March 2020 to slump 27 percent to 300 billion yen ($2.7 billion) from a year earlier. That is well below analyst expectations of a 12 percent decline, according to Refinitiv.

The company is looking at a 15 billion yen loss at its automotive unit this year, it said on Thursday. Panasonic expects costs to ramp up battery production in Japan and China for a planned electric-vehicle (EV) battery joint venture with Toyota Motor Corp to weigh heavily.

Panasonic switched its focus to corporate clients such as automakers a few years ago to escape price wars in lower-margin consumer electronics.

The shift, which involved a vast migration of TV engineers to the automotive unit, helped the company restore profit growth, but its non-consumer businesses did not grow as fast as the company had hoped.

“Over the last three years, we aimed for stable revenue and profit growth focusing mainly on the automotive business ... but development costs and insufficient abilities to adjust to rapid battery production expansion limited our profits,” Panasonic President Kazuhiro Tsuga said.

The business was also squeezed last year due to production delays for Tesla Inc’s mass-market Model 3 sedan.

Panasonic is Tesla’s exclusive supplier of battery cells and industry watchers have said the Japanese company needs to cut its reliance on the U.S. electric carmaker.

Elon Musk, Tesla’s mercurial CEO, last month blamed Panasonic for the production delays. He previously said Tesla was looking for other battery suppliers for its new Shanghai car factory.

Tsuga, however, told a post-earnings press conference on Thursday that Panasonic’s relationship with Tesla remained good.

“We are not just a supplier but a partner,” he said.

Panasonic is set to deepen its partnership with Toyota, announcing earlier on Thursday they would establish a joint company to develop “connected” services to be used in homes and urban development.

Panasonic also said it would sell its solar battery research arm and a solar battery plant in Malaysia to China’s GS-Solar for an undisclosed amount.

Reporting by Makiko Yamazaki; Editing by Sayantani Ghoshand and Mark Potter

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