Panasonic Reveals Plans for Tesla's Gigafactory Investment

Tesla Motors, Inc.'s TSLA primary partner for its $5 billion Gigafactory, Panasonic Corporation PCRFY, revealed that it will invest “tens of billions of yen” -- i.e., hundreds of millions of dollars -- in the factory initially. This will be followed by further investments of similar value in various installments, according to Panasonic's CEO, Kazuhrio Tsuga's comments during the CEATEC, the Combined Exhibition of Advanced Technologies trade show in Japan.

While the total investment to be made by Panasonic is not yet known, Tesla CEO Elon Musk had said earlier that he expects its primary partner to invest 30–40% of the costs needed for the factory.

Panasonic has also set up a new company, Panasonic Energy Corporation of North America, in Nevada to manufacture lithium-ion batteries. Nevada is the location of Tesla's Gigafactory, which is being constructed to meet the automaker's need for lithium-ion batteries for its cars.

h Over 7,000 lithium-ion battery cells are used in each Model S battery. While Panasonic currently supplies these batteries to Tesla, the quantity falls below Tesla's requirement. Thus, Tesla is building the Gigafactory to manufacture the batteries, along with a few partners.

Tesla signed a formal agreement with Panasonic for the Gigafactory partnership in June. Under the agreement, Panasonic will invest in production equipment for the manufacture of lithium-ion battery cells, while Tesla will invest in land, buildings and utilities for the Gigafactory as well as production equipment for battery module and pack production. Moreover, Tesla will be responsible for the management of the Gigafactory. Other partners will also be involved in the Gigafactory for manufacture of the required precursor materials.

Tesla plans to finish the Gigafactory construction by 2017. By 2020, the company expects the annual lithium-ion battery production of the Gigafactory to exceed the global production of 2013.

The factory will produce enough battery packs to allow the electric carmaker to build around 500,000 electric cars by 2020. Also, by the end of the first year of manufacturing, the “per kWh” cost of production of battery packs is expected to reduce by over 30%. The automaker expects the factory to provide economies of scale and reduce production costs based on innovative manufacturing techniques, reduced logistic wastes, optimization of co-located processes and lower overhead costs.

Currently, Tesla sports a Zacks Rank #3 (Hold). Better-ranked auto stocks worth considering include Tata Motors Ltd. TTM and Fuji Heavy Industries Ltd. (FUJHY). Both these stocks have a Zacks Rank #1 (Strong Buy).