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Battery manufacturers cut production as demand for EVs drops

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Electric vehicle (EV) battery manufacturer Panasonic has announced plans to scale back product development in response to “rapidly reduced demand.” The company is slashing EV battery production at its Japan facilities by 60% compared to its first quarter output, and will also cut its full-year profit outlook at its battery unit by 15%.

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Panasonic, a long-time supplier of the batteries in Tesla’s cars, pointed to the automaker’s expensive vehicles, which do not qualify for tax credits under the Inflation Reduction Act, as a reason for the production slowdown.

“The Inflation Reduction Act has a price ceiling up to $80,000, and since the high-end models exceed that level, demand decreased,” said Hirokazu Umeda, Panasonic’s chief financial officer.

Umeda also noted the company’s EV battery business would have lost money in the second quarter of this year had it not been for subsidies granted to them under the Inflation Reduction Act.

“Panasonic’s warning of soft demand for Tesla’s Model S and Model X cars has many concerned that global economic outlook could be in worse shape than initially believed,” said Edward Moya, senior market analyst at Oanda, a leader in currency data.

Panasonic’s move comes after LG Energy Solution, the world’s current third largest EV battery producer, warned its revenue growth will likely slow next year due to global economic uncertainties affecting the outlook for EV sales.

Lee Chang-sil, chief financial officer at LG Energy Solution, is forecasting “EV demand next year could be lower than expectations,” as the company has called for a similar cut in battery production at its factory in Poland to minimize costs.

Yet, despite these expectations of a slowing EV market, both companies are still moving ahead with their plans to build out their current battery production capacity.

LG Energy Solution is putting $5.5 billion towards the creation of a battery manufacturing complex in Arizona, the largest single investment ever for a facility of this kind in North America. Meanwhile, Panasonic has already broken ground on a $4 billion battery manufacturing facility in Kansas, which the company has heralded as an “important step towards expanding our production capacity.”

“With our leading technology, proven expertise, and the state of Kansas as a critical partner, we will continue driving the industry forward while pursuing a more prosperous and sustainable future for our society,” said Kazuo Tadanobu, president and CEO of Panasonic Energy Co., Ltd.

However, Panasonic’s plant construction has already incurred controversy due to its energy demand.

The energy required to the power the facility is equivalent to the needs of a small city. To meet demand, a coal plant in the area that was set to transition to using natural gas will now have to continue burning coal, sparking backlash from environmentalists. Because the energy needs are so great, local utility providers will also need to build additional infrastructure and may need to raise power rates on nearby residents.

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“RAPIDLY REDUCED DEMAND”

THAT’S WHAT EV BATTERY MANUFACTURER PANASONIC IS CITING AS IT SCALES BACK PRODUCT ASSEMBLY

THE COMPANY IS SLASHING EV BATTERY PRODUCTION AT ITS JAPAN FACILITIES BY 60 PERCENT COMPARED TO THE FIRST QUARTER OF 2023, AND HAS CUT ITS PROFIT OUTLOOK AT ITS BATTERY UNIT BY FIFTEEN PERCENT.

A LONG-TIME SUPPLIER OF THE BATTERIES IN TESLAS, PANASONIC NOTED THAT THE AUTOMAKER’S CARS DO NOT QUALIFY FOR TAX CREDITS UNDER THE INFLATION REDUCTION ACT

 

PANASONIC’S CHIEF FINANCIAL OFFICER SAID QUOTE “THE INFLATION REDUCTION ACT HAS A PRICE CEILING UP TO EIGHTY THOUSAND DOLLARS, AND SINCE THE HIGH-END MODELS EXCEED THAT LEVEL, DEMAND DECREASED.”

ADDITIONALLY, THE CFO NOTED THE COMPANY’S EV BATTERY BUSINESS WOULD HAVE LOST MONEY IN THE SECOND QUARTER IF NOT FOR U.S. SUBSIDIES.

 

PANASONIC’S MOVE COMES AFTER LG ENERGY SOLUTION, THE WORLD’S THIRD LARGEST EV BATTERY PRODUCER, WARNED OF CONCERNS ABOUT THE EV MARKET AND ANNOUNCED A CUT IN BATTERY PRODUCTION AT THEIR POLISH FACTORY

 

HOWEVER, DESPITE THESE WORRIES BOTH COMPANIES ARE STILL MOVING AHEAD WITH PLANS TO BUILD BATTERY FACTORIES IN THE U.S.

LG IS PUTTING FIVE AND HALF BILLION DOLLARS TOWARD A BATTERY PLANT IN ARIZONA, THE LARGEST SINGLE INVESTMENT EVER FOR A FACILITY OF THIS KIND IN NORTH AMERICA.

 

MEANWHILE, PANASONIC ALREADY BROKE GROUND ON A FOUR BILLION DOLLAR FACTORY IN KANSAS

HOWEVER, THE PANASONIC PLANT’S CONSTRUCTION HAS ALREADY INCURRED CONTROVERSY.

 

THE ENERGY REQUIRED TO POWER THE FACILITY IS EQUIVALENT TO THE NEEDS OF A SMALL CITY- SO A COAL PLANT IN THE AREA THAT WAS SET TO TRANSITION TO USING NATURAL GAS, WILL NOW HAVE TO CONTINUE BURNING COAL, SPARKING BACKLASH FROM ENVIRONMENTALISTS.

 

BECAUSE THE ENERGY NEEDS ARE SO GREAT, LOCAL UTILITY PROVIDERS WILL ALSO NEED TO BUILD ADDITIONAL INFRASTRUCTURE AND MAY NEED TO RAISE POWER RATES ON NEARBY RESIDENTS.

 

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