
Tesla and Panasonic freeze spending on $4.5B Gigafactory - elemeno
https://asia.nikkei.com/Business/Companies/Tesla-and-Panasonic-freeze-spending-on-4.5bn-Gigafactory
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dalbasal
An ironic aspect of financing (from personal loans to multi-billion dollar
deals) is that you can get it as long as you don't need it.

Google or FB would have no problem at all spending a measly $4.5bn on a
project that potentially has real impact on their primary business
(search,ads), or even secondary one (android, etc.). Their only problem is
finding a way to spend it.

This is because Google makes software, and software doesn't really require
much capital. The only thing they could realistically spend that kind of money
on is m&a.

So, because they don't need it, google has many times that sum sitting around
and could probably raise many times that sum again.

Because the only thing they could spend it on is m&a. If they do, the money
goes to pay founders/investors in the target company....and back to to the
"available to invest" pile of money collectively accumulating in software
giants' balance sheets, VC & PE funds and such.

What rarely happens is actual spending.

If Tesla or another manufacturing company gets ahold of $5bn, they will
actually spend it on parts, machinery and such.

The current money market is so loopy. All it can do is move money around. It
can't spend it. It's like a real estate market in dense places like NY, but
worse. Lots of money flies around, but it goes between one pocket and another.
Very little goes towards building buildings. An investment in the gigafactory
would be more like investing in a new city. It actually results in buildings,
but isn't going to be attractive to investors, because... because it isn't a
zero sum game. Other people can build a building too. There's no reason for
your building to be worth more than it cost you to build.

~~~
countryqt30
It just demonstrates that Google/FB/[SOFTWARE] is a wonderful business, and
Tesla/Cars/[CAPITAL INTENSIVE] is a waste of money. The market realizes this
pretty well, so most money goes into developing and funding new software
companies.

~~~
gpresot
Both have pros and cons. Capital intensive businesses, once running, have
their own barriers to entry (moats) "literally" built in: all those capital
requirements help keep new entrants away. Capital-light business (and I am not
sure the infrastructure investments to run a cloud service platform are so
small), need to build this moat either by having access to consumer (data,
network effects) and/or by keeping ahead of competition with constant
innovation.

~~~
dalbasal
In practice though, msft, Google & FB have much better moats, via
network/platform effects.

~~~
gpresot
There are oil refineries that are decades old and still generate plenty of
cash for their owners (granted, they need maintenance investments, but the
bulk of the investment is certainly at the beginning), the same goes for cargo
ships etc... While FB and GOOG need to come up with a new product or service
every 6 months to keep those customers (see SNAP and their allegedly better
fit with younger users). And MSFT wasn't in a very healthy situation just a
few years ago. I have of course generalised and things are never clear-cut:
servicing the high debt used to finance initial capital is also quite risky.

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chisleu
They have already spent $4.5B which are creating all of the batteries for the
model 3.

They are pausing spending of an additional $100-150M until Tesla needs the
additional capacity. They don't yet need it.

What a terrible title...

~~~
cjhopman
You either misinterpreted the article or pulled numbers out of your ass as
they are almost 10x off of what the article states.

"It was reportedly considering putting an additional 100 billion yen to 150
billion yen ($900 million to $1.35 billion) into the Gigafactory."

~~~
chisleu
"reportedly"

That wasn't the actual investment up for consideration, and it's not needed
yet because Model 3's production is satisfied, hence Tesla is offering longer
range versions of the model 3 without the extra motor/AWD.

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yungchin
I'm not sure this is bad news for Tesla, I'd say it's mostly bad news for the
rest of us.

Tesla has reached enough scale to be more or less sustainable (in the sense
that they don't need to be posting losses anymore), and I'd imagine they can
continue to grow, if more slowly, without the rapid expansion of battery
production capacity that this story is about.

But the great aim behind the gigafactory (at least, how I read it) was to
drive battery cost down very aggressively, that is, working on the supply-side
economics. This would then make EVs (not just Teslas) accessible to more
people sooner, without all the subsidies (which have been a demand-side hack
that didn't even work very well). If this means a slower clean transition (and
I think it does) that's a sad outcome.

~~~
philwelch
Tesla itself don't have to be the ones manufacturing the batteries. Given that
manufacturing seems to be the part of the value chain that Tesla is the worst
at, I don't think the gigafactory was ever going to be that valuable or
effective anyway.

~~~
imtringued
Their battery factory is Tesla's primary competitive advantage. They are far
ahead of almost any other manufacturer in terms of battery chemistry (<3%
cobalt [0], less lithium, etc) and battery pack manufacturing (first to do
thermal management -> long battery life).

[0] [https://www.teslarati.com/tesla-model-3-batteries-cobalt-
vol...](https://www.teslarati.com/tesla-model-3-batteries-cobalt-volkswagen/)

~~~
philwelch
Battery design is one of their primary competitive advantages, along with
marketing and the supercharger network. Large scale manufacturing isn’t.

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ckastner
Panasonic's issue seems to be:

> _Panasonic 's Tesla EV battery business had operating losses exceeding 20
> billion yen [~180m USD] in the financial year that ended in March, up from a
> year earlier. The losses were exacerbated by delays in the start of
> production of the Model 3._

It's not entirely clear to me from the article whether this loss stems from
the operations itself, or from the reduction in demand for the model 3. Either
way, it's bad news for Tesla.

~~~
lazulicurio
> Either way, it's bad news for Tesla

As someone in the (US) industry, everyone's hurting right now, not just Tesla.
The GM plant closures have had a large ripple effect on suppliers. And beyond
that, in general it seems like there's been a lot of belt-tightening over the
last year. Whether self-fulfilling prophecy from fears of a recession or
something else, I don't know.

~~~
prolepunk
The weird thing about GM closures was that GM seemed to be doing fine, and
then they axed whole bunch of factories and discontinued most of the sedans
and Chevy Volt.

~~~
dragontamer
Cars are highly cyclical, which means future demand can be predicted very
well. Cars are cyclical because they last for 5 to 15 years. When everyone is
done buying new cars, there's a lull and car companies need to cut back
supply.

"Everyone" is hurting because "everyone" is part of the same cycle in the
industry. Ford, GM, etc. etc. have all closed plants in anticipation of the
lower-demand over the next year or two.

------
gr2020
From Electrek [1]: A Tesla spokesperson has reportedly commented on Nikkei’s
report:

> “We will of course continue to make new investments in Gigafactory 1, as
> needed,”

Update: In a comment to Electrek, Tesla exapnded:

> “We will of course continue to make new investments in Gigafactory 1, as
> needed. However, we think there is far more output to be gained from
> improving existing production equipment than was previously estimated.”

[1] [https://electrek.co/2019/04/11/tesla-panasonic-suspend-
inves...](https://electrek.co/2019/04/11/tesla-panasonic-suspend-investments-
gigafactory-expansion-report/)

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AndrewBissell
The most interesting part of this story is that Panasonic has chosen to
broadcast this decision in a national newspaper in way calculated to cause
maximum embarrassment to Tesla, which still depends on investor perceptions of
huge upcoming growth to support its stock valuation.

An odd thing happened last year when Pana's reported margins dropped while
Tesla's went way _up_ during their "miracle Q3." A common theory among Tesla
shorts was that Pana had helped them make the quarter with a discount on
batteries, to be paid back at some point in the future. Given the big drop in
Q1 deliveries and demand standstill in the U.S. after the Model 3 order
backlog was depleted, maybe Panasonic is worried they're not going to get paid
back?

~~~
AndrewBissell
A good Twitter thread on this subject here:
[https://twitter.com/BradMunchen/status/1112668005614252032](https://twitter.com/BradMunchen/status/1112668005614252032)

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jaimex2
This makes sense with GF3 coming online so quickly. The original plans to keep
expanding GF1 may not be needed if GF3 can do it better and more cheaply.

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x38iq84n
There is a lot of negative sentiment around Tesla lately. The Giga Factory was
supposed to be Tesla's greatest asset, its largest advantage in the market,
that enables exponential growth of production and sales. It looks like bears
are coming for Tesla if they don't step up their game.

~~~
azhenley
Since 2013 (when I started following Tesla stock), I have seen daily or weekly
headlines about Tesla coming to an end.

~~~
navigatesol
> _Since 2013 (when I started following Tesla stock), I have seen daily or
> weekly headlines about Tesla coming to an end._

I don't understand this argument. Not saying Tesla is Theranos, but Theranos
ran on hope and dreams for 10 years. These things take time to play out.

~~~
lazyjones
> _I don 't understand this argument. Not saying Tesla is Theranos, but
> Theranos ran on hope and dreams for 10 years._

Amazon ran on losses for many years and it played out in the end. By choosing
what company you compare Tesla to, you already choose a particular narrative.
It's worthless as an argument and if you have a reason for your belief, it's
more useful to discuss that rather than arbitrary comparisons.

~~~
jblwps
Correct me if I'm wrong, but Amazon also didn't need the kind of large capital
infusions that Tesla needs (in virtue of their industry and their pioneering
efforts within it).

~~~
lazyjones
[https://seekingalpha.com/article/4099612-amazons-massive-
deb...](https://seekingalpha.com/article/4099612-amazons-massive-debt-deal)

 _Amazon (NASDAQ:AMZN) issued $16B of bonds across seven tranches on Tuesday
in the company 's biggest bond deal on record. It was the fourth largest deal
of 2017, and one of the 20 largest bond deals on record._

[http://fortune.com/2012/12/18/just-how-risky-is-amazons-
debt...](http://fortune.com/2012/12/18/just-how-risky-is-amazons-debt/)

 _On the same day, Moody’s came out with its rating for Amazon’s debt: Nearly
junk._

------
MobileVet
The technology is clearly the key piece of Tesla... and while that scales
well, the platform is another story.

Imagine if Toyota bought Tesla. That may be the best outcome possible as the
platform would suddenly be at scale.

The technology could be added to all Toyota cars ICE included (with their
level of fit and finish) and the ‘electric only’ line would be supported while
it ramped up and lowered cost.

This would solve a lot of Tesla’s problems and make the outcome far more
likely to be positive. As it stands, I want a Tesla, but I am not going to buy
one because 1) cost vs quality 2) likelihood of implosion

~~~
aNoob7000
Unfortunately for Tesla, at its current valuation, nobody is going to buy it.

The race now is between established players catching up to Tesla and its
technology, and Tesla catching up to established players with their capacity
to produce cars at scale.

~~~
mrtksn
What technology exactly do the established players are catching up to?

I'm under impression that the value of Tesla comes from the brand itself and
Elon Musk's persona. The tech itself is nothing special, they are far behind
in autonomous driving but the brand is very strong, they easily upsell "one
day it will be autonomous" packages.

~~~
leesec
Their whole car is a computer that can receive OTA updates. ( please show me
an instance where a major car company sent 5% performance increase over the
internet )

Their battery tech is better than everyones. ( Why is the Audi E-tron and
Jaguar I-pace Less range than even the cheapest Tesla? )

Their autonomous is better than everyones. ( Don't know why you think they're
far behind, the only other player with a comparable product is Supercruise and
that is on one version of Cadillac ).

The data they have on their cars/collection pipeline is better than everyones.

Because their car is software there are all sorts of quality of life perks
that exist from the dashboard.

So tired of hearing these cars aren't any better when they're some of the
highest rated cars of all time and consistently compete with cars much more
expensive.

~~~
mrtksn
>Their whole car is a computer that can receive OTA updates

No, the car has a computer that controls the systems in the car like all the
modern cars. Receiving software updates to a computer is not a huge tech
challenge. And no, you don't receive performance over the internet, you
receive a driving configuration that may better utilize the hardware. Can be
easily done by any manufacturer.

>Their autonomous is better than everyone

Factually wrong, they are a category down from actual self-driving tech
developers. But if you decide to skip the self-driving part and call it
driving assistant or something, then yes it's a pretty good driving assistant
that can follow lines etc. Some people think that calling the driving
assistance software an autopilot is borderline false advertisement.

~~~
leesec
>Factually wrong, they are a category down from actual self-driving tech
developers.

Well they're the only people offering anything this quality unless your one of
the hundreds of people in Phoenix that can order a Waymo (that still has a
person driving).

>some people think that calling the driving assistance software an autopilot
is borderline false advertisement.

Well my 'driving assistance' drove me 95% of the way to work this morning
hands free feet free, seems pretty appropriate to call it autonomous to me.

~~~
mrtksn
Tesla also happens to have a fanbase who would defend them with passion,
making claims and arguing for hours that you can indeed download car
performance from the internet, that driving assist is an autonomous driving
even though Tesla says that it isn't and you should always stay alert and if
you get slammed into a wall(like that poor Apple engineer) you should have
known better.

It's really not about tech but about the brand. Since Stave Job is no longer
with us, Musk happens to own the tech visionary title.

It can be annoying but I'm glad that Tesla exists an it's brand is pushing the
big players into electric cars.

~~~
leesec
->making claims and arguing for hours that you can indeed download car performance from the internet,

I don't understand. People went to sleep, their car updated via internet, and
they woke up with more performant cars. This really happened. Obviously the
car didn't changed the hardware, it changed the software, and the car drove
better.

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taf2
Could this have anything to do with the Tesla acquisition of Maxwell? Perhaps
there is a different battery technology on the horizon that won't require the
same infrastructure with Panasonic?

~~~
RivieraKid
No, Panasonic is worried about demand and doesn't want to throw money out of
the window.

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Footkerchief
Because I took away the wrong message from the headline, and others might too:

> Tesla and Panasonic are freezing plans to expand the capacity of their
> Gigafactory 1, the world's largest EV battery plant, as concerns mount on
> Wall Street about weakening demand at Elon Musk's car company.

Freezing expansion, not production.

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QuantumGood
"We are seeing significant gains from upgrading existing lines to increase
output, which allows Tesla and Panasonic to achieve the same output with less
spent on new equipment purchases."

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lr
I know Elon loves cars (and rockets), but what about selling batteries for
other things? BMW sells its batteries for electric vessels (boats). It would
be great (for the world at large) if Tesla did the same.

~~~
rtkwe
They are. They'd done a few deployments for grid power and are selling the
Powerwall. (Or were I haven't followed it since I'm not looking to install
solar anytime soon)

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cinquemb
And here I was thinking that Caa1 partnering with A3 would change everything…

