Tesla, the driving force behind the next-generation electric vehicle(EV) battery standards, has been vigorously promoting the 46800 cylindrical battery cell in recent years.

Being Tesla’s key collaborator, Panasonic had initially scheduled mass production of these batteries for April this year. However, in a recent announcement, they revealed that their production plans would be delayed by at least a year, with full-scale production not set to kick off until between April and September 2024.

This strategic pivot is aimed at optimizing performance, but what we care about is the implications it might hold for the EV supply chain – could this mean that the strong alliance between these two giants is beginning to waver? And if so, what sort of ripple effect could this have on the relevant market?

Tesla’s secret weapon in the EV price war

Given the capacity of 46800 battery cell is five times that of the 21700 battery, it means fewer cells are required to achieve the same total battery pack capacity.

For instance, a 75kWh-based Model 3 uses 4,416 units of the 21700 battery cells packed in the traditional way of Cell to Module (CTM), which assembles batteries into modules which are then encased into a battery pack and then fitted onto the vehicle’s chassis.

In contrast, a Model Y with the same battery capacity would need only 828 units of the 46800 battery cells, leading to a 14% saving on battery costs. Coupled with Tesla’s integrated chassis technology (CTC), where batteries are not assembled into modules but instead directly encapsulated under the cabin floor, this provides an ultimate, cost-effective solution for Tesla.

When Tesla first announced its 46800 battery plan in 2020, its battery capacity was pioneering among all batteries. Taking advantage of this favorable environment, Tesla has been both expanding their production and involving cylindrical battery manufacturers, like Panasonic, in their comprehensive plans.

Tesla has set up a 46800 battery production line at their Fremont factory in California. As of the end of 2022, their production capacity was about 4GWh, which can only support 50,000 to 60,000 75kWh EVs and is far from their sales volume.

In terms of a long-term strategy, Tesla not only aims to ramp up their production capacity but is also heavily reliant on external suppliers like Panasonic to support its ever-growing demand.

Hence, ever since the launch of Model S in 2012, Panasonic has remained Tesla’s primary supplier of power batteries. And thanks to Tesla’s booming sales, Panasonic has dominated the power battery market for quite a while.

Roadblocks for Tesla and Panasonic’s Alliance

So, what does Panasonic’s delay mean for its position in the market? In fact, as an important chess piece in Tesla’s battery market strategy, Panasonic has been under considerable pressure.

Externally, there’s the relentless price cuts from Tesla. In 2018, as Tesla’s sales skyrocketed, they started purchasing batteries from more suppliers, thereby indirectly pressuring Panasonic to lower prices.

In addition, the internal discord has also been shadowing the project. On one hand, the long-term supply to Tesla has not brought as impressive profit performance as anticipated for Panasonic’s battery business. On the other hand, sticking to Tesla’s technology route, Panasonic has missed a great deal of opportunities to partner with Japanese car makers due to its conservative investments in the mainstream hydrogen energy batteries, which has in turn stirred internal questioning.

Since 2020, both South LGES and CATL have become suppliers to Tesla, causing Panasonic’s market share to fall to third place globally. But even then, Panasonic’s many years of expertise in cylindrical batteries made it Tesla’s Top choice when deciding to manufacture the 46800 battery. This was widely seen as Panasonic’s best chance to regain its leading ground and to solidify long-term partnership with Tesla.

Is Panasonic about to miss out on its prime opportunity?

All in all, we believe that this delay could not only disrupt Tesla’s price war strategy but also make Panasonic miss the golden chance to secure its dominance in the new technology. With multiple battery manufacturers, such as CATL, LGES, and Eve Energy, announcing that they will start mass production of the 46800 battery in 2024 or 2025, Panasonic will face unprecedented competition.

As of Q1 2023, Panasonic has seen its market share fall to fourth place. Obviously, maintaining its industry leadership becomes more of a daunting task for the company in the race. Although they’ve announced plans to build at least two 46800 battery factories in North America, it won’t serve as a panacea for their problems.

Beyond overcoming technical hurdles and expediting mass production, Panasonic also has a mountain to climb in terms of diversifying its customer base, further lessening the risk of an over-reliance on Tesla. These are inevitably long-term challenges that Panasonic cannot sidestep.