Supply Chain Matters has helped to bring added visibility to three rather high-profile corporate supply chains, each with their own unique set of challenges. They include those of Airbus, Apple, and Tesla.  Each has its own unique set of challenges, and in most cases, certain key suppliers have a significant role and stakeholder interest in eventual outcomes.

For Tesla, the ongoing challenge remains the successful manufacturing volume ramp-up of the mass market Model 3 sedan.  Tesla Model 3

In our last Tesla related commentary published in late January, we called attention to a CNBC Business Network report that cited existing and former employees who share observations relative to the current production challenges. Described was the need for employees at the battery manufacturing facility having to assemble battery cells by hand along with the corresponding need to borrow added employees from battery supplier Panasonic to help in that effort.

The added notion of supplier stakeholder interest was brought forward in early February by Japan’s Nikkei Business in reporting on Panasonic’s expected fiscal year forecast of financial performance. (Complimentary metered view by signup)

In short, Panasonic expects net profit to reach a ten-year high in the fiscal year that ends this month, buoyed by healthy revenues in factory automation and home electronics. However, the diversified electronics producer pointed to ongoing troubles in its battery business, specifically, the production setbacks that have occurred with Tesla.

The Nikkei report specifically cites delays in the production of the mass-market Model 3 sedan as causing Panasonic’s battery business to miss financial targets. Panasonic further downgraded it sales and profitability outlook for rechargeable batteries to include automobile related. The report further indicates:

Seeking to reduce its reliance on Tesla, Panasonic entered into a partnership on electric vehicle batteries with compatriot Toyota Motor in December and is exploring opportunities with other domestic and Chinese automakers.”

Panasonic’s CFO is cited as indicating that while vehicle electrification will advance in the long-term, the ability to grow profit in rechargeable batteries is tied directly to Tesla, which implies vulnerabilities to production shortfalls. To that end, company executives are anticipating that Tesla will be producing Model 3’s at the rate of 2500 per week by the end of this month, ramping to 5000 per week by the end of June.

In the quarter that ended in December, Tesla produced a mere 2425 Model 3 sedans. That was an obvious disappointment to the original stated goal of reaching a production cadence of 5000 Model 3’s per week by the end of 2017, a milestone which was since been deferred to this quarter.

As noted, Panasonic teams directly contributed their own manual battery assembly labors to make the Q4 Model 3 output occur, thus more ramp-up challenges remain. With a history of prior stumbles in heavy investments in LCD televisions that led to a retreat from that market segment, senior management is now cautious to not have a sole dependence on one downstream customer.

Thus, Tesla and Panasonic, while remaining as key strategic partners, have their own self-interests at-stake. Shareholder concerns regarding Tesla’s needs for additional cash burn and added investment in production capability are increasing. So are concerns of Panasonic that has a dependence on higher automated battery production volumes to support expected profitability goals. It appears that the supplier is now taking prudent steps to hedge its dependencies.

In the middle of these dynamics remain the hundreds of thousands of Model 3 customers that made their initial order deposits hoping to drive this long-anticipated vehicle in the 2018-19 period.

All continue to expect the eventual meeting of automated production goals, sooner rather than later.

Bob Ferrari

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