Panasonic Looks to China for Lithium-Ion Battery Manufacturing

By · February 20, 2012

Panasonic Sanyo

Japan's Panasonic, the world's leading producer of lithium ion batteries for electric and hybrid cars, has exclusively relied on domestic production of lithium-ion battery components. Now, according to Nikkei, the company is setting up shop in China to supply automakers such as Volkswagen and Toyota with batteries for its electrified vehicles.

“The electronics manufacturer has been making automotive lithium-ion batteries solely at its Kasai and other Japanese plants. It has relied exclusively on domestic production because of the technological sophistication required in making the batteries. With major customers such as Germany’s Volkswagen and Toyota Motor signaling plans to produce hybrids and EVs in China, Panasonic has decided to set up a supply system there.”

Nikkei

Is this just a small news item, or one more indication that China will dominate the future of EV battery production?

Panasonic, along with subsidiary Sanyo, currently holds a 20-plus percent share of the global market for all types of lithium-ion batteries.

Comments

· · 2 years ago

Several years ago I was in Japan meeting with various Japanese auto makers and some of their suppliers. In the years prior to that trip the Japanese auto makers where very loyal to their supply chain. They would provide funds or training or whatever their vendors needed to thrive and constantly improve. But during the time of my trip there was a new message coming from the Japanese auto makers that they were going to drift away from this policy and start ordering more parts from Chinese vendors. The Japanese component manufacturers were pretty much in a state of shock about this and didn't really know what to do about it. They couldn't really meet the Chinese prices without help from the auto makers because most of these Japanese vendors were really family run small businesses who had never been given enough profit from the automakers to automate anything that the automakers didn't fund them to do.

And, of course, this whole situation reminded me of a similiar process that had already begun in the US at that point where so many US "manufacturers" were going abroad to get low labor rates.

The reason that companies go to the low labor rate countries is, of course, to get a better price and stay competitive with other companies worldwide who have made that same move. But in most cases I think there is a choice. Companies faced with competitors who have falling production costs can either go to a low rate country or they can invest in automation at home.

I think the reason why most companies choose the low rate country option is because it is just a lot easier of a choice to make in the short run. It is pretty expensive and takes a lot of effort to automate a home based factory. So you typically chose a vendor in such a country and they worry about the manufacturing details. They often worry about getting material, designing and building tooling, sourcing equipment, the whole bit. You just sit back and wait for your product to arrive at the docks. A lot fewer things to worry about and less cash flow tied up. Pretty soon your vendor gets better at engineering and you can hand off more and more of the product design to them. Because sooner or later the people building the product know more about it then the people ordering it. More and more technical advancements start coming from over there as well. Your own staff pretty much just worries about cosmetics and features driven by marketing studies.

Naturally there is a very bad side effect in this popular strategy in that jobs disappear from the home country and money and economic activity leaves the home country, leading to suppressed future sales demand (among other things). People talk about this more and more now, which is good. We need to decide what, if anything, we want to do about this as a country. Every country does.

But there is something else that happens in this scenerio that I don't think companies consider enough. If you have to cut costs through either further automation or outsourcing in order to compete, automating still retains the jobs that do exist moving forward within the company's control. The corporate memory actually knows everything about its product and so is in the position to come up with the new advancements and stay ahead. The company continues to have something unique to offer and thus can stay in the game. If a company outsources everything it is only a matter of time until the manufacturers in the low labor rate countries get their own distribution chain and market consultants and the former leader in a certain area becomes itself a reduntant middle man, obselete.

· · 2 years ago

@alt-e,
Well put. Of course MBA programs teach not to think as far ahead as you're suggesting one should.
I watched the cellphone industry leaders (Nokia, Motorola, Ericsson) start outsourcing production and even design to companies such as Foxcon, Compal, Huawei, HTC, etc. Now the service providers are ordering phones from these ODM/CMs themselves and the original industry is nearly dead. In PCs, we saw that Lenovo, one of IBM's CMs, finally just bought the line.

· MATT I8 (not verified) · 2 years ago

I'll make sure to ask Panasonic about this when I visit Japan in three weeks on my MBA trip. Obviously not keeping competitive specific knowledge in-house can be detrimental to the success of a company in the short and long run...and cell phone companies should get leap frogged for outsourcing core competencies. In the case of the Li-ion batteries, which Tesla has currently offloaded a portion of its production to Panasonic, it is a matter of economies of scale and identifying partners that can help achieve it. China is cheeper labor and a market large enough playground for major auto manufacturers to sell to in addition to ship to europe and north america. The biggest challenge I have discovered in the EV industry is overcoming the high costs of a battery that currently does not overcome the range anxiety of the consumer. Has anyone even looked at the economic footprint or environmental sustainability of these batteries? I noticed the Japanese company BetterPlace does a decent job of approaching this issue. But right now if this pipe dream is going to become a reality, all hands must come on deck, including the public who will also bare a burden of the social costs necessary for the breakthrough platform. BTW, whoever offshores their business and waits on the dock drinking beer and fishing in blind anticipation of a final product should be pushed off into the ocean.

· · 2 years ago

@ Matt I8 - It is possible to design lithium batteries for re-use and recycling. As batteries are used in a car application, the energy holding capability of the battery slowly is reduced. After 10 years or so the range may be unacceptably short. At this time the battery can be removed from the car and placed in service for a stationary energy storage application such as load leveling for a power utility. Such a battery pack may be useful in that duty for 10 or even 20 more years. At that point, if the batteries are designed for recycling, they may be made into new batteries for cars again.

If you are visiting Panasonic you could ask them if their car batteries are recyclable. Some other manufacturers have designed their batteries for this, but I am not certain about Panasonic and the batteries they make for Tesla.

· Londo Bell (not verified) · 2 years ago

Labor cost is not a "big" issue on offshoring.

It's the cost on all those regulations, such as environment, health, safety, etc.

It's also the cost of acquiring various licenses to do things.

Those 2 pretty much don't exist in China - well, let's put it this way, there are laws that no one is monitoring, and if discovered, you can handle it by paying a "small fine" to some people within the government.

That's why companies love offshoring manufacturing jobs to China and India. These 2 countries are dumping grounds for many international companies. Sad. Real sad.

· · 2 years ago

@ Londo Bell

Couldn't agree more with you. The slave labour rates are just the icing on the cake!

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