Bloomberg News

GS Yuasa Crisis Deepens With Mitsubishi Car-Battery Fire

March 29, 2013

The crisis that GS Yuasa Corp. (6674) has been battling since the overheating of its batteries grounded Boeing Co. (BA:US) 787 jets is deepening.

One lithium-ion battery caught fire while being tested at a Mitsubishi Motors Corp. (7211) factory in Japan last week and another melted in an electric car. The automaker today said faults were detected in two more vehicles. The incidents are the latest involving the Kyoto-based company’s batteries as U.S. and Japanese authorities probe the cause of overheated units that grounded Boeing’s Dreamliners in January.

“This is more serious than the airplane incident,” Shoichi Arisawa, an analyst at Iwai Cosmo Securities Co., said. “It’s another crunch in GS Yuasa’s expansion plans.”

GS Yuasa fell 2.8 percent to 381 yen at the close in Tokyo trading, after tumbling 11 percent yesterday, as the car battery fire added to concerns the company’s products may not be reliable. The accidents threaten to scupper a goal the company set in 2009 to make automotive lithium-ion batteries a key business.

The manufacturer has formed ventures with Mitsubishi Motors and Honda Motor Co. (7267) for supplying lithium-ion batteries. Honda’s Civic HV and Accord PHEV and Mitsubishi’s Outlander PHEV and i- MiEV are among models powered by the batteries.

Questioning Reliability

“Depending on what the cause is, this could call into question the company’s reliability,” said Jun Yamaguchi, a Tokyo-based analyst at Credit Suisse AG who has a neutral rating on GS Yuasa. “It will come down to how hard the company tries to fix the problem and how consumers view that.”

The batteries that caught fire and melted last week were made by Lithium Energy Japan, a venture between GS Yuasa, Mitsubishi Motors and Mitsubishi Corp., which is separate from the factory where the Boeing 787 batteries were made, said Tsutomu Nishijima, a spokesman for GS Yuasa.

Lithium-ion batteries contributed 7.35 percent of GS Yuasa’s sales in the year ended March 2012, according to data compiled by Bloomberg. The business had an operating loss of 3.26 billion yen ($35 million) in the period, compared with a 1.27 billion yen loss a year earlier, according to its annual report.

Profit Slump

The company expects net income to drop 32 percent to 8 billion yen in the year ending this month, with sales little changed at 288 billion yen. The battery maker gets about 43 percent of sales from outside Japan, selling lead-acid batteries for machinery including forklifts in countries such as China and Thailand.

If the battery maker can fix the problems and learn from the incident, that will help the company as future products will be more thoroughly developed, said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets.

“Short term it isn’t good,” said Merner, who doesn’t own GS Yuasa shares. “You’re going to have learning curves and the sooner you have them the better.”

U.S. and Japanese authorities are still investigating the cause of the overheated batteries on Dreamliners, and Japan said earlier this week that it had found no concrete reason why the All Nippon Airways Co.’s 787 battery failed.

Boeing earlier this month announced safety upgrades to the 787’s battery systems, including to the lithium-ion unit and charger, and said that may allow commercial flights to restart within weeks. The Chicago-based company said the fixes cover all possible scenarios for the cause and the actual reason may never be determined.

Motorcycle Batteries

GS Yuasa, founded after a merger between Yuasa Corp. and Japan Storage Battery Co. in 2004, controls about 27 percent of the world’s motorcycle battery market, making it the biggest globally, according to the company’s own estimates.

The production line which made the car battery that caught fire was altered by Lithium Energy Japan in December and that may have caused some contamination inside the battery, causing a short-circuit, Ryugo Nakao, a director at Mitsubishi Motors said March 27, according to Yuki Murata, a company spokesman.

The automaker yesterday found that a vehicle in Tokyo had contained a faulty battery, and suspect the problem was similar to the previous one reported last week, Koji Yokomaku, general manager for quality at Mitsubishi, told reporters in Tokyo today. The battery, along with another damaged unit from Gifu prefecture, are still being probed, Yokomaku said.

Not Enough Information

The company doesn’t yet have enough information on the glitches and will look into the causes of the faults before issuing any recalls, he said.

GS Yuasa owns 51 percent of Lithium Energy. Mitsubishi Corp. (8058) owns 44.6 percent in the venture and Mitsubishi Motors holds the remainder, according to Mitsubishi Motors spokeswoman Tomoko Kawabe.

Honda and GS Yuasa produce batteries at their own factory, separate from Mitsubishi Motors, and have verified the safety of the batteries and the entire battery system, Kumiko Hashimoto, a spokeswoman for Honda said. The companies haven’t received any reports of accidents with the batteries, she said.

Mitsubishi Motors on March 27 asked customers not to charge the plug-in hybrid Outlander vehicle externally until it identifies the cause of the problem. The carmaker has also suspended shipments of its Outlander PHEV vehicle until the cause of the battery incidents has been determined, Murata said.

Mitsubishi Motors aims to restart Outlander production in one or two weeks, Nakao said.

The lithium-ion car batteries involved in the fire were made to different specifications than those for the Dreamliner battery, GS Yuasa’s Nishijima said.

Boeing said the auto battery is “fundamentally different from the 787 battery,” according to Marc Birtel, a spokesman for the plane maker.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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