Elon Musk’s plans for a battery plant so big it will cut the cost of lithium-ion cells for Tesla Motors Inc. (TSLA:US) electric cars by 30 percent are advancing as Panasonic Corp. (6752) signed a letter of intent to join the project.
Musk, Tesla’s chief executive officer and main shareholder, disclosed Panasonic’s growing interest in his “gigafactory” battery plant yesterday in a conference call to discuss first-quarter earnings. The Osaka, Japan-based electronics maker, Tesla’s main supplier of battery cells, expressed hesitancy in March about investing in the factory.
“We’re actually quite comfortable that we’re heading toward a final agreement sometime later this year,” JB Straubel, Tesla’s chief technology officer, said on the call. Groundbreaking on one of at least two possible factory sites may happen as early as next month, Musk said.
Musk has pinned his growth ambitions for Tesla to the new plant, which the company estimates will cost as much as $5 billion to build and eventually employ 6,500 people. The Palo Alto, California-based company has said it will both cut electric vehicle costs with cheaper batteries and produce power storage devices for homes and buildings with solar panels to curb electricity use from the grid.
Tesla has said Arizona, Nevada, New Mexico and Texas are possible factory sites and that it will break ground in at least two states. California is being looked at as another option, though its selection is “improbable,” Musk said. While Panasonic will be the only cell supplier at the factory, Tesla may buy cells from other suppliers, Musk said, without elaborating.
Chieko Gyobu, a spokeswoman at Panasonic, confirmed the letter of intent by e-mail.
“We are talking to Tesla about joining the gigafactory,” Gyobu said. “We’ll discuss details going forward.”
Tesla fell after the close of regular Nasdaq trading when the company reported first-quarter Model S sales growth that was below top-of-the-range analyst estimates. The shares declined 7.6 percent to $186 at 7:59 p.m. New York time.
Quarterly deliveries rose to 6,457 cars from about 4,900 a year earlier. While that exceeded the average of seven analyst estimates, it was less than the highest estimate of as much as 6,600. Tesla said tight battery supply restrained growth and will continue through the current quarter.
The delivery result “beat, but not by as much as people expected them to beat,” said Andrea James, an equity analyst at Dougherty & Co., who rates Tesla a buy. “Overall these look like good results.”
Excluding some items, Tesla earned 12 cents a share in the quarter, the company said in a statement. That matched the adjusted profit that the company reported a year earlier and exceeded the 7 cents-a-share profit average of estimates compiled by Bloomberg.
On a GAAP basis, Tesla lost 40 cents a share and said its net loss was $49.8 million.
The youngest publicly held U.S. carmaker has been expanding since its first profit a year ago sent the stock soaring. Tesla shares rose fourfold last year and are up 34 percent this year through yesterday. The company started selling cars in Europe last year and in China last month. Sales in Asia weren’t reflected in the first-quarter results.
Yesterday’s share-price drop may reflect the “overall market weighting and expectations of a bigger delivery number next quarter,” said Ben Kallo, an equity analyst with Robert W. Baird, who rates Tesla outperform. “Operating expenses continue to increase, but that’s to be expected for such rapid growth.”
Tesla said in February that tight supplies of batteries and China-bound shipments of Model S, priced from $71,000 in the U.S., would hold quarterly deliveries to 6,400 vehicles. Battery-cell supply will constrain production through the first half before easing in the third quarter, Musk said.
The company said it will be marginally profitable on a non-GAAP basis in the second quarter, even as research and development costs rise 30 percent from the first quarter.
While the company said it had no revenue in the quarter from California zero-emission vehicle credit sales, it generated $12 million from selling credits related to U.S. Corporate Average Fuel Economy regulations.
Tesla also had a charge in the first quarter of $2 million to retrofit Model S battery packs with titanium shields for extra safety in the event of a crash. Tesla forecast a “slightly” negative cash flow for the year.
The company is now making 700 Model S cars a week at its factory in Fremont, California, near San Francisco. By the end of the year, Tesla expects to assemble 1,000 vehicles a week.
The Fremont plant will be idled for about 10 days in July for a planned retooling intended to boost assembly speed, Musk said. Even with that temporary shutdown, Model S deliveries will reach at least 35,000 this year, he said.
In the second quarter, Tesla said production will probably rise 13 percent to 19 percent from the first three months of the year, with deliveries increasing to about 7,500. The company forecasts being marginally profitable on an adjusted basis for the April-to-June period. Adjusted gross margin may increase slightly from the first quarter’s 25.4 percent.
Deliveries of Model S cars with right-hand drive begin in the U.K. in June, with Hong Kong and Japan to follow, the company said. Tesla said it wants to expand its business in China as fast as possible, including the installation of a large supercharger network.
Design prototypes of Tesla’s Model X crossover-utility vehicle may be ready in the fourth quarter, the carmaker said.
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