This week, battery maker Panasonic released its 2019 fiscal year financial report, which spanned from April 1, 2018 to March 31, 2019. It also revealed the financials for the first quarter of this year.
In short, the company’s Automotive & Industrial Systems profits fell 37% year over year. This, despite the Japanese firm reporting a 7% sales uptick for that portion of its business.
Looking ahead to the 2020 fiscal year, Panasonic expects its automotive lithium-ion battery business to grow by 4%. However, its operational profits will be down 1% during that same time.
The brand is looking to improve the profitability of this portion of its business through improving productivity at the Tesla Gigafactory in Nevada, which Panasonic operates with Tesla. It will also streamline operations in other global production facilities through labor-saving initiatives.
With these results, there is a lot to consider. Essentially, it comes back to the financial viability of EVs.
Sales Up, Profits Down
The further global battery suppliers and automakers alike delve into the electric vehicle business, the less it seems there is any way to turn a profit — at least in the short run.
Panasonic’s expectations for a 4% growth in sales through the current fiscal year fall inline with the anticipated growth of the EV market over the coming decade (3-4% annually). Unfortunately, increased growth doesn’t seem to equate to increased profits. Like the Michael Scott Paper Compan‘s revenue from NBC’s The Office, the more sales grow, the more money the company loses.
Analysis by consulting firm Alix Partners recently concluded that by 2023 global automakers will invest $255 billion in electric vehicle models, of which 207 are set for launch by 2022. You can read all about it here — along with my conclusions from that report.
If you don’t want to click over, suffice it to say that increased EV production costs and cutthroat sales competition, mixed with an auto-sales downturn, could send global carmakers in to a financial tailspin in the next decade. Panasonic’s 2019 and forecasted 2020 outlook begins to paint that exact picture.
Who Will Survive?
Alix Partners and I can’t be the only ones crunching the numbers on the profitability of EVs. Global automakers rushing into the electric vehicle market must have done the same. Despite anticipated loses, carmakers are moving forward with electrification, though, because they need to: A.) Keep up with the Joneses, so to speak, and go toe-to-toe with their competitors. B.) Abide by increasingly stringent global environmental regulations. And C.) Build consumer interest in EVs, which, if all things play out correctly, will lay the groundwork for a profitable EV future.
Essentially, automakers need to ride out the storm until the next generation of battery and charging technology arrives. This next technological generation, they hope, will usher in an era of profitable EVs.
Thankfully, some carmakers — like General Motors and Ford — have best-selling and profit-rich pickup trucks that they can use to carry them through the EV-fueled profit downturn. Pure-electric upstarts and lower-margin brands won’t be so lucky. Short of the promised Semi truck, Tesla has the cult of Elon keeping it relevant. That said, Tesla did just return a $702 million loss in the first quarter of this year.
As Volkswagen begins its huge push into the electric vehicle market, as it began by opening up European pre-orders for its ID.3 electric hatchback, rumors immediately began to swirl that the VW Group will have to sell off Bentley and Lamborghini in the next decade in order to pay for its losses incurred both from Dieselgate, and its investment in electric cars.
That’s telling. If VW thinks it will need to pad the coffers by selling off some of its most prestigious brands to pay for EVs, that indicates just how big a loss the EV market is going to be — even for big brands like VW — for a while.
Sooner Than We Think
I am hopeful that EV and battery technology will see breakthroughs soon. In turn, these breakthroughs will bring down both the complexity and cost of producing EVs, which enables even fun upstart pure-electric carmakers like the Swiss brand Piech to not only survive but thrive.
It seems — like the patient investors of Uber and Tesla — those who sit on the boards of carmakers are just going to have to be imperturbable for the next several years. EVs are the right thing to do for the planet. Hopefully, the profits will catch up carmakers’ altruism soon.