Tesla Model 3 Battery Cells Will Lose Money for Panasonic, Initially

Panasonic still hopes to turn a profit on the batteries within a year, however.

Much of the hype surrounding the Tesla Model 3 is due to its combination of a $35,000 base price and a range of over 200 miles. That latter figure was achieved largely thanks to new lithium-ion battery cells from Tesla partner Panasonic. Panasonic will lose money on those batteries initially, but the company expects to turn a profit next year, reports The New York Times

Launching production of the new battery cells at Tesla’s Nevada “Gigafactory” drove up costs, but Panasonic believes the situation will improve once production fully ramps up.

“For battery cells for the Model 3, costs outweighed profit in the first quarter,” Panasonic CFO Hirokazu Umeda said during an earnings call. “As production accelerates towards next year, we expect the business to contribute profit.”

Panasonic wants to make electric car batteries and other automotive products a bigger part of its business. Executives view it as a better alternative to consumer electronics, where Panasonic is dealing with increased competition and lower profit margins. Panasonic’s close involvement with Tesla makes it a major player in batteries, but Korean firms LG and Samsung have more automaker clients.

Tesla CEO Elon Musk has said the cell developed for the Model 3, known as the “2170,” is more energy dense than the cells used in the Model S and Model X, according to Electrek. That means it can hold a greater amount of energy in a given volume. The cell’s configuration also reduces the number of battery-pack modules from 16 in the Model S to just three in the Model 3.

Energy-dense battery cells that don’t break the bank are the key to the Model 3’s success. Car buyers want a usable amount of range at an affordable price, but simply stuffing a larger amount of batteries in a car and slashing the price isn’t exactly a smart business decision. In the end, both Tesla and Panasonic will have to make money off the Model 3 for it to be considered a success.