Panasonic is freezing plans to expand its role as Tesla's electric car battery supplier, a move that raises new questions about demand for Tesla's Model 3 -- and the company's future.
"The Panasonic news is a gut punch. This fans the flames on overall demand worries and profitability concerns going forward," said the usually bullish Dan Ives, equity analyst at Wedbush Securities.
Tesla stock fell 2.8 percent Thursday, to $268.42.
Japan's Nikkei Asian Review reported Thursday that Panasonic will abandon for now its plans to expand battery cell manufacturing capacity at Tesla's Nevada battery factory by 54 percent next year. The previously planned expansion would have increased production from 35 gigawatt hours per year to 54 gigawatt hours.
In a statement, Panasonic said it "established a battery production capacity of 35 GWh in Tesla's Gigafactory 1 by the end of March in line with growing demand. Watching the demand situation, Panasonic will study additional investments over 35 GWh in collaboration with Tesla."
A Tesla spokesman said Thursday the company's demand for batteries remains strong. "Contrary to what is implied in (the Nikkei) report, our demand for cells continues to outpace supply. It remains the fundamental constraint on Tesla vehicle and Powerwall/Powerpack production." Powerwalls and Powerpacks are home and utility battery storage products assembled and sold by Tesla.
Musk had big plans for the Nevada plant, which he calls a "Gigafactory." He said in 2017 that four Pentagons could fit inside, and that capacity is likely to exceed 100 gigawatt hours over time.
Each company has set up its own operations at the battery plant. Panasonic makes battery cylinders, which are similar in appearance to a AA battery; Tesla assembles the cylinders into the battery packs that power Model 3 cars.
Because the Model 3 absorbs most of the cylinders Panasonic makes, it would be logical to assume that a cutback in battery production plans translates into a drop of anticipated Model 3 demand.
But a Tesla spokesman said car demand is not a problem. Although the company has put forward several different numbers for production and sales expected this year, it seems to have settled on a production level of 360,000 to 400,000 cars.