Tesla Stock Plunges After EV Titan Abandons $4.5 Billion Gigafactory Expansion

Tesla stock just can’t seem to catch a break. The latest shock? The Elon Musk-led firm and Panasonic abruptly shelved plans to expand the $4.5 billion Gigafactory 1 in Nevada.

Tesla Stock Suffers Another Major Setback

Already the largest EV battery plant in the world, Tesla and Panasonic had planned to expand Gigafactory 1 by a staggering 50% to 54GWh by 2020. The proposed increase stemmed from expected demand following the launch of the Model Y SUV.

Tesla stock cratered on Thursday after the firm shelved its Gigafactory 1 expansion project. | Source: Yahoo Finance

Tesla stock fell more than 4% in pre-market trading, dipping as low as $265.60 following the bell. By press time, TSLA shares had rallied back to $268.85 for a loss of 2.61%.

Tesla’s Annus Horribilis Goes On

Following a dismal Model Y reveal with none of the expected demand spikes, TSLA shares took a big hit, leading both companies to rethink the expansion plan. A statement confirming the cutback by Panasonic said:

“Panasonic established a battery production capacity of 35GWh in Tesla’s Gigafactory 1 by the end of March 2019 in line with growing demands.Watching the demand situation, Panasonic will study additional investments over 35GWh in collaboration with Tesla.”

Since 2017, the battery cells for the Tesla Model 3 have been produced by Panasonic at the Gigafactory, which also hosts battery pack assembly for production models. The companies put a total of $4.5 billion into the factory, and until just six months ago, Panasonic was considering piling another $1.35 billion into the plant.

“We will of course continue to make new investments in Gigafactory 1, as needed,” a Tesla spokesperson told Nikkei.

Domino Effect of Low Demand

Gigafactory 1’s now-frozen expansion plans had been tied to the expected demand for the Model Y. | Source: Frederic J. BROWN / AFP)

The decision to halt further expansion of Gigafactory 1 follows Model 3 production and demand woes. The mid-range sedan, Tesla’s cheapest vehicle and an entry point to the mass market, has been plagued by missed production deadlines and weakening consumer demand.

In the first quarter of 2019, sales of Tesla units fell by almost 30% owing to logistics problems, reduced EV tax credits, and the US-China trade war.

Panasonic has long been the exclusive battery cell producer for Tesla, who is also their biggest client. In November, however, Tesla CEO Elon Musk indicated that Tesla hoped to source battery cells from local suppliers for the new Gigafactory in Shanghai. The news placed severe pressure on Panasonic shares.

While little has been heard of the matter since then, Tesla’s consumer woes may have affected its collaboration with Panasonic. The firm will no longer be investing in Tesla’s EV plant in China; it will instead render technical support and send a few batteries from Nevada to Shanghai.

The future of the Tesla-Panasonic partnership depends to a large extent on the success of the Model Y, which in turn looks dependent on the price. Currently, the cheapest Tesla starts from around $35,000 with the batteries accounting for more than half the cost of the entire vehicle.

Last modified: September 23, 2020 12:37 PM

David Hundeyin

I am a busy Nigerian writer, journalist and writer with an interest in tech and finance. When I'm not contributing to CCN and traveling around Africa, you can catch me contributing to CNN Africa, or in the writers room at 'The Other News', Nigeria's weekly answer to 'The Daily Show' with nearly 2 million viewers. My work on 'The Other News' was featured in the New Yorker Magazine, and that was then cited in the Washington Post so I'm not sure that counts as a feature but I'll definitely mention it too! I have been nominated by the US State Department to take part in the 2019 Edward R. Murrow Program for journalists under the International Visitors Leadership Program. I also like hamsters. You can reach me on Twitter at _David_Hundeyin