Part A

GB-DB4: Tesla’s Model 3 Rush Costs Battery Maker 

By Sean McLain | Nov 01, 2018

GREEN BUSINESS IMPLICATION: Electric vehicles (EVs) are green business to the extent that these represent an alternative to the fossil fuels that contribute to global warming. But batteries are EVs’ greatest issue.  These represent 1/3 of the cost of the vehicle.  Despite extensive research and development efforts, batteries are still too pricey and inefficient: they tend to be too bulky and heavy, require frequent charging, and are environmentally toxic to produce.  It can thus be argued that EVs are for now more an environmental problem than a solution. Tesla managed to design chassis that are actually batteries that range around 232 miles per charge and roofs that are actually solar panels.  But its EVs as well as those of the other brands, are too pricey to compete with the greater fuel efficiency of all gasoline new cars…Tesla’s cheapest model, the Model 3, starts at $35K. The cheapest electric car in the US last year was a tiny Mitsubishi that sold for about $29K. Furthermore, the EV charging infrastructure is still not as visible and available as gas stations in most countries.

SUMMARY: Tesla supplier Panasonic said its battery business lost money for a second consecutive quarter as production of Tesla's Model 3 sedan accelerated. Panasonic had to add production more quickly than anticipated and hire more workers at the Nevada battery factory it jointly runs with Tesla, known as the Gigafactory. The increase in fixed costs pushed the business into the red, the company said. 

LINK:

https://www.wsj.com/articles/teslas-model-3-rush-costs-battery-maker-panasonic-1540988671?mod=searchresults&page=1&pos=1

QUESTION: What is the more general lesson here? Why in general is a growth spurt often the cause of declining rather than rising profitability?

Given the weight given in your grade to discussion boards you must be extra careful with your expression.  This is not texting or informal chat.  It is like writing a memo at work. Always express yourself in complete sentences.  This is an opportunity to hone professional writing (which basically means, very clear) and earn a good grade by practicing it.  Write your posting on a Word document before you post, use spelling and grammar software and, if needed, have someone else read to make sure that it makes sense. 

The dark side of being well informed about something is that we assume that others are at the same level, for which we tend not to be clear enough when we explain. Since we are practicing professional writing, assume that you are talking to someone who knows nothing about what you are talking about.  Also remember that the best way to learn something is to teach it or explain it to others. 

As you know, it is best to produce your postings as soon as possible.  Maybe tonight.  Make sure that you apply grammar and spelling software before you post, though. If you post at the last minute without reviewing your posting it will show.  Each discussion board is 25 points. Postings submitted past Thursday will not be graded or included in your grade.

You must make a minimum of 3 posts.

1- answer the question with a minimum of 25 words.

2- reply to someone else's post with and insightful question.

3- reply to someone else's post with an insightful comment that demonstrates your understanding of the course concepts. "I agree" is not an insightful comment.

Your score is also based on the 4 criteria: Quality, Quantity, Relevance and Manner.

2 student responses:

1. The main cause of money loss for Panasonic is the launching production of the new battery cells at Tesla's Nevada Gigafactory that drove up costs, but Panasonic believes the situation will improve once production fully ramps up. The article states that "The increase in fixed costs pushed the business into the red, the company said." As production accelerates, Panasonic will lose money on those batteries initially, but the company expects to turn a profit next year. 

2.  When a growth spurt occurs in a company, they need additional resources to meet production needs. This is why Panasonic is losing money even though Tesla is making profit. Panasonic are supplying the batteries for Tesla’s cars, so when Tesla requires a higher production, Panasonic has to increase their fixed costs to meet Tesla’s needs. Therefore, a company will have to lose money in order to get more raw materials and to hire more workers to produce more goods. However, this does not mean that Panasonic will stay in the red. In fact, Umeda, Panasonic’s chief financial officer, expects to “reap the benefits of increased Tesla sales in the latter half of the[ir] … financial year.” Only time will show whether or not Panasonic will continue to stay in the red.  

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