TSLA Tesla Inc

By Tim Higgins and Jimmy Vielkind 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 27, 2020).

Panasonic Corp. will end its partnership with Tesla Inc. that produces solar panels at a factory in Buffalo, N.Y., the latest fissure between the two companies that have been close partners in their push to sell electric cars.

The Japanese company on Wednesday said it would stop production in May and exit the factory by September. Tesla assured New York officials -- the state spent $959 million to build and equip the factory -- that it would continue production of its solar roof in Buffalo and had exceeded required job counts, according to a memo sent to these officials on Tuesday that was reviewed by The Wall Street Journal.

A Tesla spokesman didn't respond to an email seeking comment.

Tesla and Panasonic have been working together closely for years, principally with the Japanese company providing batteries for the electric vehicles the Silicon Valley automobile maker has been producing. Tesla owns a multibillion-dollar battery factory in the Nevada desert, known as the Gigafactory, which produces lithium-ion batteries for Tesla cars and represents a push for the Japanese electronic giant more broadly to power electric vehicles.

But the relationship between the two partners has become strained. The companies have sparred over battery costs and the running of the Gigafactory, amid production delays. More recently, though, Tesla Chief Executive Elon Musk praised the Nevada facility for "massive growth" in battery-cell production.

As Tesla has expanded production of its cars, it has sought ties with other battery makers. It struck a deal with China's Contemporary Amperex Technology Co., or CATL to furnish batteries for Tesla's new car plant in Shanghai where it builds Model 3 cars. Tesla also has a battery-supplier agreement with South Korea's LG Chem Ltd.

Panasonic last year downgraded its car-parts business, previously seen as a growth driver, to the category of units needing improvement. These developments suggest that both sides of the Tesla-Panasonic relationship are dialing back its strategic importance.

Both companies said the Buffalo decision wouldn't affect their joint venture in Nevada.

Howard Zemsky, chairman of Empire State Development, the New York economic development authority that oversees the factory, said Tesla planned to hire as many of the 380 Panasonic employees working there as possible. Panasonic said it would help find jobs for any workers that Tesla didn't hire.

"We understand that Panasonic has made a corporate decision to move away from global solar products, but this action has no bearing on Tesla's current operations nor its commitment to Buffalo and New York state, according to Tesla," Mr. Zemsky said Tuesday.

Tesla, in partnership with Panasonic, began operations at the Buffalo plant in April 2018. The company leases the facility from the state for $1 a year over 10 years and has committed to spending $5 billion on capital and operating expenses in the state. Tesla faces a $41.2 million penalty if it doesn't employ 1,460 people in western New York by April.

The memo said Tesla had 1,500 full-time employees and contractors working in the factory with a starting hourly wage of $17. The figures don't include Panasonic's workers, the memo said.

Mr. Zemsky said the state was verifying the company's statements.

Tesla hopes to produce 1,000 solar roofs a week at the facility, the memo said, and is also making components for energy storage and Superchargers, Tesla's proprietary electric-vehicle charger. Solar cells are only a small part of Tesla's business.

Mr. Musk tweeted on Feb. 10 that Tesla would host a company talk from the Buffalo factory in April.

Gov. Andrew Cuomo, a Democrat, has hailed the factory as a cornerstone of his efforts to revitalize the upstate New York economy. The factory was also at the center of a 2016 bid-rigging scheme that led to the conviction of a state official and three construction executives.

Mr. Cuomo said Wednesday that the factory was "never about Panasonic" and that the facility has "exceeded its goal, period."

Legislators in both parties have questioned the efficacy of the state's investment. During a hearing earlier this month, State Sen. John Liu, a Democrat from Queens, bet Empire State Development President Eric Gertler $1 that Tesla wouldn't meet its job-creation requirement.

"Be ready to claw back that money. They're not going to make it," Mr. Liu said.

Mr. Gertler didn't accept his bet.

--Sean McLain contributed to this article.

Write to Tim Higgins at Tim.Higgins@WSJ.com and Jimmy Vielkind at Jimmy.Vielkind@wsj.com

(END) Dow Jones Newswires

February 27, 2020 02:47 ET (07:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.