Could electric cars spark a resurgence in the battery business?

The difficult times that have hit the Japanese electronics makers are well documented and have resulted from fierce competition from Samsung, lackluster performance in mobile, as well as flat sales in previously strong areas like high definition TVs. Both Sony and Panasonic have faced net losses in recent years, even causing Sony to consider dumping all of its non-core assets so it could focus on mobile, tablets and gaming. In fact, one of those “non-core” divisions that may go is its battery business.

But not so fast. After facing $15 billion in combined losses the last two years with losses contributed by its lithium-ion battery unit , Japanese conglomerate Panasonic recently said it will expand its battery business. It’ll be investing $200 million to boost production of small and large lithium-ion batteries for automakers. Yes, that’s not much money for Panasonic but it’s noteworthy because that division lost money last year.

Perhaps no company represented the promise of a burgeoning battery market for EVs than A123 Systems. And no company better represented the collapse of that market as the company, which used $132 million of a $249 million DOE grant for a Michigan plant, went bankrupt. It wound up, like many failed battery and solar makers, getting scooped up by savvy East Asian buyers at firesale prices. A123 Systems wound up in the hands of Wanxiang, and while the company is very focused on grid storage, I still haven’t ruled out the possibility that improvements in the EV market might bring back some of its EV business.

About a year later, here we stand with modest EV sales but signs of a true EV market nonetheless. Tesla’s breakout success with its Model S is part of the reason that Panasonic has reinvested in its lithium-ion battery division. Tesla is a customer and powers the Model S with packs of small batteries. The division had a much recovered second quarter with a 4.1 billion yen ($42 million) operating profit at a 5.8 percent margin. Panasonic’s CEO has indicated that he thinks he can double the company’s auto-related battery business sales to 2 trillion yen ($20 billion) by 2018. Not bad at all.

All of this is remarkable given that many Japanese companies, including Panasonic, are on a drive to cut capital spending. Panasonic sees the future market for EVs. And given the fact that many battery startups that service EVs hit bankruptcy as well as the fact that some larger companies are considering divesting themselves of battery units, the market could actually open up a bit for a player focused on electric vehicles.

In the difficult days of 2011 and 2012 when the sky was falling in cleantech, some lost sight of the fact that the end market adoption of everything from EVs to solar panels was still going to occur. And those that have had the fortitude to step in and invest in key companies (often at a major discount) will start to be rewarded.

Additionally the current market potential of EV related battery sales heavily discounts the possibility of surprises. Few in the automotive sector saw Tesla’s breakout success coming. And while many at BMW, Lexus, and Mercedes are now being forced to take notice, I haven’t ruled out larger disruption in 2015 when Tesla introduces a mass market EV that could further propel battery sales.

No one is really baking in the possibility that we could see another breakout EV or hybrid, maybe in the mass market. With the $7500 tax credit, the Nissan Leaf is now a very reasonably priced $21300, nearing that sweet spot of a $20K EV. I don’t think the Leaf’s the car to break out but we’re getting to the right price point where a well designed EV could make a splash. Also, an improvement of range beyond 150 miles at under $25,000 could really open up the market. Finally, gas prices remain steady domestically at around $3.60, but a further price shock there is possible.

So what does Panasonic know that everyone else doesn’t. Nothing groundbreaking except that it foresees sustainable battery sales related to an improving EV sector. That would have been unthinkable even 12 months ago. The world changes fast.

Relevant Analyst

Adam Lesser

Analyst Gigaom Research

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