Panasonic Holdings Corporation (6752.T) Earnings Call Transcript & Summary

So I'm Shawn Watanabe, the CTO of the Panasonic Energy. So let us start to my -- sorry. Okay. Firstly, so our Panasonic Energy have started sort of independent company from last April first. And so our sales composition in the Panasonic Holding is about 10%. And in the individual, our Panasonic Energy has experience for the battery production, about 90 years. And even in such a thing, so Automotive field is over 50%, about 61% is the current status. This page indicating our Panasonic Energy's mission, vision and will. And our vision is energy that changes the future. So that's kind of -- you can see that this through the bar code, you can see that our few minutes video is more easy to understanding. Okay. Today, my story is so the technological strategy is also 3 key points. The first one is a higher energy density, second one is less rare material -- metals, and third one is a response to the environment. These 3 thing I will explain in detail. So this figure indicated to our product growth and technology is improvement historically. So the energy density in the cylindrical battery is gradually, and we started at 1994, started the lithium ion battery you can see that gradually improved the energy density. And at this time, is that we have already achieved 3x higher energy density versus the first generation. And this figure indicated the several picture, it's a meaning to that so that this big advantage technology introduced in the battery in the global is so that meaning to our Panasonic Energy is always to the technology leader in our histories. And so next target, we will achieve the 20% more energy density increase for the 2030, that's a basic sort of improvement strategy for our technology improvement. Additionally, we sort of contributed to the how to reduce the layer metals, especially in the cobalt, so first time is cobalt content and in the cathode material is 100%, but we gradually sort of introduce it to the other cathode material and in this time, we have already achieved the cobalt percent is less than the 5%. So this is meaning to the compares to the other competitors, it might be over 10%. So in this time, we have the half over the other vantage in this time. And the future is -- so we have already sort of developed the cobalt-free technology and also that we are trying to reduce. So the nickel is a contact it reduce keeping our sort of capacity. That is a big challenge for the technology for the battery fields. So I'd like to in detail to the cathode material compared with sort of cobalt-free other technologies. So the vertical or horizontal, the access indicated to the cobalt content. And so many parties try to sort of cobalt-free technology. But so the kind of the capacity is also less than the half capacity compared with our technology. And in the future, we will achieve the cobalt-free and the lower nickel that even in the higher capacity, that is totally different technology level. So that's also basically sort of competitiveness over the Panasonic Energy strategies. One another thing is so our competitiveness is so manufacturing. So our strength is basically high speed and high quality process, so in these days, it's our production rate. It's so cylindrical sales is 1 day, it's JPY 7 million. So it's meaning to the 80 cell per second. It's so fast production systems. And the product safety management is achieved to the -- even in the 10 billion cell is no automotive lithium-ion battery field is a zero recall and established the trust traceability systems is keeping to our technology in the future. So -- and in our production line, it's a very small picture in this big figures. So the over 50% equipment is our in-house design and in-house manufacturing. It's also keeping to the key technology to how contribute to the safety level of our product. And another approach we are trying to further reduce the carbon footprint of our products. So we have already disclosed this -- the ratio of our production and our sort of material supply chain is so the ratio is so this figure indicated. So we try to sort of reduce our production carbon footprint, and we will achieve carbon neutral in 2022 -- 2029, but also that the share is just only 14%. So then we have -- if we want to reduce the 50% to the carbon footprint, we need to reduce our total supply chain if needed. So we have already disclosed and we started to the collaboration with our suppliers. So the 2 examples that I have shown is so one thing is the usage of the recycled material in North America, we're sort of the have signed the procurement agreement with Redwood. So Redwood with the harbor so the vehicle factory is so close point position in our neighbor [indiscernible] and we will introduce the recycled cathode material and copper foil. And the second one is that we have signed the MOU for the Nouveau Monde Graphite is sort of a Canadian company and so their production is also introducing the hydraulic power process is becoming to about 1/4 carbon footprint we achieved. This kind of approach our supply chain, introducing to the lower carbon footprint material, it's a leading to our green product. And finally, it so we are trying to 4680 cells to the next sort of generations, so it's meaning to the sort of the bigger cell is approximately to the 5 cell capacity in just one cell. So it's becoming easier to reduce so the human resources, about 30% to 50%, we can reduce our production line, and of course, the large cell can reduce the number of the welded point in the sort of battery pack. This kind of approach will reduce so basically to the format. So we are trying to manufacturing. So finally, our contribution to the carbon reduction, CO2 reductions, so we are planning to introducing to the -- mainly in North America, it's a 3 or 4x larger. It meaning to becoming to the reduction of carbon dioxide emission, it will decrease, so about the amount is in the right side of the figure, but we can easily do so the estimate if we are production that same, it's also 60 million tons of the carbon dioxide will reduce it so our challenge for our positive green impact. That's the total of my story, and please start the Q&A sessions.

I'll take a question from Michael, please ask the question?

This is Michael Medeiros from Kodai Capital. Thank you very much for hosting the meeting today. I had a couple of -- 2 questions. To begin with, I wanted to follow up about the 4680 battery cells. We saw at CES last month in Las Vegas that Panasonic and your booth demonstrated that you already have ability to produce on a pilot basis, 4680 cells, I wanted to understand what is the road map for Panasonic's mass production of 4680 cells, what do you see as the remaining hurdles to commercialize these cells for Panasonic.

[Foreign Language] [Interpreted] To your question about 4680, we have pretty much done all the validation on the technology front. We are quite confident that 4680 will perform from engineering technology perspective. Now the only remaining question is mass production. We are actually already running a pilot program for mass production in Japan domestically, so that we can validate the mass production ability of that technology. And on top of that, what is required is more than simply be able to mass produce because it's going to require a lot of investment for us. So making sure that we have a very good productivity when we have a mass production is going to be quite important, too, so we are trying to rationalize and streamline the mass production process. As a matter of fact, we are about to start mass production pilot project at our Wakayama factory in Japan. And all the retrofitting is almost done. The machineries, the devices are about to be installed within the factory so that we can start mass production validation. We are planning to spend the entire -- the fiscal year ending March 2024 for the mass production validation to Wakayama factory and we'll be starting off with the small volume first to make sure that we have a nice ramp up for mass production. Now in relation to this discussion, we have made an announcement about the new plant in Kansas. And we mentioned briefly about the potentially producing 4680 in Kansas factory too. But like I said, we'll be validating mass production for 4680 for the entire fiscal year. So it will take about full 1 year for validation. And therefore, rather than starting 4680 with Kansas right away. We will focus on producing 2170 in Kansas factory because 2170 has a lot of demand, so a lot of customers actually want that product as soon as possible, as much as possible. So we will focus on Kansas particularly producing 2170 while running the Wakayama factory validation process, and once we are confident about the mass production producibility of 4680, then we will start producing 4680 in North America, too. I hope that answers your question.

Very clear. If I could ask one more question in terms of the margin structure of the battery business. We know that in the current fiscal year, Panasonic Energy has set a margin target of about 4% operating margins, whereas the Korean competitors currently are generating about 10%, if not slightly higher than 10% margins in their cylindrical battery businesses. From a technology perspective, where do you see opportunities to improve the margins of your battery cells? And what do you see as the logical margin target over the long term?

[Foreign Language] [Interpreted] And once again, thank you very much for that question. He'd like to answer that question with the 2 different answers, meaning same answer, but the 2 different topics. One is about the material cost, like a cost of a BOM, let's say, the other one -- the other component of the cost is the fixed cost. So let me start off with the material cost or BOM cost. The cost in this battery industry is generally being presented by dollar per kilowatt hour, right? That means if the technology or our product energy capacity -- energy density and the capacity goes up, cost competitiveness will also go up. And the -- like we were just discussing in the slides earlier, we are now -- the technologies are improving. And once the technology improves, the capacity, the energy densities are going to go up as a slide and the presentation presented. That means cost competitors will also go up. That means cost per fixed cost investment that we have to make, so the cost divided by fixed cost will also improve. So that's one of the direction in which we are aiming to improve our margin structure. So the other part of the your question goes to fixed cost, right? And before Kansas factory, we have many experiences in Nevada factory. And we have actually rolled out close to, if not more than 500 initiatives for [indiscernible] cost improvements. We will take all those improvement points and then bring that to our Kansas project. And just to give you like a rough idea, and we are talking about 20% in headcount reduction that's like what we are targeting at right now. And those different initiatives that was all learnings will be adopted to Kansas projects so that we can minimize both capital investment required as well as fixed operating costs.

Thank you very much. I have a follow-up question. [Foreign Language]

Yes. There was a clarification question about this. A 20% reduction about fixed cost. And 20% is specifically talking about reduction in headcount. That part of the fixed cost.

I have another follow-up question. [Foreign Language]

[Foreign Language] [Interpreted] While we are waiting for other audience members to be asking questions, we also have an additional follow-up question. Now this question about again on 4680. When we talk about that particular technology, Panasonic will leverage, of course, with the experience Panasonic have developed with the experiences of making mass producing 2170. On the other hand, we see some leadership coming from Tesla. On the other hand, LG Energy Solutions also have just concern about their product and we want to better understand competitiveness advantage that Panasonic demonstrate against all those dynamic, the competition happening in the marketplace. To that question, not a lot of the information has been around for competitors' technology. So it's very difficult to say a direct comparison about advantages of our technology versus others. Having said that, while the 4680 requires a very complex technology simply set because it's 5x bigger in terms of capacity or density. Basically, you have to rotate that cathode and anode and that -- if you stretch it all the way and unroll it and then stretch it, the length is about 4 meters. So processing, manufacturing process is very delicate, it's not really an easy process to do and you have to have a very good performance in terms of chargeability from that material. And there were a lot of different delicate controlling points that you have to be very careful about. And -- but we -- but that particular design of those critical technologies are all our internal capabilities. We will be doing everything from designing and production both critical points. Every critical points will be covered internally. That means we are very confident about high quality of our product from the very beginning. And now 4680 is much bigger sell, physically speaking. That requires a lot more attention to safety, which will be very big differentiating points safety is going to be. Now I cannot share the details of our technology here, but we have developed a lot of safety-related experiences with the cylinder battery technologies and managing with the high-density, high capacity with the utmost safety is also, again not easy fit. Although we cannot directly compare, we are very confident on our safety level also will bring a lot of confidence and reliability thanks to our customers. That is also, we believe, is going to be a big differentiating point.

Thank you very much. Now we'd like to take questions from [indiscernible].

I was just wondering what are some of the issues that you face when going into mass production from the pilot line because I understand it's not as easy as just copy and pasting the lines and some of the relationship issues with Tesla in the past are at the surface because of, I think, slowness or difficulties in ramping up production. So going into this new 4680 batteries, I was just wondering, what are some of the difficulties you guys think you may face for?

[Foreign Language] [Interpreted] So thank you very much for that question. And what we're evaluating in the pilot project is basically a different steps required for mass production, right? Because each step we'll have a target tech time. And we are first -- so there were multiple steps in validation. Very first early stage is still focusing on just a single step at the time, making sure we are delivering that particular step within the target tech time with the good quality. And we also do like inspection rounds to make sure that, that step is delivered, not only within time but also with the good quality. Then the following step will be to bring those different steps into mass production line with material transfer with the inspection process all being adopted. And so once again, those will be required as a part of the validation process for mass production. Now like we were discussing this 4680 requires very long stretching material, 4 meter. How can you manage that in the manufacturing process? While also you have to make sure that you have to place the separation wall without any problem. These are the 2 specific technological challenges that one would assume in mass production. And by the way, we are delivering those 2 particular manufacturing steps within target tech time with good quality. And now we are taking that design and introducing that to Wakayama factory for mass production. So that's one. The other thing is this product is going to be very heavy, so that requires careful attention in designing how to move that product around or the half product around with the good delivery system, with the good consideration about the timing of delivery. And that is also being validated, and we are quite successful on all those points in Wakayama factory so far.