Japan’s Panasonic on Monday said it has cut its annual profit forecast after bringing forward some of its investment in a battery plant for U.S. electric vehicle maker Tesla Motors in anticipation of strong EV demand.
Panasonic (pcrfy) has partnered Tesla (tsla) as it reinvents itself from a maker of low-margin consumer electronics embroiled in price wars with low-cost Asian rivals, to a supplier of automotive batteries and other high-tech products targeting corporate customers.
To that end, it plans to contribute up to $1.6 billion to produce electric vehicle and grid storage battery cells for Tesla.
“We are seeing strong demand for EV [batteries] not just from Tesla but various other automakers,” said Chief Executive Kazuhiro Tsuga at an earnings briefing. “We see the rechargeable battery business as the biggest growth driver. So we are aggressively making upfront and strategic investment here.”
Ahead of the briefing, Panasonic reported under U.S. accounting standards that July-September operating profit was almost 40% lower than a year earlier, and nearly 14% below analyst estimates.
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It also reduced its profit forecast for the year ending March 31 to 245 billion yen ($2.33 billion) from a previous projection of 310 billion yen, under international financial reporting standards (IFRS) that it will adopt next year.
The forecast compared with a Thomson Reuters Starmine SmartEstimate of 297.30 billion yen drawn from 16 analyst estimates.
Panasonic blamed a strengthening yen for the lower outlook. It also cited an additional fixed cost of 12 billion yen, most of which was related to Tesla’s $5 billion “Gigafactory.”
Upfront factory investment is likely to cause Panasonic’s battery division to log an operating loss in the current business year, the company said.
“Demand would soon exceed our production capacity if Tesla’s sales go smoothly,” Tsuga said, flagging the likely need for additional investment in the near future.
Inside Tesla’s gigafactory.
Panasonic, which has also been focusing on energy-saving home systems, has said it may also make solar cells for Tesla. The U.S. firm has said production would begin in 2017 at a plant being built by acquisition SolarCity.
Panasonic’s growing battery division contrasts with that of peer Sony, which on Monday cut its annual profit outlook due to losses related to the sale of its battery business to Murata Manufacturing.
Sony’s battery business, responsible for selling the world’s first lithium-ion battery in 1991, was losing money partly because it could not supply a major smartphone maker.