Business / Corporate

Panasonic expects net profit to fall 29.6% on sluggish China sales and auto battery investment

Kyodo

Panasonic Corp. said Thursday it expects its group net profit to fall 29.6 percent to ¥200 billion ($1.82 billion) for the current fiscal year, which ends next March, dragged down by sluggish sales in China and hefty investment in the auto battery segment.

Group sales are projected to slip 1.3 percent to ¥7.90 trillion, as demand for electronic parts and industrial components is expected to remain slow in China amid the country’s heightening trade friction with the United States.

It is uncertain how big an impact additional U.S. tariffs on imports from China will have on its customers, Panasonic Chief Financial Officer Hirokazu Umeda said at a news conference.

U.S. President Donald Trump’s administration raised duties on $200 billion of Chinese goods from 10 percent to 25 percent on Friday.

The company forecast its group operating profit would also decrease 27.1 percent to ¥300 billion, even as it expects to book a gain of around ¥90 billion related to a planned merger of its housing business with that of Toyota Motor Corp.

The figures projected for fiscal 2019 suggest Panasonic will report a decline in sales and net profit for the first time in three years.

The company expects sales of auto batteries to remain solid in the current fiscal year. But costs to boost output at its battery plants in the city of Himeji, Hyogo Prefecture, and Dalian in China will leave its automotive business, which generates a fifth of its total sales, unprofitable.

Panasonic has shifted its focus to auto batteries as a core business to meet growing demand for components for hybrid, plug-in hybrid and electric vehicles. It provides batteries to U.S. electric carmaker Tesla Inc.

In January this year the company said it will form a joint venture with Toyota by the end of 2020 to manufacture and sell batteries for EVs, seeking to catch up with rival Chinese and South Korean makers.

Panasonic President Kazuhiro Tsuga said that profitability in the auto battery segment remained low, with upfront investment having taken a heavy toll in the past three fiscal years.

The company was not able to raise its production of batteries for Tesla’s Model 3 electric sedan at their Gigafactory plant in Nevada as planned because the electric carmaker repeatedly postponed its vehicle output schedules.

The company’s “response to business risks was insufficient,” Tsuga said, referring to the repeated delays in Tesla’s production plans.

Tsuga was cautious about investing further in the factory’s output.

“The most important point is to ensure production at full capacity at Gigafactory,” the president said.

Under the housing business tie-up with Toyota, outlined separately Thursday, the two companies will set up a joint venture in January 2020 for creating next-generation lifestyles where homes and vehicles are connected to the internet.

For the fiscal year that ended in March, Panasonic said its group net profit rose 20.4 percent to ¥284.15 billion largely due to one-off gains from changes in the company’s pension and retirement system for employees.

The electronics maker posted a group operating profit of ¥411.50 billion in the fiscal year, up 8.1 percent from the year before, on sales of ¥8 trillion, a 0.3 percent gain.

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