Business / Corporate

Panasonic CEO outlines cutting costs and money-losing divisions

Bloomberg

Panasonic Corp. Chief Executive Officer Kazuhiro Tsuga says he is getting serious about profits.

Businesses that chronically lose money and operations that have little prospect of healthy profits will have to go, Tsuga said at a briefing in Tokyo on Friday, declining to name specific divisions. The company will end production of some products — the withdrawal from making liquid crystal displays had already been announced Thursday — and other units could be combined. Panasonic also plans a wave of consolidations in far-flung bases from Latin America to Europe and Japan.

Panasonic is targeting ¥100 billion ($920 million) in savings in the fiscal year ending March 2022. Reduction in personnel costs through natural attrition and retirement plus trimming and consolidation of operations will contribute ¥30 billion each. Closing unprofitable businesses will save another ¥40 billion.

Panasonic’s stock, which is little changed from the start of the year, closed 1.5 percent lower in Tokyo on Friday.

“Our midterm goal is simple: breaking out of this low-profitability state,” Tsuga said in a media address ahead of Panasonic’s annual IR Day for investor relations. “We will eradicate losses, starting with operations that are structurally unprofitable.”

Tsuga took the helm of Panasonic in 2012, promising to steer the now 100-year-old company away from money-losing consumer electronics to focus on housing, car information systems and batteries for electric cars, including those for Tesla Inc. As his first act, Tsuga led the wrenching withdrawal from the plasma TV business, on which he last worked before taking the top job. Although he succeeded in stemming losses, the profit growth didn’t follow. The company’s operating profit margin of 5 percent is half that of competitor Sony Corp.

The bet on Tesla has also been a source of concern as the carmaker went through what Chief Executive Officer Elon Musk called “production hell” ramping up output of Model 3 sedans. Work at the Nevada Gigafactory that the two companies jointly operate has improved, and losses there narrowed last quarter, but no one knows when it might become a consistent contributor to Panasonic’s bottom line.

Panasonic reiterated its earlier forecast that it expects to make the business with Tesla profitable on a monthly basis later in the current fiscal year. It has struggled to improve yields and boost output to make full use of the factory’s capacity of 35 gigawatt-hours. Tsuga said achieving those goals is the top priority for the business.

Tesla has announced plans to expand production to China and Europe, raising questions about the future of its battery partnership with Panasonic. Though the Osaka-based company may still supply Musk’s Chinese assembly lines with batteries made elsewhere, Tsuga showed little appetite for doubling down on his Tesla bet. “At this moment, we have no plans to build a factory in China,” Tsuga said.