Panasonic Corp. will end its upstate New York partnership with Tesla to produce solar panels at a former steel mill in Buffalo. Tesla says it will continue on its own and build the panels; it may also hire some of the Panasonic engineers assigned there. This is one more sign that Panasonic’s longstanding relationship with Tesla is showing strains.
The two are building lithium-ion batteries at the Gigafactory in the Nevada desert outside Reno. But Tesla is now working with two other international battery-makers to meet demand as Tesla scales up its auto assembly plant in China. It’s also worrying to the state of New York and the so-called Buffalo Billion, effectively how much money the state invested to lure a pair of high-tech names to the rust-belt part of New York 400 miles away from booming New York City.
Why does inside-baseball stuff matter? It shows that agreements among industrial giants can fray and generate a seven-year itch in less than seven years. It’s also a cautionary tale to regions willing to invest money to lure high-tech business: You’d better get agreements from the businesses that they’ll invest, too. Tesla has pledged to invest $5 billion in New York State (capital expenditures and operating expenses) and have certain levels of employment. But … right now, Tesla has an April deadline to have 1,460 people working at the plant or face a $41.2 million underperformance penalty. Tesla says it has 1,500 full-time employees working there, including some contractors, with starting wages of $17 an hour ($35,000 a year based on a 40-hour week).
Howard Zemsky, chairman of Empire State Development (a state economic development authority that tracks operations at what is called Gigafactory2; the Nevada battery plant is Gigafactory1), says the state will be making its own headcount to ensure that many people are there. Tesla says it will hire some of the 380 Panasonic engineers at the plant.
How Bad Are Things in Buffalo?
Beyond the Buffalo Bills having the all-time worst Super Bowl record (four straight trips, four losses 1990-1993), the Buffalo Sabres not being in the Stanley Cup finals in 20 seasons and the NBA’s Buffalo Braves decamping for San Diego in 1978, Buffalo’s population of 255,000 is less than half its peak of 1940-1950. That’s because of the decline of the steel industry by the mid-1990s and the opening of the St. Lawrence Seaway, which let goods from the near-Midwest travel by ship to the ocean rather than through Buffalo. Thus the desire for economic growth, especially if it has a high-tech flavor.
Gigafactory2 in Buffalo is a 1.2-million-square-foot facility (about 10 Home Depots big) on an 88-site called Riverbend, the once-contaminated, now-remediated former Republic Steel location. Solyndra, an early, now-defunct solar panel company, first went into the site. It went under in 2011. In 2016, Tesla acquired SolarCity, a company founded in 2006 by Elon Musk relatives, including the Buffalo operation. That’s the facility Panasonic is now stepping back from.
The Riverbend site has other companies, or at least buildings that would have held high-tech companies. Soraa, a maker of LED bulbs highly regarded for their color fidelity (as well they should be given the prices), agreed to build bulbs there after the state spent $90 million to build a factory that Soraa would lease for $1 a year. The state declined a request to buy and install “tens of millions [dollars]” of production equipment for Soraa, which then opted in 2017 to do production elsewhere; it faced no penalty for dropping out. Last year the state found a new tenant, NexGen Power Systems, that manufactures power transistors. This time around, the state negotiated payback penalties if NexGen doesn’t meet hiring requirements.
Who Else Builds Batteries for Tesla?
As we noted, Panasonic will still work with Tesla building batteries at the Gigafactory in the Nevada desert. But there have squabbles – sorry, “discussions” – over costs, how to best run Gigafactory1, and production delays.
Meanwhile, Tesla has cut deals for battery production in Asia, with CATL (China’s Contemporary Amperex Technology Co.), to produce batteries for the Tesla Model 3 plant in Shanghai, as well as with South Korea’s LG Chem Ltd.
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