Panasonic drops Japan battery plant expansion

TOKYO, JAPAN: Japan's Panasonic Corp dropped a plan to expand a lithium ion battery plant in the western city of Osaka, a source with direct knowledge of the matter said, the company's latest move in its efforts to shift production to China to fight off harsh price competition.

Panasonic has already stopped production of lithium ion batteries at its Sumoto plant and it dropped expansion plans at its Suminoe plant in Osaka, which began operations last year, the source told Reuters.

The company plans to produce half its lithium ion batteries for use in devices such as mobile phones in China by the year starting April 2015, from 10-20 percent currently, meaning it will cut back on domestic production.

The move comes as many Japanese politicians express concerns about the "hollowing out" of Japanese industry, spurred by the strong yen and worries over energy supply amid a long-running nuclear crisis triggered by the March 11 earthquake and tsunami.

Japanese firms were long the dominant producers of lithium ion batteries, but have lost the lead to South Korean makers such as Samsung SDI.

Samsung SDI has the biggest market share by cell shipments, at 25.3 percent, according to research firm Techno Systems Research, followed by Panasonic at 23 percent and LG Chemical at 17.3 percent.

Panasonic has four lithium ion plants in Japan, excluding Sumoto, while it expects to complete construction of its third Chinese factory next year.

The company had initially planned to invest 100 billion yen ($1.3 billion) in the Suminoe plant in two tranches, but the Nikkei newspaper said the cancellation of the second tranche would leave total investment at 60 billion yen.

Panasonic expects the shift to China to help it slash up to 30 percent of production costs in its battery business -- which generates about 300 billion yen ($3.93 billion), or about 4 percent of total annual revenue, the Nikkei reported.

"This is not something that Panasonic announced," company spokesman Akira Kadota said.

"In view of the difficult business environment including the strong yen and weak Korean won, we are studying various options with regard to production sites, but we have nothing to announce now."

Panasonic bought out subsidiary Sanyo this year to shift emphasis from consumer electronics to environmental and energy technology, but must swiftly strip out overlapping facilities and cut costs to try to compete with South Korean rivals.

The company said in April it would axe thousands of jobs but its efforts are being hampered by the continued rise of the yen against a range of currencies.