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Panasonic will liquidate a subsidiary that produces liquid crystal display panels after more than a decade of weak performance. The Japanese electronics group, long weighed down by the unit, will focus on making electric car batteries. Better late than never.
The business focused on producing LCDs for automotive and industrial uses. Fierce competition drove it out of TV screen manufacturing. Panasonic will turn the factory into a production base for EV batteries.
The first signs Panasonic had been defeated came in 2011. The company took a ¥265bn ($2bn) restructuring charge on its TV business and slashed its flatscreen output by nearly half, to about 7mn a year. Earnings remained in the red.
The liquidation spares investors from further losses. Group operating margins have declined over five years.
Panasonic shares have risen 60 per cent this year. They still trade at just 15 times forward earnings, a small fraction of the multiple for regional peers that only make electric car batteries. That reflects the drag the consumer electronics business imposed on its profitable battery unit.
Flatscreen LCD TVs were once hot, pricey products. They turned into mainstream commodities much faster than expected. Chinese competitors eroded Panasonic’s market share, crushing unit margins.
There is a risk the same pattern will play out in EV batteries. Chinese peer CATL has already outpaced Panasonic in market share by becoming a key supplier to Tesla.
Investments are also exposed to wipeouts triggered by leapfrog technology. Organic LED panels upended the high-end TV industry. In the same way, new battery materials and solid state breakthroughs are a constant threat to existing makers.
For the moment, Panasonic is positioned well as one of Tesla’s biggest suppliers. It has years of experience manufacturing popular high-nickel batteries. The electric car market is still in an early commercialisation phase. There is plenty of room for growth. Pedal to the metal please, Panasonic.