Panasonic Picks Kansas For Tesla EV Battery Plant, State Puts Investment At $4 billion

Japan's Panasonic Energy Co, a major Tesla Inc supplier, said on Wednesday it had selected Kansas as the site for a new battery plant that state officials said would create up to 4,000 jobs with investment of up to $4 billion.

The move comes as Tesla CEO Elon Musk has said the electric vehicle (EV) maker faced challenges ramping up production of its in-house batteries, contributing to limited auto output. He described new Tesla factories in Texas and Berlin as "gigantic money furnaces" which are losing billions of dollars.

The decision by Panasonic Energy, a unit of tech conglomerate Panasonic Holdings Corp, to pick Kansas over Oklahoma for the plant comes after Kansas Gov. Laura Kelly pushed the state legislature to approve an incentive package of up to $1 billion earlier this year.

Kansas officials said the job creation and investment targets they announced were pending final approval by Panasonic's board.

The Panasonic plant will primarily supply batteries to Tesla, but is not limited to the company and it will have a research department focused on next generation batteries, Rahm Emanuel, U.S. Ambassador to Japan, told reporters on Thursday.

The deal came together after President Joe Biden talked with Panasonic executives in May when he visited Japan, Emanuel said. The Biden administration has aimed to cut U.S. reliance on Asia for EV batteries and materials as it aims to boost the domestic EV industry.

Panasonic is working to supply Tesla with a larger battery known as the 4680 model, starting with production in Japan in its next fiscal year.

"With the increased electrification of the automotive market, expanding battery production in the United States is critical to help meet demand," Panasonic Energy President Kazuo Tadanobu said in a statement.

Tesla CEO Musk has said battery production would be "the limiting factor" for boosting vehicle production in two to three years, calling on suppliers to raise battery production.

China's Contemporary Amperex Technology Co Ltd (CATL) has also been vetting sites for U.S. production, people with knowledge of the matter have said.

KANSAS 'SUPER-SITE'

A Panasonic spokesperson told Reuters no decisions had been finalised on the new plant's production capacity, investment amount and workforce size.

The plant, to be built in De Soto, on the western fringe of Kansas City's metropolitan area, is central to the company's drive to ramp up output for electric vehicles as it pushes for gains in battery power and performance. The firm already has a Nevada factory that supplies Tesla.

In a statement, the Kansas Department of Commerce said the state would reimburse Panasonic with estimated subsidies of $829 million after the company has completed investment and hiring.

Kansas estimated $2.5 billion in annual economic activity from the plant that would offset the state's largest development subsidy package.

By 2029, Panasonic plans to expand battery production capacity by three to four times, with most of the increase in North America.

Shares in Panasonic Holdings were up 0.8% at 0312 GMT while Tokyo's benchmark Nikkei index rose 0.7%.

"This is a big move for traditionally conservative Panasonic. (South) Korean battery makers - LG and SK - have led this global battery arms race in the USA," Simon Moores, Chief Executive of battery research firm Benchmark, posted on Twitter.

"Critical minerals mine and refining capacity will need to be established (to) feed what will be a new Panasonic super-site."

Other battery makers have also announced plans to invest in U.S. manufacturing or begun negotiations with state officials in recent months, part of an industry trend to meet expected growth for EVs and reduce reliance on production in China and related supply chain risks.

South Korean battery makers have announced investment plans of $5.5 billion this year in U.S. plants.

(Reporting by Hyunjoo Jin in San Francisco, Rocky Swift and Mayu Sakoda in Tokyo and Tiyashi Datta in Bengaluru; Writing by Kevin Krolicki; Editing by Anil D'Silva, Marguerita Choy, Richard Chang and Kenneth Maxwell)