Progress in Medium- to Long-term Strategy (announced in FY3/25)

Panasonic Energy announced its Medium- to Long-term Strategy in June 2022 and reported on progress with this in June 2023. We remain committed to not only focusing on our two-pillar management strategy—the in-vehicle business and the industrial/consumer business—but also advancing our management of ESG issues, particularly in environmental contribution. Even as the market environment undergoes significant change, we aim to exceed sales of 3 trillion yen in the medium to long term, and, leveraging our business strength, aim for a 20% EBITDA⁽¹⁾ ratio excluding the impact of the IRA⁽²⁾ tax credit. There will be no changes to our investment plans until the full-scale operation of our Kansas plant commences in 2027; we will closely monitor the market environment and implement investments in expansion from 2028 onwards that take account of this.

In fiscal year ending in March 2025, we aim to offset the rise in the fixed costs associated with our investment in growth, primarily at our Kansas and Wakayama factories. We plan to achieve this through increased sales and profits in the industrial/consumer business, and by implementing efficiency measures. We are targeting an adjusted operating profit of 111 billion yen, an increase of 16.4 billion yen from the previous fiscal year. As part of our medium-term targets, targeted operating profit and EBITDA are expected to be achieved when the impact of the IRA tax credit is taken into account, but ROIC is expected to stay at 9.1% due to up-front investment in growth. We will further enhance our profitability, aiming to achieve our current medium-term cumulative operating cashflow target of 330 billion yen.

(Note 1) Operating income + depreciation and amortization
(Note 2) The U.S. Inflation Reduction Act

In our in-vehicle business, we have started discussions with Subaru and Mazda on the production and supply of our batteries; we have also made steady progress in building supply chains in North America, including the signing of a long-term graphite supply contract with Nouveau Monde Graphite Inc. in Canada. The commercialization of next-generation products is in the final stages, and we are aiming for the mass production of 4680 cells by the end of the second quarter of fiscal year ending in March 2025. In addition, we have completed a new R&D facility for battery production development in Suminoe to accelerate the development of next-generation battery manufacturing.

In our industrial/consumer business, we have started mass production of next-generation power supply systems for data centers that will support the evolution of generative AI, and developed integrated residential power storage systems. Furthermore, in the dry battery business, our Nishikinohama factory has started full-scale operation as our global flagship.

As part of strengthening operations, in our in-vehicle business, we achieved a 10% increase in production volume at the Nevada factory compared to fiscal 3/2022 by establishing a production system with a reduced dependence on skill levels. We also improved our quality loss rate by 2.5 points compared to fiscal 3/2022, and are working to enhance our profitability. In the data center segment of our industrial/consumer business, in fiscal 3/2024, the sales of systems that combined modules increased, compared to centered on modules in fiscal 3/2022, resulting in a 30 points increased in the sales ratio of module/systems.

As part of our environmental initiatives, we are actively working towards achieving the carbon neutrality of our own factories. By the end of fiscal 3/2024, we will have reached this goal at 14 out of 20 sites. Our domestic factories are making rapid progress, and we expect to achieve carbon neutrality at all domestic factories by September 2024. In terms of human capital, we have welcomed over 600 technical professionals to our team since fiscal 3/2022. We are also planning to complete construction of an R&D facility in Nishikadoma in fiscal year ending in March 2026; this will serve as a facility where these technical professionals can thrive.

In terms of the in-vehicle business environment, our primary focus is the North American market. Initially, it was projected that the EV adoption rate there could reach 50% by 2030. However, revisions in government targets have somewhat slowed the pace of adoption, yet we still anticipate steady growth.
In North America, both federal and state administrations have set ambitious environmental regulation targets aimed at achieving a decarbonized society. To meet these standards, vehicle manufacturers are required to produce and sell more compliant vehicles than they currently do. While some believe that the US EV market has stagnated, with early adopter demand having plateaued and the market having transitioned to the early majority, we remain confident that it will continue to expand. As such, we are committed to enhancing the performance of our cylindrical batteries, which are crucial for long-range cruising in the US market. We are also intensifying our efforts in the Japanese market, where high performance and quality are demanded, and where the expansion of the EV market is accelerating as a result of government strategy.

In our industrial/consumer business, we anticipate expansion of ongoing demand driven by the growth of generative AI applications and electrification of power equipment needs. Specifically, we foresee an annual growth rate of 8% in battery demand within the data center market, with effective demand here growing at an annual rate of 15%. We are committed to further enhancing our competitiveness in this expanding market.

In consideration of the business environment, we are planning strategic revisions and reinforcement measures to achieve sustainable growth in the medium to long term through our two-pillar approach. In the in-vehicle business, we have been promoting our business with a "focus on North America" approach, but we will be shifting our strategy towards a "Japan and North America dual-region focus" approach. Additionally, in the industrial /consumer business, we aim to maximize the value provided by our battery applied systems. As part of our business reinforcement measures, we will expand our portfolio into new areas such as electrification of power equipment. Given the significant changes in the business environment of the automotive industry, we remain committed to investing in growth, but we will reassess the timing as needed.

Our approach to achieving the objectives of our next medium-term plan is to complete the investment phase by fiscal 3/2027, and from fiscal 3/2028 onwards, to realize a stable ROIC of over 10%. From fiscal 3/2029 onwards, we will increase our operating cashflow for a single fiscal year to 300 billion yen, thus enabling a business management strategy through self-finance.

The key revisions to our in-vehicle business strategy are the shift from a "focus on North America" to a "Japan and North America dual-region focus," and the strengthening of our management and revenue foundation. Our overall sales volumes in fiscal 3/2025 are expected to increase slightly due to increased sales at our Nevada factory, but we expect a decrease in revenues compared to fiscal 3/2024 due to price revisions in line with the declining price of raw materials and the impact of exchange rates. On the other hand, we expect to be able to continue growing after fiscal 3/2027, when the Kansas factory starts operating and production expands.

To achieve these goals, we have two primary strategies. The first involves repurposing our existing domestic factories, which currently cater to North American customers, to serve as supply bases for our Japanese customers. The second strategy is to maximize profitability in North America by capitalizing on our Nevada and Kansas factories.

In the short term, we aim to enhance profitability in our domestic business by reallocating personnel and reducing costs at our Osaka factory, and by sticking to our plan of mass-producing 4680 cells at our Wakayama factory. Looking ahead to the medium- and long-term, we plan to bolster our collaboration with Japanese automakers and transition from the current production line focused on 1865 cells to one centered on the more competitive 2170 cells. The implementation of this strategy will commence on the equivalent to the newest production line in North America, leading to a 35% improvement in productivity per employee.

We will maximize the profitability of our North American business through continuous improvement and expand production capacity at our existing Nevada factory to meet the increasing demand for US-made products. The Nevada factory has an imbalance in production capacity in a good sense due to continuous production improvements, and it is possible to increase production capacity there by making partial investments in equipment. Currently, in response to changes in the market, we are making additional investments in assembly equipment and other areas, and are working on early capacity enhancement. We will start partial operation from the fourth quarter of fiscal 3/2025 and achieve a capacity increase of about 5% in fiscal 3/2026. In the medium- to long-term, at our Nevada factory we can achieve a production capacity increase of 15% compared to fiscal 3/2024 by making this additional investment in technological innovation and site improvement.

The Kansas factory plans to introduce a new concept production line concept that will reduce the need for manpower by about 30% per GWh compared to the Nevada factory; it also plans to introduce products comprising new materials that will increase cell capacity by 5%. Through these initiatives, we will balance growth and profitability in the medium to long term.

In the industrial/consumer business, we aim to expand in the information infrastructure sector in areas such as data centers and electrification of power equipment, where medium-to long-term growth is expected. As part of this strategy, we are committed to developing advanced system businesses. These will combine high-safety, high-reliability batteries with control technologies.

In terms of business performance, we will continue to strengthen our profitability while also achieving sales growth. Our business for data center is expected to grow at an annual rate of 17%, and we have completed the development of dedicated cells that are optimal for high-output needs; we have also received orders for next-generation products from key customers. In our business for electrification of power equipment, the electrification began with power-assisted bicycles and expanded to electric motorcycles. Various forms of electrification are being considered for construction machinery, agricultural machinery, and other industrial equipment. Overall, we expect an annual growth rate of 14% in this sector. In the field of power-assisted bicycles, we have secured orders from industry-leading customers in Taiwan, Japan, Europe, and other regions. We are also currently working on demonstrations of new technologies and on other initiatives that will support further electrification.

In the future, we expect an expansion of electrification in the two-wheel vehicle market as well, and we are also considering expanding sales to India, which is the world’s largest market. To accelerate these activities, we are also looking at the possibility of a collaboration with Indian Oil Corporation Limited.