Panasonic is reconsidering an earlier decision to scrap plans for a third battery factory in the US. The new factory might be critical for Tesla's ability to access IRA credits for its most popular models in the US. Tesla lost the tax credits for the Model 3 because all variants are built with cells imported from China.

Tesla launched the refreshed Model 3 sales in North America on Wednesday, but despite the many upgrades, there's one thing that makes the electric sedan a hard sell. Namely, it cannot benefit from the IRA tax credit because it's built with battery cells imported from China. This makes the refreshed Model 3 to be more expensive than the Model Y when taking the tax credit into account. Basically, instead of buying a Model 3 LR AWD, you can opt for the Model Y Performance instead and still save $1,000.

This emphasized one of the most important problems Tesla faces, and it will only get worse in the following years as IRA conditions tighten. Specifically, it doesn't have enough battery cells made in North America to access the program. Right now, the entire local cell production is used for the Cybertruck, Model Y, Model S, and Model X, some of them being too expensive to benefit from the IRA tax credit anyway.

Tesla has likely worsened things by being fixated on the 4680 cell production, which has alienated its traditional partner, Panasonic. The Japanese battery manufacturer is working on 4680 cells on its own but hasn't seen significant progress. With Tesla poised to transition to 4680 cells in the future, Panasonic announced in December that it would scrap plans for a third manufacturing facility in Oklahoma. So far, Panasonic operates a battery factory in Nevada (in partnership with Tesla) and is building another one in Kansas.

However, Panasonic appears to have changed its plans again. During CES 2024, Panasonic Energy of North America's president Allan Swan told members of the media that his company is still planning to build a third battery factory in the US. As incredible as it might seem, this could even happen in Oklahoma after all. The Japanese battery maker aims to increase battery cell production capacity from 50 GWh to 200 GWh by 2031.

I don't know how much of this decision has to do with the IRA incentives (nothing's changed since December to warrant a change of direction) and how much with Tesla's request for increased cell capacity in the US. An official announcement for the plant's location is expected in the fiscal year 2024, which, in Japan, starts in April.

Panasonic is Tesla's only US supplier of 2170 cells, and it also makes 18650 cells for Tesla's first-gen electric vehicles (Model S and Model X). The plant it builds in Kansas will produce exclusively 2170 cells, which makes sense considering this is what Tesla needs the most for its current production. It's unclear what type of cells the third plant will produce, but I believe it will also be 2170 cells. This will allow Tesla to qualify all its volume models for the IRA tax credits. Panasonic is also looking to diversify away from Tesla, and 2170 cells look like a safe bet.