By JURO OSAWA
TOKYO—Panasonic Corp. will cancel the planned expansion of a domestic factory that makes lithium-ion batteries, as the strong yen and price competition from South Korean rivals make it difficult to keep producing the batteries in Japan, a person familiar with the matter said Thursday.
Bloomberg News
Panasonic employees showed lithium-ion batteries on the production line in a plant in Suminoe, Osaka City, Japan, on March 25, 2010.
The Japanese electronics giant originally planned to invest a total of ¥100 billion ($1.31 billion) in two stages in the Suminoe plant in Osaka, western Japan, which makes lithium-ion batteries for use in consumer electronics.
The plant began operating last year after the first stage was completed, but the company has now decided to cancel the second stage and won't make any additional investments, the person said.
Panasonic hasn't disclosed how much of the ¥100 billion it has already invested in the factory.
Although Panasonic is scaling back domestic production of lithium-ion batteries, the company is boosting its output in China. In a few years, production in the country will take up a much larger share of Panasonic's overall lithium-ion battery output, the person added.
The shift highlights the impact of the strong yen on Japan's industrial base, as companies in key export sectors such as autos and electronics look to move production overseas to mitigate the effects of the currency, which is near record highs against the dollar.
Nissan Motor Co. Corporate Vice President John Martin this week urged the Japanese government to take "decisive" action to prevent the strong yen from hollowing out the country's industrial base.
Seiji Maehara, the ruling Democratic Party of Japan's policy chief, said in an interview this week that Tokyo should consider setting up a sovereign-wealth fund, which would buy foreign assets by selling the yen, to combat the Japanese currency's strength.
In July, Panasonic Chief Financial Officer Makoto Uenoyama said that it was becoming "extremely difficult" to keep manufacturing operations in Japan, citing the yen's strength, high corporate taxes and concerns over higher electricity costs since the Fukushima Daiichi nuclear crisis.
The market for rechargeable lithium-ion batteries—key components in many consumer products and electric cars—is expanding.
But price competition is intense, particularly in the market for batteries used in consumer electronics, where Samsung Electronics Co. and Panasonic are competing for the largest share.
Panasonic is building a new lithium-ion battery plant in the eastern Chinese city of Suzhou, and is also planning to boost capacity at its subsidiary Sanyo Electronic Co.'s existing Chinese plant.
In April, Panasonic turned majority-owned Sanyo into a wholly owned unit and is realigning production to benefit from the integration. When Panasonic acquired a majority stake in Sanyo in 2009, the latter's strength in lithium-ion batteries was cited as one of the reasons for the deal.
Write to Juro Osawa at juro.osawa@dowjones.com
Read more: http://online.wsj.com/article/SB10001424052970204138204576599801032591130.html#ixzz1Zc5aK7ML
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