Teslas planned shift to in-house production of electric vehicle batteries has caused investors to question the carmakers partnership with longtime supplier panasonic.

The japanese groups stock sank 4 per cent in tokyo on the news. dashed expectations of growth for the business with tesla propelled the fallout.

Tesla revealed on september 22 that it intended to produce 100 gigawatt-hours worth of battery cells by 2022, enough for 1.4m vehicles. the volume is roughly three times that which tesla purchases from panasonic today.

Supplies to teslas new vehicles [from panasonic] could potentially decline, said tang jin, senior research officer at mizuho bank. the development comes as panasonics business of producing batteries for tesla makes its way towards profitability after years of red ink.

Panasonic has taken a wait-and-see approach to the us carmakers latest manoeuvrings. previously, teslas chinese operation started procuring batteries from south koreas lg chem and other suppliers.

Its not our intention that a single company meets all of teslas demand, said a panasonic executive, reiterating the suppliers stance.

Lithium-ion batteries account for an estimated 30 per cent of ev costs. tesla has been busy incorporating competencies linked to batteries, in moves that include taking over maxwell technologies, a us company that possesses proprietary electrode technology.

By moving cell production in-house and radically modifying the processes related to electrode material, tesla looks to cut production costs by 56 per cent per kilowatt-hour.

The shift is fuelled by tesla chief executive elon musks push for a new $25,000 vehicle, plans for which he also unveiled on september 22 during a drive-in presentation in front of the companys factory in california. priced at much less than teslas current cheapest offering its model 3, which starts at about $35,000 the new vehicle will hit the market three years down the road, according to mr musk.

A sticker price of $25,000 would maintain competitive advantage even absent of subsidies, said hiroto suzuki, a partner at arthur d little.

Tesla will maintain collaboration with partners such as catl, the chinese battery supersupplier, as it looks to retain diverse sources for battery cells.

Elsewhere in the ev market, carmakers are scrambling to lower battery costs in an attempt to catch up with tesla. general motors and lg chem are building a battery factory in the us state of ohio with an annual capacity of 30 gigawatt-hours, investing a combined $2.3bn in a 50-50 joint venture.

Volkswagen and swedish battery start-up northvolt are building a 16 gwh battery plant also capitalised 50-50. the german carmaker is collaborating with lg chem, catl and other battery makers with the goal of introducing about 75 ev models by 2029.

The race to create ev batteries has spilled into materials procurement. the supply of cobalt, an essential ingredient, is expected to become tight. carmakers, apple and other consumers of the metal have reportedly taken to negotiating directly with miners to secure long-term, stable supplies.

But tesla said at the presentation that it was developing cathode materials that would not use cobalt. the carmaker is betting on innovation to resolve the risks surrounding a key raw material. the level of chemical engineering needed to achieve that goal, however, makes it unclear whether the companys plan will proceed without a hitch.

A version of this articlewas first published by nikkei asia on september 24 2020. 2020 nikkei inc. all rights reserved