Progress in Medium- to Long-term Strategy (announced in FY3/24)

* This content is an excerpt from the presentation given at Panasonic Group Operating Companies: Strategy Briefing 2023, in June 2023.
In this page, "Fiscal 2024" or "FY3/24" refers to the year ending March 31, 2024.
The information provided is as of June 2023 and is subject to change.

* This content is an excerpt from the presentation given at Panasonic Group Operating Companies: Strategy Briefing 2023, in June 2023.
In this page, "Fiscal 2024" or "FY3/24" refers to the year ending March 31, 2024.
The information provided is as of June 2023 and is subject to change.

Medium- to Long-term Strategy and Management Targets

Panasonic Energy announced its Medium- to Long-term Strategy in June 2022. In addition to implementing management based on two pillars in our two businesses, the in-vehicle business and the industrial and consumer business, we will promote ESG management, including environmental contributions, to enhance our contributions to society. As a management target, we aim to achieve a sales level exceeding 3 trillion yen in FY3/31. Furthermore, we have set EBITDA(1) as a KGI. With the in-vehicle business as the sales growth driver and the industrial and consumer business as the profitability driver, we aspire to attain an EBITDA ratio of 20% on an actual value basis, not including the impact of the IRA.(2) As for ESG management, we will focus on reducing CO2 emissions from our business activities and supply chain with our carbon footprint(3) set as a KGI, while striving to sophisticate each of the E (Environment), S (Social), and G (Governance) elements.

In the current FY3/24, we expect to increase sales, normalize the balance between material prices and price pass-through, and promote streamlining and other measures to cover the increase in fixed costs associated with growth investment. We forecast an increase in both sales and profit on an actual basis, not including the impact of the IRA, with an adjusted operating profit of 55 billion yen (+15.4 billion yen vs. FY3/23). As our medium-term management targets for FY3/25, we have set goals of 150 billion yen in EBITDA (EBITDA ratio: 16%) and 330 billion yen in cumulative operating cash flow on an actual basis, not including the impact of the IRA, and will make our next investment while utilizing the IRA.

(Note 1) EBITDA: Operating income + depreciation and amortization
(Note 2) IRA: Inflation Reduction Act. An act passed in the U.S. in 2022 that is aimed at curbing excessive inflation and, at the same time, expediting energy security and climate change measures. It includes the application of tax credits to manufacturers based on actual sales of battery cells.
(Note 3) Carbon footprint: A figure that expresses the amount of CO2 equivalent greenhouse gas emissions throughout the entire life cycle, from raw material procurement to disposal and recycling

Sales and EBITDA Ratio
Year-on-year Analysis on Fiscal year ending March 2024 Adjusted operating profit and Medium-term management targets until Fiscal year ending March 2025

FY3/23 Overview

With regard to growth investment, steady progress is being made in both the in-vehicle business and the industrial and consumer business. In the in-vehicle business, we are constructing a second North American factory in Kansas, U.S., and plan to start mass production by the end of FY3/25 as originally planned. The production item has been changed from the 4680 cell to the proven 2170 cell based on discussions with customers; however, there is no change in the 30 GWh increase in production capacity. Since we are on track to apply the technology for higher energy density to the newly developed 4680 cells, we have revised the start of mass production at the Wakayama Factory and plan to begin mass production during the first half of FY3/25. We have already started delivery and start-up of mass production equipment. In the industrial and consumer business, we are also making growth investment to expand markets for electrification and energy storage. We began installing equipment on new lines of our Tokushima Factory in Japan and our Wuxi Factory in China with the aim of starting mass production by the end of FY3/24, which is making steady progress.

As for competitiveness enhancement, in the in-vehicle business, a production system established at the Nevada Factory, that is not dependent on workers’ skill levels has improved productivity and reduced losses, achieving results that exceeded the initial target by more than 10%. In FY3/23, we were unable to counteract part of the surge in material prices with price pass-through and streamlining, resulting in a decrease in profit. In FY3/24, we expect to normalize the balance between material price hikes and price pass-through, and we will continue to enhance our supply chain and enhance our cost competitiveness. In the industrial and consumer business, we are proposing advanced module and system solutions to our customers, and expanding applications in storage battery systems, etc. Although profits decreased in FY3/23 due to deteriorating market conditions from the second half of the fiscal year, in FY3/24, we will accelerate our efforts to respond flexibly to changes in the external environment.

Fiscal year ended March 2023 Overview

Strategy for In-vehicle Business

To meet the rapidly growing demand for EVs, we will increase our global production capacity of automotive batteries to 200 GWh by FY3/31. We will boost our competitiveness and enhance our supply chain, and we plan to make a decision on the next new production site in North America following the Kansas Factory by the end of FY3/24.
We aim to expand sales to 2.5 trillion yen by FY3/31, and we will also continue to improve the EBITDA ratio. In the North American market, where we have been building up a track record ahead of our competitors through collaboration with our strategic partner, we will strengthen our competitive advantage while expanding our production capacity.

Graph of Sales and EBITDA Ratio, Strategy Framework and Major Initiatives in the In-vehicle Business

Specifically, we will work on three areas: strengthening our competitiveness, enhancing our supply chain, and expanding our production capacity.
The key points to strengthen competitiveness are “higher energy density” and “higher productivity.” In the area of higher energy density, we will continue to innovate as a pioneer in battery technology, headed for increasing volumetric energy density to 1,000 Wh/L by FY3/31, a 25% increase from the current level. For the 2170 cells, we will launch next-generation cells with 5% higher energy density than conventional cells by FY3/26, with the aim of achieving still higher energy density by adopting new materials. For the 4680 cells, we plan to start up at the Wakayama Factory with products using the technology for higher energy density than originally planned.

With regard to productivity improvement, at the Nevada Factory, we plan to increase production capacity by 10% per GWh from the current level by FY3/26 by switching to next-generation cells, along with ongoing production capacity improvement. At the Kansas Factory, we strive for a 20% increase in human productivity and a 10% reduction in the capital investment amount per GWh by leveraging our experience at the Nevada Factory to further increase the rate of automation in the factory. For the next new factory, which will be decided by the end of FY3/24, we will pursue further advancements in order to make the factory highly competitive by leveraging our experience in the two factories in the U.S..

Graph on Boosting Energy Density until 2030, and Boosting Productivity/More Effective Investments

Furthermore, aiming to strengthen our technology and manufacturing capabilities, we will establish new facilities in Kadoma and Suminoe, Osaka, Japan, to improve our development efficiency and increase resources. At the Kadoma facility, as a one-stop base covering all stages from the development of next-generation materials and processes to the production of new products, we will accelerate the development of next-generation cells by shortening the development period through the technology of DX and simulations. To concentrate and increase the human resources and equipment involved in the production equipment and process development functions, we will construct a new building at the Suminoe Factory. As a mother development base providing support, from next-generation manufacturing to productivity improvement of existing equipment, it will enable prompt on-site feedback and problem solving, and smoothly link new technologies to mass production. To enhance core human resources in technology and manufacturing, we plan to increase our workforce in Japan by 1,000 by FY3/26 (compared to FY3/23).

New facility establishments (Suminoe and Kadoma)

In our plan to increase our production capacity to 200 GWh by FY3/31, we will build and enhance our supply chain in terms of both quantity and quality (environmental performance). Concerning the production at the Kansas Factory, which will start up in FY3/25, we are on track to securing the necessary volume of materials procurement. Toward FY3/31, we will secure the necessary procurement volume by developing new supply partners.

We aim to halve our carbon footprint by FY3/31 compared to FY3/22 by actively utilizing recycled materials and materials made from renewable energy sources, as well as striving to secure long-term supplies of key materials through local procurement in North America, strategic offtake agreements, and other measures. We will deepen our partnerships with governments, research institutions, and suppliers in various countries to promote decarbonization initiatives on a global scale.

Graph and initiatives of Production boosting plan and procurement structure until Fiscal year ending March 2031

Strategy for Industrial and Consumer Business

In the industrial and consumer business, we will focus on the social and lifestyle infrastructure field, which is expected to grow over the medium to long term, and expand the advanced system business based on our reliability that conforms with high safety standards. We will double our sales from 300 billion yen in FY3/23 to 600 billion yen in FY3/31, while strengthening our earnings structure.

The market for energy storage systems for data centers is expected to expand in the future, and we will introduce next-generation systems with a backup power supply function that enables a power-saving operation to the market. In this business, we have maintained a high market share by leveraging the reliability of our highly dependable safety mechanical design in addition to our long-term reliable battery cells and unparalleled control algorithms, and we will roll out these technologies to residential energy storage systems in the years ahead. In the rollout of residential energy storage systems, we plan to start mass production and sale in Japan in June 2023 and sale in the U.S. in the second half of the fiscal year. In the U.S., they are eligible for IRA 25D,(4) which we believe will indirectly increase opportunities for business expansion.

For the future, we will take on the challenge of contributing to the electrification of construction machinery and motorcycles as a new area. We are working with industry-leading customers to create new solutions for electrification.

(Note 4) IRA 25D: With the passage of the IRA, residential storage batteries were added to the existing residential clean energy credit eligibility. End users who have installed qualified systems by 2035 are eligible for the subsidies. There is no requirement for the country of production of battery cells.

Graph of Sales and EBITDA Ratio, Medium- and Long-term Strategies and Progress in the Industrial and Consumer Business

Environmental Contribution Initiatives

Regarding Avoided Emissions Contributions, which mean the amount of CO2 emissions that can be reduced through the use of our own products and technologies, the Panasonic Group has set a goal of achieving approximately 100 million tons by FY3/31 in the Panasonic Group’s long-term environmental vision “Panasonic GREEN IMPACT.” As the core business that accounts for 60% of the group’s Avoided Emissions target, we will contribute to reducing CO2 emissions by 60 million tons. We will strive to contribute to the adoption of EVs and other electrified mobility/machinery, further expanding our contribution to CO2 emissions reduction.

We are also promoting carbon neutrality in our own business activities, and as of May 2023, we have achieved carbon neutrality at 10 of our 20 business sites. We seek to attain carbon neutrality at all sites domestically by FY3/26 and globally by FY3/29. In Japan, through PPAs(5) with electric power companies, we have been procuring 10% of the electricity that we consume from renewable energy sources since FY3/23. We intend to achieve the goal as soon as possible while introducing hydrogen fuel cells and other new technologies.

We will also accelerate our resource circulation efforts in cooperation with our partners in order to make effective use of limited resources. In FY3/24, we started a demonstration experiment with domestic and overseas distribution companies (AEON Retail Co., Ltd. in Japan and CP All PLC in Thailand) to establish a circulation model of primary battery, in which dry cell batteries that are otherwise disposed of are collected and recycled into battery materials. For secondary batteries, we are promoting recycling of cathode active materials and copper foil with Redwood Materials Inc., and we will continue to actively strengthen external collaboration to form a circle of resource circulation.

(Note 5) PPA: Power Purchase Agreement. A long-term agreement for a company or other entity to directly purchase renewable energy, concluded with an electricity generator

CO2  Avoided Emissions, Achieving Carbon Neutrality, and Resource Circulation