Panasonic (PCRFY, Financial) is slowly but surely changing its hat going into the future. The home electronic conglomerate is paring down its traditional future operations and focusing more on the industrial battery revolution, a bet that Tesla (TSLA, Financial) and others producing electric vehicles are not just a trend, but an emerging mainstay in the world automotive market mix.
Being on the ground here in Northern Nevada, at the genesis of what will be the largest manufacturing plant by footprint, is very intriguing indeed. Most individuals in the market believe that Tesla is the sole creator of the “Giga” factory, but the primary investor and partner in the project is Panasonic. Even Elon Musk has been quoted as saying that Panasonic is bar none the finest producer of lithium ion batteries (the current supplier for the Tesla vehicles) and they only plan to increase that portion of their operation going into the future.
The job creation that Panasonic is helping to provide for the Northern Nevada area is massive. Yes they ate up a huge portion of the state business subsidies, but Tesla and Panasonic  are starting a trend of Silicon Valley companies moving into Nevada for the tax benefits that should be prescient on behalf of the governor’s decision to grant such subsidies going into the future.
For the value investors, let's take a look at the tale of the tape (all the following statistics are sourced from the Panasonic 2016 10K):
Panasonic operates in the Business areas of Consumer Electronics, Housing, Automotive, BtoB Solutions and Devices in three regions: Japan, Europe and the United States (including Central and South America) and the strategic regions of Asia, China, the Middle East and Africa.
After cutting back on consumer electronics operations, revenue has dropped. On the flip side, operations have become more efficient after deleting stale operations from the mix, resulting in year over year increases in operating profit.
Below, we can see that the net sales growth has been in home goods and the automotive industry, with the primary focus on lithium ion batteries for vehicles and a smaller reliance on domestic Japanese sales.
Panasonic’s credit rating has been upgraded to A- by Standard & Poor’s after getting out of a funk from 2011-2013 that saw poor performance because of write downs on various goodwill items that lost value as certain segments of their operations were becoming stagnant.
The future 10-year plan includes robotics, optical storage and energy. In addition to the battery factory partnership in Nevada, they have also recently opened an automotive battery manufacturing plant in Dalian, China.
With a current P/B ratio of 1.5 and P/E ratio of 12.73, Panasonic is relatively undervalued based on their assets and earnings. Panasonic’s current yield at 2.15% is also higher than 50% of its peers. The total debt to equity ratio is roughly 43% of the company’s market cap, which is very modest for a global electronics/ industrial company (compare that to General Electric (GE, Financial) at 174%).
While automotive companies will try to appeal the global initiatives that could possibly double the required MPG average for each of their vehicle fleets by 2025, they are also preparing by developing electric vehicles of their own. Panasonic is ahead of the curve and prepared to capture the impending market that presents itself in less than 10 years.
Disclosure: The author is long PCRFY; the author holds no positions in TSLA or GE.
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