This picture taken on October 31, 2017 shows the logo of Japan's Panasonic at the company's headquarters in Tokyo. - Japanese electronics giant Panasonic said on July 31, 2019 its quarterly net profit fell more than 10 percent, partly due to weak sales in the Chinese market. Picture: KAZUHIRO NOG / AFP) / XGTY
This picture taken on October 31, 2017 shows the logo of Japan's Panasonic at the company's headquarters in Tokyo. - Japanese electronics giant Panasonic said on July 31, 2019 its quarterly net profit fell more than 10 percent, partly due to weak sales in the Chinese market. Picture: KAZUHIRO NOG / AFP) / XGTY

Tokyo — Panasonic reported its first-quarter operating profit nearly halved, as Sino-US trade tensions dampened demand for its components business in China and the battery business with Tesla remained in the red.

The trade dispute is making it more painful for Panasonic to execute its strategy of shifting focus to corporate clients and automakers from consumer electronics, after Tesla’s production delays already posed challenges to the goal.

Higher US tariffs on Chinese goods battered sales of Panasonic’s electronic devices, while the slumping automotive market in China prompted the auto industry to cut back manufacturing investment and took a toll on factory equipment sales.

“Automotive sales in China slumped and dampened investment appetite” in the automotive industry, CFO Hirokazu Umeda said at an earnings briefing on Wednesday.

Umeda also said the Gigafactory joint venture with the US electric carmaker is still in the process of ramping up to the planned annual production capacity of 35GW-hours and related costs kept the Tesla battery business in the red.

Panasonic, the exclusive battery cell supplier for Tesla, posted an operating profit of ¥56.39bn ($519.68m) for the April-June quarter, down 44% from ¥99.96bn ($920.43m) a year prior.

That was below a consensus estimate of ¥70.93bn ($653.12m) from eight analysts compiled by Refinitiv.

The automotive business, which includes automotive batteries, posted a loss of ¥10bn ($92.07m), larger than a year-before loss of ¥1.5bn ($13.81m). It generated 20% of the company’s overall sales.

Panasonic maintained its profit forecast for the year ending March at ¥300bn ($2.76bn), versus a consensus estimate of ¥319.97bn ($2.85bn) from 20 analysts.

Umeda said weaker sales of Tesla Model S sedans and Model X SUVs have slowed battery shipments from Japan and hurt profits.

Tesla shares slumped last week after the carmaker pushed back its profit timeline once again, reported lower margins, and announced the departure of its chief technology officer.

Panasonic has turned cautious about further spending on capacity growth for Tesla battery production, while it is planning to launch a new battery joint venture with Toyota.

Panasonic shares have halved since late 2017, dragged down by concerns about a lack of growth drivers, as well as the high susceptibility to Tesla’s fortunes.

Reuters