Panasonic’s Entry into the North American ESS Market: Will It Change the Battery Industry Landscape?

We’ve heard the news that Panasonic is finally making a full-scale entry into the Energy Storage System (ESS) market. This move was somewhat anticipated, given the rapidly increasing demand for grid stabilization in the U.S., and it’s unlikely that Japan’s leading battery manufacturer would remain idle. The decision to convert the Kansas plant into a dedicated ESS production base particularly highlights how seriously Panasonic is taking this market.

Personally, I believe Panasonic’s move signifies more than just business expansion. Currently, the North American ESS market is dominated by China’s CATL and BYD, as well as Korea’s LG Energy Solution and Samsung SDI. With the entry of a Japanese representative, the battery hegemony competition among the three countries is expected to become even fiercer. Panasonic Holdings (headquartered in Osaka) has already accumulated significant expertise in the electric vehicle battery sector through its partnership with Tesla, suggesting it could be highly competitive in the ESS market as well.

What’s particularly interesting is that Panasonic is focusing on LFP (Lithium Iron Phosphate) battery technology. Unlike the NCA (Nickel Cobalt Aluminum) batteries previously supplied for Tesla’s Model S and Model X, LFP batteries are considered more suitable for ESS applications due to their safety and longevity. Observing how China’s CATL has dominated the ESS market with LFP batteries, Panasonic’s choice seems very strategic.

Looking at the current size of the U.S. ESS market, it is estimated to be around $15.7 billion by 2024, with a compound annual growth rate (CAGR) exceeding 15%. This is largely influenced by the Biden administration’s clean energy policies and the Inflation Reduction Act (IRA), which offers tax credit benefits of up to 30% for ESS installations, leading to a surge in installation demand. Particularly, large-scale ESS projects for grid stabilization are being commissioned in states with high renewable energy shares, such as Texas, California, and Florida.

Intensifying Competition Between K-Batteries and Japanese Batteries in North America

Panasonic’s entry into the ESS market poses a new challenge for the three major Korean battery companies. LG Energy Solution operates ESS-dedicated plants in Michigan and Arizona, holding approximately 23% of the North American ESS market share as of the third quarter of 2024. Samsung SDI is increasing ESS battery production at its Texas plant, and SK On is producing both ESS and electric vehicle batteries at its Georgia and Tennessee plants.

However, Panasonic’s decision to convert the Kansas plant into a dedicated ESS facility appears to be a highly aggressive strategy. This plant previously produced cylindrical batteries for Tesla, and the complete transition to prismatic battery production for ESS indicates a strong confidence in the ESS market. Panasonic already leads the residential ESS market in Japan and has accumulated technical know-how through its collaboration with Tesla Powerwall.

Notably, Panasonic is attempting to quickly enter the market by collaborating with Chinese companies for LFP battery technology rather than developing it independently. This is because Chinese companies like CATL and BYD have already secured overwhelming technological and price competitiveness in the LFP sector. In fact, CATL’s LFP batteries are priced at about $60 per kWh, more than 30% cheaper than Korean companies’ NCM batteries.

In this context, Korean battery companies are also formulating response strategies. LG Energy Solution plans to start LFP battery production at its U.S. plant from 2025, and Samsung SDI is seeking to secure LFP technology through technical cooperation with China’s BYD. SK On is expanding its LFP battery production capacity through a joint venture with Ford.

The Future of U.S. Grid Modernization and the ESS Market

The backdrop of this intense competition is the structural change in the U.S. power grid. As the share of renewable energy rapidly increases, the issue of intermittent power supply is becoming severe. Since solar and wind power generation can fluctuate significantly with the weather, large-scale ESS is essential for grid stability.

According to the U.S. Energy Information Administration (EIA), approximately 4.2 GW of ESS was newly installed nationwide in the first half of 2024, a 67% increase compared to the same period last year. Particularly in Texas, ESS adoption is active, accounting for about 35% of total installations, largely due to heightened concerns about grid stability following the major blackout in the winter of 2021.

California is also actively promoting ESS installations. The state government has set a goal to achieve carbon neutrality by 2045 and plans to increase the share of renewable energy from the current 33% to over 60%. To achieve this, at least 52 GW of ESS is needed. Considering that the currently installed ESS is about 7 GW, it needs to increase more than sevenfold over the next 20 years.

Due to this enormous demand growth forecast, global battery companies are focusing on the U.S. market. China’s CATL has already signed large-scale ESS supply contracts with several U.S. utility companies, and BYD is participating in megawatt-scale ESS projects underway in California and Texas. Korean companies are also expanding their market share through partnerships with major power companies like NextEra Energy and Duke Energy.

However, Panasonic has a unique advantage here. It has accumulated battery management system (BMS) technology through its long-standing partnership with Tesla. In ESS, managing thousands of battery cells safely and efficiently is crucial, and Panasonic has sufficiently validated this technology at Tesla’s Gigafactory. In fact, Tesla’s Megapack ESS is based on Panasonic’s battery and BMS technology.

Additionally, Panasonic has experience leading the residential ESS market in Japan. After the Fukushima nuclear disaster in 2011, interest in distributed power sources increased, and the distribution of residential solar + ESS systems became active. Panasonic maintains a market share of over 30% in this sector. Based on this experience, it seems capable of demonstrating competitiveness in the U.S. residential and commercial ESS markets as well.

Personally, I believe Panasonic’s entry into the ESS market will have a positive impact on the entire industry. As competition intensifies, technological innovation will accelerate, ultimately allowing consumers to use more affordable and better-performing ESS. In particular, while Chinese companies currently hold an overwhelming advantage in LFP battery technology, the participation of Japanese and Korean companies in the competition is likely to narrow the technology gap.

However, one concern is the issue of supply chain stability. Currently, China accounts for about 95% of the global production of lithium iron phosphate, a key raw material for LFP batteries, and as U.S.-China tensions escalate, supply chain risks are increasing. In fact, the U.S. government continues to raise tariffs on Chinese batteries, and the IRA limits tax credit benefits for ESS using Chinese battery materials.

In this situation, Panasonic’s supply chain strategy at the Kansas plant will be crucial. Reducing dependence on Chinese raw materials while maintaining price competitiveness will require significant technological and financial resources. Korean companies are also trying to secure lithium supply chains outside of China, such as in Australia and Chile, but they still have a high dependency on China.

Ultimately, over the next few years, the North American ESS market will likely be won by companies that possess technology, price competitiveness, and supply chain stability. While Panasonic’s full-scale market entry will intensify competition, it will undoubtedly contribute to the overall development of the ESS industry and the modernization of the U.S. power grid. It will be interesting to watch how this competition unfolds and who will emerge as the ultimate winner.

This article was written after reading the article The Answer is Ultimately ESS… Panasonic Targets North American ESS, adding personal opinions and analysis.

Disclaimer: This blog is not a news outlet, and the content is the author’s personal opinion. The responsibility for investment decisions lies with the investor, and no liability is assumed for investment losses based on the content of this article.