Panasonic's Strategic Overhaul: Can Cost Cuts and Tech Shifts Revive Profit Growth?

Japanese tech giant Panasonic has embarked on a dramatic restructuring plan, slashing 10,000 jobs globally—roughly 4–5% of its workforce—as it grapples with a sharp profit decline and structural inefficiencies. The move underscores a broader struggle for traditional electronics firms to adapt to shifting consumer demand, intensifying competition, and the rise of emerging technologies.

The Profit Crisis Unveiled

Panasonic’s net profit for fiscal 2025 (ended March 2025) fell 17.5% to 366.21 billion yen ($2.5 billion), marking its lowest in five years. While sales remained nearly flat at 8.46 trillion yen, operational weaknesses and strategic missteps eroded margins. CEO Yuki Kusumi admitted the company’s fixed-cost structure was outdated, with bloated sales and back-office operations dragging down efficiency.

Operational Inefficiencies: Panasonic’s SG&A expenses remain stubbornly high, with operating margins of 3.4–5.0% over five years—far below peers like Sony (7–9%) and Hitachi (9–11%). A highlights this gap. Kusumi acknowledged that streamlining these costs is critical to competitiveness.

Market Challenges: The company faces headwinds in its core businesses. TV sales have stagnated as Chinese rivals like Haier and Midea undercut prices, while EV battery demand from Tesla softened. Meanwhile, new ventures such as the Vision Pro VR headset have yet to deliver returns.

The Workforce Reduction Strategy

The layoffs—split equally between Japan and overseas—are targeted at sales divisions, back-office functions, and unprofitable lines. In Japan, early retirement offers will reduce bloated administrative roles, while overseas operations may see plant closures. The restructuring aims to:
- Exit underperforming sectors: Panasonic is exploring selling its TV business and winding down loss-making divisions in industrial devices.
- Invest in growth areas: Resources will pivot to EV batteries (including partnerships with Mazda and Subaru) and AI-driven products.
- Achieve cost savings: A one-time charge of 130 billion yen in fiscal 2026 is expected, with annual savings of 70 billion yen by fiscal 2027.

Risks and Opportunities Ahead

Panasonic’s turnaround hinges on executing its restructuring flawlessly while navigating macroeconomic headwinds. A reveals investor skepticism: shares have fallen 15% since March 2024, underperforming the broader market.

Key Risks:
- EV demand volatility: Tesla’s orders account for 40% of Panasonic’s battery sales; a slowdown in EV adoption could destabilize this segment.
- Competitor pressure: Chinese firms dominate low-margin consumer electronics, leaving little room for Panasonic’s legacy products.

Growth Levers:
- Battery expansion: A $4.2 billion investment in U.S. battery capacity (with Tesla) could solidify its position in the EV supply chain.
- AI integration: Screen-free devices and AI-powered home appliances target emerging niches, though execution remains unproven.

Conclusion: A High-Stakes Gamble

Panasonic’s restructuring is a necessary but risky pivot. To meet its 10% return on equity target by fiscal 2029, it must cut costs aggressively while capitalizing on EV and AI opportunities. The 150 billion yen profit improvement goal by 2027 depends on:
- Reducing SG&A expenses to match industry benchmarks.
- Securing long-term EV partnerships and diversifying beyond Tesla.
- Innovating in AI without repeating the missteps of underperforming products.

Yet, with 70% of its revenue still tied to traditional appliances and TVs, the company faces an uphill battle. Investors will watch closely for margin improvements and signs of growth in its new ventures. As Kusumi’s compensation cuts signal, Panasonic’s survival may depend on whether its restructuring can outpace its declining legacy businesses.

The verdict? A measured “hold” for now—Panasonic’s strategy is logical, but execution in a crowded, tech-driven market will determine success.