Japan’s Panasonic Holdings Corp whose energy unit supplies batteries to Tesla (TSLA.O), reported a 39% drop in first-quarter profit on Thursday as demand for its home appliances and car batteries slowed after a pandemic-fuelled surge last year.

The operating profit for the three months to June 30 was 63.7 billion yen ($470.77 million), missing an estimated mean of 73.3 billion yen from nine analysts, according to Refinitiv.

Manufacturers including Panasonic are dealing with a sharp rise in raw material costs that they have not been able to fully pass on to consumers, who have tightened their spending in the face of surging inflation and growing fears of recession.

Panasonic had performed exceptionally well in the year-earlier quarter, when operating profit surged by more than 27 times.

The company in May warned of flat operating profits this business year, hurt by component shortages due to COVID-19 lockdowns in China and costs that have surged following Russia’s invasion of Ukraine.

Despite the weaker quarterly result, Panasonic on Thursday stuck to its full-year operating forecast of 360 billion yen for the year to March 31.

Earlier this month, the conglomerate’s energy unit Panasonic Energy Co said it had picked Kansas as the site for a new battery plant that will primarily supply batteries to Tesla, adding to a line of investments from Asian EV battery makers in the United States.

The unit is working to supply Tesla with a larger battery known as the 4680 model, starting with production in Japan in its next fiscal year.

By 2029, Panasonic plans to expand battery production capacity by three to four times, with most of the increase in North America.