Nissan makes a big bet there's a mass market for EVs

Nissan Motor Co. CEO Carlos Ghosn is spending big money to make electric vehicles in high volumes--and soon.

On Aug. 2, Ghosn will unveil the first of three electric models in three vehicle segments that he plans to sell by 2013. The vehicles will be made in the United States, Japan and Europe.

"We have a different strategy from other car manufacturers," Ghosn says. "We are the only ones investing for mass marketing, which is a risk, yes. But we think it is a bet in the right direction."

That bet takes shape at a new lithium ion battery plant and at an electric-vehicle assembly line that Nissan will build at its Smyrna, Tenn., manufacturing complex. A $1.6 billion low-interest loan from the U.S. government will cover some of the costs. Analysts question the payoff.

Nissan is not alone in going electric.

-- In June, Fuji Heavy Industries Ltd., maker of Subaru cars, began leasing electric cars in Japan. Mitsubishi Motors Corp. follows later this month.

-- Toyota Motor Corp. will sell a plug-in Toyota Prius after 2010, taking on the Chevrolet Volt, which goes on sale in November 2010.

-- BMW AG's Mini brand is testing a plug-in model in the United States.

-- Tesla Motors Inc., owned 10 percent by Daimler AG, received a $465 million government loan to help bring its $57,400 Model S electric sedan to market.

But rivals see initial volume in the hundreds or thousands. Ghosn wants hundreds of thousands. "If you go for EV, you should go for mass market," he says.

Analysts warn of hype. Battery-powered cars may be the wave of the future, but costs are high; the recharging infrastructure isn't there, and hefty government subsidies are needed to make electric vehicles competitive.

Nissan sees the technology as its best chance to eclipse Toyota and Honda Motor Co., which beat Nissan in introducing hybrid vehicles.

"This is an opportunity to go into a whole new technology and own that space," says Andy Palmer, head of Nissan's electric-vehicle program. "Hybrid vehicles compete with the internal combustion engine. But EVs are a segment all their own."

Nissan's consumer research shows that "there are definitely more than 100,000 in the United States who want" their next car to be an electric, Palmer says.

"We can't get them soon enough," says Bill Newton, owner of Newton Nissan in Gallatin, Tenn. "Customers have already been asking about the cars since the news broke about Nissan's plans to build the car here in Tennessee."

In California, Nissan of Elk Grove owner John Driebe thinks Nissan has identified a powerful new market segment. "A lot of Americans really want to stop using imported oil," he says. "We're excited about being able to market a car that will never use a drop of gasoline."

Driebe's market near Sacramento is home to about 80,000 California state employees, many of whom are worried about the state's current budget crisis. Driebe sees commuting state employees as an ideal demographic group for the car.

"By the time the electric car comes on line in 2012, the economy in California will be in a better place," says Driebe, the 2006 chairman of the Nissan Dealer Advisory Board. "Nissan is really committing to this idea, and I think they're going to be proven right."

The Tennessee factories will have capacity for 150,000 vehicles and 200,000 battery packs a year. Production begins in late 2012.

Nissan also will build electric vehicles at its Oppama assembly plant south of Tokyo, starting next fall with a capacity of 50,000. It also plans an electric-vehicle plant for Europe and is studying a plant for China.

The first Japan-built car goes on sale in the United States and Japan next year to fleet customers such as corporations and local governments. It will be a four-door hatchback seating five people -- about the size of the Nissan Cube or Versa--with a range of 100 miles per charge. Pricing isn't set.

Batteries are expensive. But Ghosn thinks rising oil prices will tilt the economics in favor of electrons. If crude oil rises above $80 a barrel, Nissan's electric vehicles will be cheaper to own and operate than gasoline-powered cars, he says.

Crude trades for around $70 a barrel today. Analysts say that will rise as the global economy recovers.

Ghosn aims for Nissan's electric cars, minus the battery, to cost as much as a standard car. Consumers will lease the battery at a cost that, including charging, will match what they would have paid for gasoline.

Chris Richter, an analyst with CLSA Asia-Pacific Markets, says, "If they can make good on Ghosn's promise of a price comparable to a normal car, I think people will lap these up."

Nissan hasn't said how much it is spending on its electric ambitions. The first of the three models costs as much to develop as three normal cars, a person familiar with the situation says. The total investment in battery and car assembly at Smyrna is expected to exceed Nissan's $1.6 billion loan from Washington, he says.

The machinery needed to make 50,000 batteries a year costs more than $300 million, he said. Add in other costs, and the price tag just for battery plants in the United States, Japan and Europe -- which together will make more than 300,000 battery packs a year -- could total about $1.5 billion.

Analysts ask whether Nissan's bid to take an early lead in electrics is worth the cost. Kurt Sanger, an auto analyst with Deutsche Securities Inc., says, "If the competition just sits back to see if it works and then uses its brand credibility to enter the market, there's no need to be first."

But Ghosn sees his bet as positioning Nissan for the future, not just beating rivals to market with a single model.

"It's a complete new lineup. Big cars, small cars, vans, light commercial vehicles, entry-level cars," Ghosn says. "It's a complete new way of looking at our industry."

By Hans Greimel- Automotive News