Nissan's Leaf: iconic car or risky bet on emissions-free mobility?

This is the first of a two-part series.

SMYRNA, Tenn. -- Amid the lush green hills here, Nissan Motor Co. is placing a hefty bet on zero-emissions vehicles.

Under the leadership of Carlos Ghosn, the Renault-Nissan Alliance, a partnership between the Japanese automaker and French automaker Renault, has invested $5.3 billion in its electric vehicle (EV) program. Success of the Leaf, Nissan's flagship electric car, would go a long way toward vindicating that investment.

"The Leaf is not one car. It's a vision," Ghosn, chairman and CEO of the Renault-Nissan Alliance, said at a media gathering in Oslo, Norway, earlier this year.

Nissan received a $1.4 billion loan from the U.S. Department of Energy in 2010 to help shift production of the Leaf from Japan to Smyrna, Tenn., and to build out a state-of-the-art lithium-ion battery plant. Nissan is the only automaker to manufacture its own EV batteries at what has become the largest lithium-ion automotive battery plant in the United States.

Reporters got a glimpse inside the 450,000-square-foot plant on a guided tour this spring. The surgically clean facility buzzes with activity as robots piece together cells that end up being the size of a pad of paper. The plant has also added 300 workers, a number that could grow if production ramps up. The plant currently produces just enough batteries to match North American Leaf sales but has the capacity to produce up to 200,000 batteries per year.

The battery facility is about more than the Leaf, according to Nissan leadership. It really represents the company's long-term commitment to producing low-emissions vehicles for the mass market. Nissan is working from the bottom up, unlike Tesla Motors, which has been capturing headlines with the spiffy all-electric Model S. At $62,400 for the base model after the federal tax credit, the Model S is well outside the price range of the average consumer.

Across the board, EVs have been widely criticized for their high price tags and limited range. For those reasons, plug-in cars currently make up less than 1 percent of the U.S. automotive market. Yet Nissan has made zero-emissions mobility a cornerstone of its business strategy.

The stakes are high. Electric cars have been slow to win over consumers. Three EV makers -- Coda Automotive, Fisker Automotive and Better Place -- declared bankruptcy this year. Nissan could beat out other automakers in capturing a big chunk of a lucrative consumer vehicle market looking for better fuel efficiency. Or its gamble on electric cars could backfire.


A race with Toyota broadens

Toyota Motor Corp. took the auto market by surprise when Prius sales took off more than a decade after the hybrid car first went on sale. Earlier this month, the company passed the 3 million global sales marker. The "eco-conscious" reputation Toyota has gained from selling the hybrid car has given the entire brand an economic boost, said Cosmin Laslau, a research analyst in mobile energy for the Boston consulting firm Lux Research.

"For every other automaker, the challenge now is: How do you respond to that?" he said.

With the launch of the Leaf in 2010, Nissan became the first automaker to offer an affordable next-generation all-electric car in all 50 states. Since then, it has sold more than 25,000 units in the United States and sales are picking up. Leaf sales so far this year have tripled the number of Leafs sold in the first half of 2012. Some dealers have even been in short supply.

But an increasing number of automakers are getting in the pure-electric vehicle game, driven by consumer demand for cars that use less gas and by federal and state fuel economy mandates. Honda Motor Co., Mitsubishi Motors, Ford Motor Co. and General Motors Co. now also offer pure-electric vehicles, and other automakers are in line to follow suit. However, with rumblings that some car companies are only making plug-in cars in limited numbers for regulatory compliance purposes, Nissan representatives seem unfazed.

"We welcome other competitors because we think it offers consumers choices, it broadens the industry, it keeps the spotlight on the industry," Erik Gottfried, Nissan's director of marketing for electric vehicles, said in an interview. "But in the end, I think it's clear we've got the vehicle that was purposely engineered to be an EV specifically, and the market's received it really well."

The recently launched 2014 Chevrolet Spark EV could be a direct competitor to the Leaf, with an 82-mile range and a price tag below $20,000 after the federal tax incentive. The 2013 Nissan Leaf has a 75-mile range. However, the Spark EV is currently available only in California and Oregon.

"In terms of all-electric vehicles, Nissan is by far the leader in affordable mass-market cars," said Tom Saxton, chief science officer at Plug In America.

Lower prices but tougher competition

To make the Leaf more appealing to a wider audience, Nissan lowered the price of the 2013 model by $6,400. Factoring in federal incentives, Americans can bring home the base model Leaf for as little as $21,300. Based on the average price of gasoline in 2012, the Rocky Mountain Institute estimates Leaf owners can expect a three-year payback on their EV compared with a Nissan Versa Hatchback, one of the cheapest cars on the market.

The 2013 Leaf is also available at a competitive lease rate of $199 per month after a $1,999 initial payment.

Shifting both battery and Leaf production to Smyrna was a key element of the price drop. Previously, Leaf vehicles and their batteries were both shipped from Japan. According to Nissan, the move to Tennessee has minimized transport and logistics costs and reduced foreign exchange risks. The Leaf is also produced cost-effectively on the same assembly line as the gasoline-powered Altima and Maxima models.

Bringing the Leaf closer to the U.S. market has been a "fantastic move" to reduce costs, Laslau said. But the car is likely still being heavily subsidized, and he doesn't expect it will make Nissan money anytime soon.

"It might very well be that they don't make any money on this," he said.

While sales are ticking up, overall they're still well below expectations. Last year, Nissan sold half as many Leafs as it expected to. CEO Ghosn has had to concede that his goal of putting 1.5 million plug-in electric vehicles on the road by 2016 is out of reach.

Supporters have noted that EV sales, while slower than expected, are outstripping those of hybrids when they first entered the market. But according to Laslau, EVs will ultimately have a tougher time selling than hybrids because fuel economy regulations have pushed automakers to produce vehicles with highly efficient internal combustion engines (ICE) that have lower price tags than electric cars.

"To get to 54.5 mpg by 2025 ... automakers are going to make their ICE cars and microhybrids a lot better, and that's going to erode some of the value proposition of EVs," Laslau said. Microhybrids, which save fuel by automatically turning off the engine when the vehicle is stopped, can improve efficiency by more than 5 percent for a minor cost increase of around $500.

"It's a tough competitive landscape for EVs to compete in ... and it's only going to get tougher," he added.

Early EV adopters have generally been environmentally conscious consumers and luxury car buyers -- people who don't necessarily ask about payback periods or the total cost of vehicle ownership. To keep the market growing, automakers will have to prove EVs are a good overall value.

"Tesla buyers aren't price-sensitive; they just want a toy. They want the latest and greatest," said Jessica Caldwell, senior analyst with "To go mainstream, I think, people will need to see what the resale value is like, what the maintenance is like. There are just so many unknowns."

Looking for long-term benefits

But looking long term, Nissan sees EVs becoming mainstream out of both merit and necessity. Brazil, Russia, India and China -- nations with fast-growing economies, collectively dubbed BRIC -- accounted for 30 percent of Renault-Nissan's global vehicle sales in 2012. Forecasts expect vehicle sales in these markets to grow exponentially.

With world oil supplies already strained and the demand for mobility rising, "the logical next step is the electrification of the vehicle," according to Brendan Jones, director of electric vehicle infrastructure strategy at Nissan North America.

"It's positive for our business. That's what we know," said Brian Brockman, senior manager of corporate communications at Nissan North America said of vehicle electrification. "Our commitment is to zero emissions and ... the reach of this program goes beyond just one car."

Nissan launched an EV taxi pilot with the Leaf in New York earlier this year and will install several direct-current fast chargers that enable drivers to recharge in 20 minutes. The company plans to build a total of 600 rapid car chargers across the country by the end of March next year. The battery plant also positions Nissan to be a leader in electric drive technology.

"Our thoughts are, we have the best battery in the industry, so if we have excess capacity and we have customers that want to buy our battery, we're willing to sell it to them," Jeff Deaton, EV battery plant manager for Nissan America, said on a tour of the facility. "Also, within the Nissan family, we could export to other plants if they have a shortage."

By making its own batteries, Nissan is able to closely monitor their quality. With concerns lingering in the wake of battery fires involving the Chevrolet Volt and Boeing's 787 Dreamliner aircraft, Nissan can't afford any battery issues.

Nissan hopes to become to electric vehicles what Toyota is to hybrids -- a brand almost synonymous with the technology. This approach may already be paying off. According to Nissan surveys, about 80 percent of customers that walk into the company's showrooms are new to the brand.

"[The Leaf] represents Nissan as an innovative brand," Jones said. "Our opportunity to pick up another sale in that household and increase our brand representation in the marketplace is exceptional.

"But we're not doing it because of that, that's just a great benefit," he added. "We're doing it because this company is so solidly behind this vehicle. It's a 50-state play. We believe in it."

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