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Nissan Leads Charge as Automakers Test U.S. Electric-Car Market
2010-12-29 22:00:00.7 GMT
By Eric Pooley and David Welch
Dec. 30 (Bloomberg) -- Most of the drivers on U.S. Route
101 in Marin County, California, on a foggy December morning are
oblivious to the black snub-nosed car gliding along beside them.
Every so often, someone does a double take, gives a thumbs
up or snaps a cell-phone picture, because the car in the next
lane is one they've never seen before: Nissan Motor Co.'s Leaf,
the world's first affordable, mass-produced electric vehicle.
This particular Leaf happens to be No. 1, the first sold
anywhere. At the wheel is Olivier Chalouhi, who took delivery an
hour earlier amid some impressive hoopla at a Nissan dealership
in Petaluma. Now, driving south to San Francisco with Nissan
Americas Chairman Carlos Tavares riding shotgun, Chalouhi, a
31-year-old Web entrepreneur, is explaining how he came to be
the first person to buy this car.
His voice is soft but easy to hear from the back seat,
Bloomberg Businessweek reports in its Jan. 3 issue. With no
internal-combustion engine, the Leaf, which sells for about
$25,000 after a $7,500 federal tax credit, is eerily quiet,
almost as cocoonlike as Nissan's $50,000-plus Infiniti M.
"It all started when I saw an ad for the Chevy Volt,"
Chalouhi says.
General Motors Co.'s Volt, which started shipping to
dealers in mid-December, is the Leaf's chief competitor
in the green-car sweepstakes. It runs for about 40 miles
(64 kilometers) on an electric charge before a small gasoline
engine kicks in to recharge the battery.
'No Tailpipe'
That gives the Volt more than 350 miles of range, unlike
the Leaf, which runs for 60 to 100 miles, varying with weather
and terrain and driving style, before needing a recharge that
can take 30 minutes to 7 hours, depending on the strength of the
charger. The Volt's gasoline engine makes it less attractive to
some eco-minded consumers such as Chalouhi.
"In all the articles I read about the Volt, the Leaf was
discussed as well," he says. "As soon as I found out about the
Leaf, I forgot about the Volt. The Volt wasn't going to project
the image I wanted. It has a tailpipe."
"The Volt is a hybrid, a very nice hybrid," Tavares, 52,
says from the passenger seat. "But we see it as a transitional
vehicle and we were always of the opinion that we were providing
the ultimate destination: 100 percent clean. No emissions. No
gasoline. No tailpipe."
The energy chain is more complicated than that. The
electricity powering a Leaf may or may not come from low-
emission sources.
Plenty of Pep
Right now, it's time to enjoy the ride. Chalouhi turns off
the highway and guns the car up a steep, winding road in the
Marin Headlands overlooking San Francisco Bay. The Leaf is
surprisingly agile and sure-footed. Its electric motor has
plenty of pep, and 600 pounds (270 kilograms) of laminated
lithium-ion batteries below the floorboards help it hug the
road.
Chalouhi is having fun with the tight turns heading into
the hills, where Nissan has stationed a media team to capture
the moment with some suitably dramatic images. Alas, the Golden
Gate Bridge is hiding behind the fog, making the glamour shot
impossible, so Chalouhi guides the car back down toward 101
while a product manager, Paul Hawson, briefs him on the next
photo op, at City Hall in San Francisco.
"At the end of the ceremony, you and Mr. Tavares will go
to the car and plug in the charger together," Hawson says.
Chalouhi looks worried and says, "So I'm not going to be
charging for long?"
"A short amount of time, yes," Hawson says.
'Range Anxiety'
Chalouhi lives 35 miles to the south in Redwood City; the
Leaf's sophisticated navigation screen is telling him he has
37 miles left before his battery runs out of juice. The owner of
the first mass-produced electric vehicle, in other words, is
experiencing his first twinge of what marketers at Detroit-based
GM have helpfully named "range anxiety."
"So I won't get much charge at City Hall?" Chalouhi says.
"You'll get some," Hawson assures him. "You'll get home.
We'll make sure you get home."
The psychology of the U.S. car buyer is the biggest
roadblock Nissan must get past for the Leaf to become the hit
that the company promises it will be. Carlos Ghosn, chief
executive officer of Yokohama, Japan-based Nissan, likes to
point out that 95 percent of drivers travel fewer than 100 miles
a day, making the Leaf practical for most.
'Risk Aversion'
Yet practicality doesn't always translate into peace of
mind. A recent study by Synovate Motoresearch, a unit of London-
based Aegis Group Plc, showed that 60 percent of 1,600 U.S.
consumers surveyed think their gasoline-powered cars are
reliable. Only 30 percent of those surveyed think hybrid-
electric cars are reliable, even after a decade of virtually
trouble-free performance, and just 10 percent think electric
cars will be trouble-free.
"The main thing holding back electric vehicles is the
customer," says John German, a former strategic planner for
Honda Motor Co. who is now a program director for the
International Council on Clean Transportation, a Washington-
based advocacy and research group. "It's risk aversion."
Nissan and GM missed the decade-long trend toward gasoline-
electric hybrid vehicles. Toyota Motor Corp.'s Prius car
dominates that segment, which still accounts for less than
3 percent of all vehicles sold in the U.S.
When Ghosn joined Nissan as chief operating officer in
1999, the company was flirting with bankruptcy. As CEO starting
in 2001, he slashed 60 percent of its research and development
projects while keeping the battery program that led to the Leaf.
R&D Spending
In 2005 he also became CEO of Renault SA, which owns
about 44 percent of Nissan, while Nissan holds 15 percent of the
French automaker. The Renault-Nissan alliance has now spent more
than 4 billion euros ($5.3 billion) developing electric vehicles
and batteries, according to the company.
Both Nissan and GM began work on their new electric
vehicles in 2006, when the rest of the auto industry had more or
less given up on such cars after a brief foray in the late 1990s
and early 2000s.
When Nissan announced its project that year, "nobody took
us seriously," Ghosn, 56, says in a telephone interview. "We
had many very ironic comments coming from our competitors about
the illusion of the electric car."
The sniping never stopped. Former GM Vice Chairman Bob
Lutz, who helped develop the Volt, told Bloomberg News in
January that all-electric vehicles were still years away from
widespread adoption.
"He's rolling the dice," Lutz said of Ghosn's battery-
only approach. "I don't see it happening."
Earlier Fiasco
Until a battery emerged with better range at less cost, the
industry decided, all-electric vehicles were too limited for the
mainstream. Some investors still seem to agree. Electric-car
maker Tesla Motors Inc.'s shares dropped 15 percent on Dec. 27,
after insiders' lockup period expired.
Everyone remembered the fiasco of the abortive electric-
vehicle era, from 1996 to 2003, when California required GM and
other carmakers to offer such models. The cars were too
expensive to be profitable, so the automakers succeeded in
overturning the state mandate, then scrapped the program.
In GM's case, the company crushed many of the cars, called
EV-1s, a public-relations nightmare captured in the 2006
documentary "Who Killed the Electric Car?"
Now, "everybody is competing for the electric-car
market," Ghosn says. "People who don't really have an electric
car are saying, 'We have one, too.' Even the hybrids want to
look electric, which was not obvious four or five years ago. My
call was the right one. It doesn't always work out that way, so
you're happy when you're vindicated."
Government Pressure
His declaration of victory may be a little premature. For
one thing, major automakers no longer have a choice about going
electric. They have to, largely because of government mandates.
California law requires the largest automakers to have low- or
no-emissions cars in their fleets by 2012. The new fuel-economy
standards of U.S President Barack Obama's administration raise
fleet-average requirements to 35.5 miles per gallon by 2016, a
40 percent improvement over current levels. Such rules make
having a zero-emissions vehicle a smart way to balance out the
gas guzzlers.
More than a dozen electric and plug-in hybrids are slated
to go on sale in the next two years, and entries from carmakers
such as Ford Motor Co., Honda, Toyota and Mazda Motor Corp. will
be on display at the Detroit auto show, which begins on Jan. 10.
Biggest Bet
Still, Nissan is the only major automaker betting so
heavily on all-electric technology. GM is hedging, with cars
that run on electricity while using a gasoline engine to
recharge.
Honda has put its research and development muscle into
hydrogen fuel-cell technology, which remains prohibitively
expensive. Each Honda FCX Clarity hydrogen vehicle costs the
automaker more than $100,000 to produce, according to K.G.
Duleep, a fuel-cell analyst at Energy & Environmental Analysis
Inc., an Arlington, Virginia-based consulting firm.
Bayerische Motoren Werke AG, Volkswagen AG and Daimler AG's
Mercedes-Benz have focused on ultra-efficient diesel engines.
Toyota's main electric-vehicle offering is an incremental play:
a plug-in Prius that adds about 15 miles of all-electric range
before the hybrid motor takes over.
Market Skeptics
It remains to be seen whether this flood of supply will
meet with sustainable demand. In a report called "Drive Green
2020: More Hope Than Reality," marketing-research firm J.D.
Power & Associates projects that in nine years, battery-electric
models such as the Leaf will have annual sales of only about
100,000 units in the U.S. and 1.3 million globally, or about
1.8 percent of the 71 million vehicles expected to be sold.
Another 3.9 million hybrids and plug-in hybrids will be
sold worldwide in 2020, bringing the total electric and hybrid
market to about 7 percent, the Westlake Village, California-
based firm estimates.
"While most consumers say they want to create a smaller
personal carbon footprint, research shows this consideration
carries relatively low weight in the vehicle purchase
decision," the J.D. Power report says.
Other studies are more bullish. Bloomberg New Energy
Finance projects that plug-in cars such as the Leaf and the Volt
may make up 9 percent of U.S. sales by 2020 and 22 percent by
2030. Yet after 10 years as the world leader in hybrid sales,
Toyota has never sold more than 187,000 Priuses in the U.S. in a
year, about the same number as Hyundai Motor Co.'s Sonata sedan.
Prius sales reached that peak in 2007, just before the financial
crisis began, and have dropped since then as lower fuel prices
have lured Americans back to sport-utility vehicles.
Boosting Production
Now consider Ghosn's projections for the Leaf. Nissan will
produce only about 50,000 this year and next. Then by the end of
2012, three new Leaf plants will be operating -- in Oppama,
Japan; Sunderland, England; and Smyrna, Tennessee -- with a
total capacity of 500,000 cars a year and the ability to
increase to 1 million, just as all those competing electric
vehicles and hybrids from Toyota, Volkswagen's Audi and Ford
will be coming to market.
Ghosn is the first to admit that he's making a huge bet. It
may not be an altogether crazy one.
Tom Turrentine is director of the Plug-in Hybrid Electric
Vehicle Research Center at the University of California, Davis.
An anthropologist by training, Turrentine has joined with major
automakers to conduct a series of detailed studies of Americans
driving electric cars -- not just enthusiasts of such models,
but regular people.
'Having Fun'
As his team observed the driving habits of more than 300
households with vehicles such as electrified BMW Minis, plug-in
Priuses and Nissan Hypermini two-seat electrics during the past
several years, the data told him that such models "were never
going to be 'just like' internal-combustion cars."
"There's something about electric drive, with its quiet
glide and immediately available torque, that drivers really
enjoy," Turrentine says. "Even when they aren't going fast,
people think they are having fun. Engineers at BMW tell me it's
the way the cars accelerate. You don't have clutches and
transmissions, so your accelerator pedal is feeding electricity
directly to the motor, and you feel it accelerate the car.
There's nothing in between you and the tires. Some people fall
in love with that feeling."
For all his confidence, Ghosn understands the immense
challenges to expanding Leaf sales. That's why, for the past
three years, his company has had a team of traveling executives,
called the Zero Emission Mobility Team, meeting with city, state
and utility officials around the U.S. to solve infrastructure
problems such as the permitting process for home chargers and
the need to create a network of high-speed public chargers in
cities and along interstate highways.
'Whole New System'
"We are not the provider of just a car this time," he
says. "We are the provider of a whole new system."
Utilities may welcome the opportunity to sell more
electricity, while they also worry about the load. Several new
electric vehicles suddenly plugged into the same suburban block
could fry a local transformer.
More difficult is installing the needed network of charging
stations, both in the home and in public, to allay range
anxiety; 13,000 public chargers are expected to be in the ground
by the end of 2011. The U.S., by Nissan's count, has 106,000
gasoline stations.
'Pragmatic Majority'
The most important issue has to do with customer education
and acceptance. To appeal to the "pragmatic majority" of
buyers, Nissan needs to sell the cost advantage of ownership:
Year in and year out, electric vehicles cost far less to own and
operate than internal-combustion models -- about 2 cents a mile
to drive, compared with about 13 cents a mile for an average
gasoline-powered car, according to the automaker. They also are
less expensive to maintain.
To buy Leafs in serious numbers, these pragmatic men and
women need to be able to imagine themselves behind the wheel of
an electric vehicle. For the product to be competitive, Nissan
also must keep the price down. Nissan makes its own batteries in
a joint venture with NEC Corp., and they account for roughly
half the cost of the car, making the initial price of an
electric vehicle more than that of comparable gasoline-powered
models.
For now, federal and state tax credits and rebates are
required to make the cars cost-competitive. The Leaf's sticker
price of about $33,000 is $10,000 more than a well-equipped
Honda Civic, for example. With the $7,500 federal tax credit,
along with rebates and tax credits available in 16 states, such
as a $5,000 price break in California and a $4,500 rebate in
Hawaii, the electric vehicle becomes competitive.
Economies of Scale
Assuming the new Congress doesn't roll it back, that
federal tax credit is available to the first 200,000 electric-
vehicle customers of each automaker. When it runs out, Nissan
expects to be selling so many Leafs that economies of scale will
bring costs down. Ghosn says the company needs to sell between
500,000 and 1 million Leafs a year to enjoy those economies.
"Then we'll be able to compete without any government
subsidies," he says. "Our battery costs are already coming
way, way down. Everybody in the business has estimates, but
nobody really knows everything we're up to. The Leaf is going to
be one of the most profitable products Nissan has ever made."
While Ghosn was planning the Leaf in 2006, Lutz and Jon
Lauckner, GM's vice chairman and director of product planning at
the time, were also trying to dream up an electric car that
would leapfrog the Prius. Like Nissan, GM was after some much-
needed public acclaim and green credibility. The company had
been derided for shutting down its EV-1 and crushing the cars,
and Lutz thought a pure electric vehicle that used no gasoline
would be a public-relations coup.
'Game-Changing Concept'
Lauckner, now president of General Motors Ventures LLC, the
automaker's technology venture-capital group, studied U.S.
driving habits just as Ghosn and Tavares were doing at Nissan.
Where Nissan focused on the fewer than 100 miles a day traveled
by 95 percent of drivers, Lauckner lingered over another set of
numbers: 78 percent drive fewer than 40 miles a day.
He figured a car equipped with enough battery power to go
that far, plus a gasoline engine to recharge it on the fly,
"would be a game-changing concept that would address the
shortfalls of electric vehicles on one side and go beyond the
top hybrids on the other. We wanted this to be someone's first
car, not their second or third commuter car."
Forget About Gasoline
Lauckner showed Lutz a schematic for the Chevy Volt, a car
that would allow many drivers to forget about gasoline unless
they were taking a special trip. Someone with a 30-mile commute
would get roughly 150 miles per gallon, and the car would travel
well over 300 miles on a tank of gas.
The U.S. Environmental Protection Agency, using a new
metric designed to compare different fuel types, now estimates
the Volt's average fuel economy at 93 "mpg equivalent" in
electric mode, 37 in gas-only. The Leaf's mpg equivalent is 99.
Later that summer, Lutz and Lauckner took the proposal to
then-CEO Rick Wagoner, who had killed GM's EV-1 after $1 billion
in investments because he was convinced consumers didn't want
it. Wagoner bought into the idea.
Once Wagoner and GM's board approved, engineers had to
build the thing. Getting beyond the early adopters and selling
to the public meant GM needed to offer more than just fuel
economy, especially since the Volt was going to list at more
than $40,000 before tax credits.
History Books
The car had to be upscale without being a luxury vehicle,
says Tony Posawatz, the Volt's vehicle line director. In his
small office at GM's Vehicle Engineering Center in suburban
Detroit, Posawatz pulls out books on the history of electric
vehicles, which date back to 1881 and outsold gasoline-powered
cars in the early days. Henry Ford's wife drove one.
Posawatz points to a 1910 ad for the Baker Electric.
Beneath a drawing of a woman at the wheel, the ad copy boasts of
the "quietest and most refined electric car." Back then, he
says, electric-car makers such as Baker, Detroit Electric and
Waverly Electric targeted women, who wouldn't have to crank a
starter or tolerate the noise and soot of gasoline-powered cars.
No one has to crank a car anymore, while electric cars are
still quiet and clean. That meant that even if the Volt wasn't
going to be a luxury car, it could be premium in many ways. A
near-silent ride would be a selling point. Like Nissan's
engineers, Posawatz knew that when you get rid of a car's
exhaust note, the vehicle is so quiet that passengers get a
bigger dose of road and wind noise.
Smoothing Ride
In conventional cars, "the gasoline engine masks a lot of
your sins," Posawatz says. The engineers worked to tighten the
gaps between doors and body panels to reduce wind noise, then
packed the car with sound-deadening material to hide the growl
of the gasoline engine when it's running. GM also engineered a
body that is stiffer than most luxury cars to give it a smoother
ride and more precise handling, something the hybrids on the
market traditionally do not offer.
With 80 percent high-strength steel and a buttoned-up body,
the Volt is as stiff as most luxury sports cars, built to handle
hairpin turns. It drives as well or better than a Leaf. One
thing is certain: Neither will ever be mistaken for a golf cart.
In the spring of 2008, more than 2 1/2 years before the
Leaf would go on sale and a year before Ghosn showed it off in
public for the first time, Nissan gathered executives from
governmental affairs, product planning, communications, sales
and marketing to create its Zero Emission Mobility Team.
Spreading Message
The team had a huge job: prepare America for the electric
vehicle by creating Leaf-friendly policies in states with
progressive environmental agendas. That meant joining with local
officials and utilities to encourage tax incentives, and
streamlining the permitting and installation process for home
chargers while building a network of public charging stations
and educating drivers about the advantages of electric vehicles.
Doing all of that meant the carmaker would have to
establish relationships with a range of players it hadn't dealt
with before. And it meant Nissan would have to insert itself,
for the first time, between its dealers and their customers.
"We've never had to organize anything like this," says
Brian Carolin, Nissan's senior vice president for sales and
marketing in North America. "I know how to sell cars, and after
26 years with this company, I like to think I understand
American psychology. But this is the most interesting and
demanding car launch I've ever been involved with. I have a
portfolio of 17 Nissan nameplates, half a dozen Infinitis and
one Leaf. I spend a wildly disproportionate amount of my time on
the Leaf."
Choosing Markets
Mobility Team executives Tracy Woodard, from government
affairs, and Mark Perry, from product development, toured the
country together meeting with activists and officials, figuring
out which markets to sell into first. They sorted potential
markets according to three main criteria.
First, they looked for places that had electric-vehicle
incentives left over from the late 1990s and early 2000s. Then
they pored over maps showing the density of hybrid customers --
of the early Leaf buyers, 80 percent have never owned a Nissan
before and almost half have owned Priuses. Third, they focused
on states where the local utilities were comfortable with the
idea and willing to upgrade their grids if needed.
They came up with a Wave One map that included Washington,
Oregon, California, Arizona, Tennessee, Texas and Hawaii. Wave
Two will follow in the late summer and early fall of 2011,
continuing around the Sun Belt and then up the East Coast. By
limiting early sales to just seven states, Nissan can help
achieve a critical mass of charging stations.
Of the 13,000 stations expected nationwide by the end of
2011, almost half will be on the West Coast. Limiting the market
also means Nissan will have to train, initially, only 163 of its
1,000 U.S. dealers to sell and service the car.
Meeting With Stakeholders
In the summer of 2008, Woodard, 45, and Perry, 53, began
reaching out to "conveners," influential local officials and
activists who could bring together groups of stakeholders. In
the fall, they held their first major meeting in San Francisco,
organized by Jack P. Broadbent, CEO of the Bay Area Air Quality
Management District.
"Nissan did this right," Broadbent says. "They got here
six months before the competition, and they broke through the
lingering suspicion of the activists."
They invited electric-vehicle evangelists such as Paul
Scott to drive the Leaf on Nissan's test track in Yokohama.
Scott, vice president of the activist group Plug In America,
then blogged favorably about the experience.
The company also donated $25,000 to Plug In America, says
Scott, who now sells Leafs at Santa Monica Nissan.
"We're not bought off," he says. "What won us over is
the fact that they're making this EV."
'Bandleaders,' 'Cat Herders'
As Woodard and Perry met more people, they categorized
their local partners into personality types such as
"bandleaders," "trail bosses," "cat herders." What they
had in common, Woodard says, was that "they know everybody. And
when they invite people to meetings, the people come."
Not long ago, Woodard counted up the business cards she had
collected from stakeholder meetings: 1,400 people in 307 cities
in 27 states.
"It's a very hands-on, personal thing," she says. "And
we surprised them, because this time, unlike regular lobbying,
the ask isn't for the company. The ask is for the customer: Give
the EV buyer incentives. Set up EV charging systems. Streamline
the permitting process for home chargers."
There were plenty of cities where the local leaders looked
at Woodard and Perry as if they each had six heads, yet mostly
there was enthusiasm, even impatience. Perry came across a local
news article announcing that the Oregon-based utility Portland
General Electric Co. was installing 100 charging stations, and
Nissan hadn't even visited Portland yet.
'Getting Ready'
"What are they doing?" he asked Woodard. "There's
nothing to charge."
"They're getting ready for us," Woodard replied.
While traveling the country, she and Perry began to hear
footsteps.
"We almost thought there was a bug in our luggage, because
after we'd leave a town, there'd be another visitor coming right
behind," Woodard says.
Usually it was Britta Gross, GM's director of global energy
systems and infrastructure commercialization, paving the way for
the Volt. Sometimes it was an executive from Ford, Mitsubishi
Motors Corp. or Toyota.
"That was fine, because we were saying about 80 percent
the same things," Woodard says. "Leaf is more dependent on
electric charging than Volt, but we were all talking about
infrastructure, planning, permits and charging installation. It
gives credibility and scale. It helps if cities know there's a
lot of interest."
Getting a Charger
Charging an electric car with a standard 120-volt outlet
can take as long as 18 hours. You need six to eight hours to
charge one with a more powerful 240-volt outlet. Buying a
station today means contacting a utility to see if the
neighborhood transformer can handle the load, getting a
contractor to install a 240-volt charger in your garage and
having the city inspect it.
It can cost anywhere from a few hundred dollars to $3,000
and take a month or two, says Ed Kjaer, director of plug-in
vehicle readiness for Southern California Edison Co., a
Rosemead, California-based utility that has had electric cars in
its fleet since 1998.
Nissan, and to a lesser extent GM, needed to make the
process easier for both customers and utilities. So Nissan hired
a contractor, Monrovia, California-based AeroVironment Inc., to
help Leaf buyers with the installation process. Woodard and
Perry also made deals with local utilities, agreeing to let
those companies know, with customers' permission, if Nissan sold
a Leaf in their territory.
'Two Hair Dryers'
As Woodard and Perry discovered, "there are 3,000
utilities in the U.S., with 3,000 stories," Perry says. "So
this is a regional issue. In Houston, with massive homes and AC
loads, adding an EV is no big deal. A San Francisco row house
will have a much smaller load."
An electric vehicle charging at 240 volts draws 3,300 watts
of power. A hair dryer may draw 1,600.
"So we're two hair dryers," Perry says. "If that will
cause a neighborhood transformer to blow, you've got bigger
problems than EVs. To Portland General Electric, we were like
three plasma TVs. To NRG in Houston, we were a mosquito. Our
message was, 'We're coming, and we don't want to be your pain
point, but you need to get ready.'"
Soon they were giving presentations at utility conferences,
places where car companies had never showed up before. And
before long Southern California Edison was setting up a booth at
the Los Angeles auto show.
Becoming 'an Appliance'
"We'd been speaking two different languages, but gradually
we learned to communicate," Perry says. "The breakthrough came
when they started calling us 'an appliance.' As car guys, we
freaked over that. But it meant we were accepted."
Part of what makes the emerging electric-vehicle economy so
intriguing is the large number of unknowns. How will drivers of
them choose to charge their vehicles? The best guess of industry
executives is that 80 percent of charging will take place at
home. Public chargers may be no more than a security blanket,
yet retailers already are lining up to offer them.
In Tennessee, restaurant operator Cracker Barrel Old
Country Store Inc. announced on Nov. 30 that it would install
chargers at 24 of its interstate locations, part of an intercity
network that will link Nashville, Chattanooga and Knoxville. The
company called it a return to its roots: When the first Cracker
Barrel opened in 1969, it sold both food and gas.
Unanswered Questions
No one yet knows how Cracker Barrel or other retailers will
generate revenue from these charges. They can't sell electricity
directly to customers -- in most states, only utilities and
merchant generators can do that -- though they could charge for
a half-hour in the parking space next to the charger.
There are other open questions. Will customers happily pay
for flat-fee, unlimited-use charging plans such as the one NRG
Energy Inc. is rolling out in Houston? Or will they prefer to
buy their charges a la carte, for a service fee similar to the
one at an ATM? Will higher prices stop "opportunity chargers"
who top up their vehicles after work, even if they don't really
need the charge to get home? Or will people pay any price
because they want the peace of mind an afternoon charge can
bring? What does that market look like? Is it different by hour
of the day, by demographics? Nobody knows.
Green Debate
Inside the green-car community -- the world of academics,
analysts, policy makers and environmentalists who spend their
days worrying about transportation emissions -- there's also a
lively debate about which kind of low-emissions car is greenest.
The Leaf produces zero emissions, and according to numerous
studies touted by Nissan, even if the electricity that powers it
comes from a coal-fired plant, its carbon footprint is smaller
than that of an average gasoline-powered car. If its electricity
comes from solar, wind, hydro or nuclear power, then the Leaf is
an unassailably zero-emission vehicle. And Nissan executives
point out that U.S. electric generation is getting cleaner.
A GM Volt's true emissions are harder to determine, because
it can be driven in all-electric mode or with a gasoline assist.
For now, the heavy batteries that store the power in Leafs
and Volts are still too expensive to be the most cost-effective
option, according to a 2009 study by engineers at Carnegie
Mellon University in Pittsburgh. The study also found that plug-
in vehicles with 40 or more miles of all-electric range "do not
offer the lowest lifetime cost in any scenario, although they
could minimize greenhouse gas emissions."
Best Mix
Lighter plug-in hybrids with about 10 miles of all-electric
range appear to offer the best mix of price, charging time and
efficiency, according to Jeremy Michalek, the Carnegie Mellon
mechanical engineering professor who led the study. Plug-ins of
this sort -- the Prius, due in 2012, will be one -- work best
for urban drivers who can charge every 20 miles or so, he says.
All of these plug-in cars are far cleaner and cheaper to
operate than what most Americans drive now.
In August 2009, Ghosn unveiled the Leaf at a ceremony
dedicating Nissan's new headquarters in Yokohama. That same
month, Nissan opened a Leaf website and asked visitors to
register if they wanted to learn more.
Within a year they had 175,000 "hand-raisers" without
running a single television spot for the car. The number has
since risen to more than 250,000. It didn't cost a cent to
register, and rivals downplay the hand-raisers' significance.
Nissan says it has used them to bring some 50,000 people to Leaf
test-drives around the country and for surveys and focus groups.
Taking Reservations
On April 20 of this year, a month after the company
announced pricing for the vehicle, it invited the hand-raisers
to make an online "reservation" by putting down a refundable
$99 fee. Nissan got 6,000 reservations in the first 24 hours and
20,000 within five months, three months ahead of schedule. Now
that the company is inviting small groups of those who reserved
to contact a dealer and order a Leaf, about half of them are
actually ordering a car. The ones who don't order now can still
do it when and if they are ready.
Complexity and cost have alienated at least one prospective
Leaf buyer. Kenneth Shiels, a 64-year-old retired teacher in El
Granada, California, put down a $99 deposit for a Leaf on
April 20. He owns a Prius and a 2000 Honda Insight, the first
hybrid on the U.S. market, and was dying to get into an electric
vehicle.
Balking at Costs
Nissan contacted him in August, inviting him to pay $100 to
AeroVironment in exchange for an inspection of his electrical
wiring and an estimate of the charger's installation cost.
Shiels didn't go for it. He guesstimated that the installation
would set him back about $2,400. He added that to the $3,190 in
sales tax he would pay on the $33,720 Leaf LS, and figured he
was spending close to $40,000 before the federal government's
$7,500 tax credit and California's $5,000 rebate brought the
price back down.
"I'm losing interest," he says. "I was excited, but I
think I'll pull out of this. I felt like the initial price I saw
in April was a come-on, and then it went sky-high."
Nissan says it's delighted by consumer demand for the car,
demand so strong it can't make enough Leafs until 2012. There
are no demos to be found at Nissan dealers; every Leaf made is
going to paying customers, because Nissan believes word of mouth
will be the most powerful seller.
Waiting for Delivery
Customers allowed to order a Leaf can expect to wait four
to seven months for it to be built to specifications. More than
2,500 Americans have now bought the car and will take delivery
in coming months. Additional waves of U.S. buyers will be
invited to order cars until some 20,000 have been sold by the
end of 2011. If you get to order one in the spring, you'll see a
Leaf in your driveway by the fall.
Few doubt that in the next year or two Nissan will be able
to sell the 50,000 Leafs it can produce globally. As production
ramps up to 10 times that, Nissan will need to draw customers
from beyond the circle of green enthusiasts. If gasoline prices
rise and the Leaf proves to be reliable and delivers its
promised range at a fraction of the cost of gasoline-powered
cars, Nissan might just pull it off.
When mainstream pragmatists test the waters, they may be
tempted to do so with a vehicle that uses a conventional
gasoline-powered engine to augment its electric range. They may
opt for a plug-in Prius. GM thinks they'll choose the Volt.
Nissan is happy that so much of the electric-vehicle
conversation now revolves around their company.
"We want people to be talking about Nissan as the brand
that brought this car to the masses," says Carolin, the
company's marketing boss. "The big prize for me is not how many
Leafs I sell. It is, 'How can I use the Leaf to build and
improve the Nissan brand?' I've worked for the company for many
years, and we've never had a single point of focus. The lack of
focus of this brand has been an issue globally. The gift of the
Leaf is that it gives precision to what we stand for. Now we
have a message. We stand for innovation."
For Related News and Information:
Nissan earnings data: 7201 JP <Equity> CH1 <GO>
GM and alternative energy: GM US <Equity> TCNI ALTNRG <GO>
U.S. gasoline price graph: 3AGSREG <Index> GP D <GO>
Autos and climate change: TNI AUT CLIMATE <GO>
--With assistance from Alan Ohnsman in Los Angeles. Editors:
Josh Tyrangiel, Bryant Urstadt, John Lear
To contact the reporters on this story:
Eric Pooley in New York at +1-212-318-2000 or
epooley2@bloomberg.net;
David Welch in Southfield, Michigan, at +1-248=827-7131 or
dwelch12@bloomberg.net
To contact the editor responsible for this story:
Josh Tyrangiel at +1-212-617-3331 or jtyrangiel@bloomberg.net
