Can China Be the Answer to Nissan Motor Co.'s Electric-Vehicle Dilemma?

Jun Seki, head of Nissan's (NASDAQOTH: NSANY  ) Chinese joint venture with Dongfeng Motor, has recently told Bloomberg that "China is serious about pushing the adoption of new-energy vehicles, and no other country can compare with the subsidies that it's giving out". This aptly summarizes the situation at the Middle Kingdom where the government is battling alarming air pollution levels that have followed the waves of urbanization.

Automakers from all around the world are sensing enormous opportunity in the Chinese green car market that has triggered the start of a fight for market share. Nissan, with highest market share in the global electric vehicle space, is obviously at the forefront of action. Let's take a look at the company's playbook.


Nissan LEAF, Source: Nissan.

EV challenge
Ever since the Nissan and Renault strategic alliance was formed in 1999, the duo has poured billions of dollars in EV technology. In 2013, the alliance dominated the zero-emission car market with 63% share. The alliance sells several EVs, including the the global EV best-seller Nissan LEAF. In 2013, the alliance sold around 66,809 EVs, 52% higher than a year-ago. LEAF posted a sales gain of 77% in 2013, commanding 45% of the global market. 

Despite these encouraging numbers, concerns remain over the slower than expected worldwide adoption of EV technology. In 2013, out of the 85 million global auto sales, EVs found just 200,000 buyers. The high price tags and lack of frequent charging stations for these cars remain big hurdles.

Speaking about the alliance's goal of selling 1.5 million electric vehicles by 2016, Carlos Ghosn, chief of both Nissan and Renault, had told Financial Times last November that "We will not be there, at the speed right now, I'm seeing it more four or five years later."

China focus
China's government has a strong preference for EVs, and is taking aggressive actions to popularize this technology. Last year's sales of 14,604 purely electric vehicles are next to nothing given that 22 million vehicles were sold there. But the government is planning to build close to 400,000 charging stations by end of 2015, which could give EV sales a boost. The government also offers subsidies up to 60,000 yuan ($9,800) in several Chinese cities, and exempts EVs from the stringent license-plate regulations. 

Many global automakers are betting on China's EV market evolution and making aggressive announcements. Volkswagen (NASDAQOTH: VLKAY  ) is planning to launch more than 15 electric cars in China by 2018. In April, Reuters reported that the German auto giant intends to roll out electric versions of the up! city car and the Golf hatchback later in the year. Plug-in hybrid versions of the Audi A3 and Golf GTE would be out next year.

BMW is also convinced that China could be the planet's biggest EV market by 2019. The company's electric model i3 is expected to run on China's roads by September this year. Seki expects EV sales in China to rise annually to 100,000-400,000 vehicles by 2018, and wants Nissan to capture 20% or even more market share by then. 

Road map
Until recently, Nissan's EVs were imported from Japan and there was huge price gap with the EVs locally manufactured by companies like BYD or Chery Automobiles. Chery's QQ3 electric powertrain is available at a sticker price of around 49,800 yuan  ($7,985 at current exchange rate) whereas the imported Nissan LEAF is priced around 200,000 yuan ($32,071 at current exchange rate). 

To counter this, Nissan has decided to make EVs locally in China through its joint venture with Dongfeng. The first model named Venucia e30 could hit the market by September 2014. The Venucia e30 is basically the Chinese LEAF but without the import duties, giving the company the bandwidth to price the car competitively and take on the local rivals.

The Venucia e30 will be more spacious than the original LEAF and will run about 160 kilometers on full battery charge -- quite comparable with the locally built Chery's QQ3 which is a popular electric vehicle with a driving range of 100 kilometers. Nissan has already begun the pilot run of its e30 in the cities of Guangzhou, Xiangyang, and Dalian.

The Japanese automaker plans to invest around $322 million, and hopes to produce 10,000 units this year. This could increase to 50,000 units by early 2016.


The Venucia e30, Source: Nissan.

Last words
Nissan has taken a bold step by deciding to share its technology with its Chinese partner in order to manufacture EVs locally, but the price advantage could be worth it. The Chinese government is trying hard to make EVs and alternate energy vehicles a viable option for car buyers in the country. Nissan, with its global supremacy in EVs, is among the best contenders to reap rich returns if this happens.

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