The U.S. electric vehicle market is on fire, with nearly 33% sales growth in the first half of 2014 over the same period in 2013. And if we consider that sales in the first half of the year are usually slower than in the second, the category is in for a great run this year. In the midst of this sales windfall, Nissan's (NASDAQOTH:NSANY) EV, the LEAF, is winning the highest number of customers. LEAF is the best-selling EV not just in the U.S., but around the world. But this wasn't always the case -- LEAF has had a bumpy journey to the No. 1 spot. Here's a look at its ride to the top and what Nissan is doing to maintain its dream run as rivals inch closer.
LEAF's ups and downs
Nissan's LEAF appeared in the U.S. in late 2010, the same year in which General Motors (NYSE:GM) rolled out its Chevrolet Volt. The LEAF was a pure EV, claiming coverage of 100 miles per full charge, while the Volt was a hybrid vehicle, which used a gasoline engine for extending the mileage after 40 miles, stretching it to 379 miles on a full tank and one full charge. The former had a starting price of $32,780 and the latter $41,000. However, both vehicles were eligible for a federal rebate of $7,500 and state rebates as applicable.
The extended range proved to be a big scoring point for Volt, especially when, soon after the launch, the EPA certified the LEAF's range at 73 miles. This meant that while LEAFs were good choices for daily commutes to work and back, they were totally ruled out for long trips. But surprisingly, the LEAF outsold the Volt in 2011 -- for a simple reason. In California, the largest electric car market in the U.S., Volt owners were not entitled to get the State's High Occupancy Vehicle (HOV) Lane access stickers. These prized stickers allowed commuters to drive in HOV lanes if they carried two or more passengers in the car or the car had low to zero tailpipe emissions. Unfortunately, Volt's gasoline engine burnt fossil fuel and therefore produced carbon emissions.
The scenario changed with the arrival of low-emission Chevy Volt models in February 2012. Sales of LEAF slumped, and the growing demand for Volts in California was not the only reason. Customers were unhappy with LEAF's actual mileage, which was much lower than promised. Other pain points were what were seen as unattractive wheels and gray cloth seats, and issues with the battery, charging port, and heaters.
To boost sales, Nissan improved its range to about 84 miles (not too bad for a pure EV), added new features, and addressed battery and charging problems. As a master stroke, it started offering a lower-priced LEAF S, which traded some features for price savings. It had a starting price of $28,800, which came down to below $20,000 with the Federal rebate of $7,500 and an additional $2,500 in savings for California residents. The result was a more than doubling of sales in 2013, and the LEAF nearly caught up with the Volt. In 2014, the race has intensified, with EVs attracting a greater number of buyers, and the LEAF, registering 40% more sales in the first seven months than the year-ago period, has a huge lead over the Volt.
Plans for a better future
Nissan LEAF, Chevy Volt, and Toyota's plug-in Prius have dominated the EV market so far, not letting any other model come anywhere close. But this hegemony is being tested by the likes of Ford's Fusion Energi, which is giving the trio a run for their money. There are as many as 18 EV models in the U.S. now, compared with just nine in 2012.
Nissan has taken several steps to ensure that it continues to rule the U.S. EV market. The 2015 model (purchased after April 1, 2014) will make buyers eligible for its "No Charge to Charge" program, which is scheduled to begin next year. With this, buyers can recharge their cars at 2,600 stations across the country absolutely free for two years. Initially, the program will cover 10 important markets in the U.S. and subsequently expand to 15 more.
To reduce range anxiety, all models other than the LEAF S will come with a 6.6 kW charger, which can recharge the battery fully in just four hours at a 240-volt station. Buyers can even opt for a quick-charge port that claims to recharge the battery up to 80% in just half an hour with a special high-capacity power source. The company is also trying to please customers with its battery replacement program. Nissan will replace aging batteries with the latest battery packs at a price of $5,499. Owners of first-generation LEAFs can also replace their batteries at a slightly higher price to make up for the differences in engineering.
These are early days for the EV market. Despite 85% sales growth last year in the U.S., the segment accounted for less than 1% of total industrywide sales. But the market penetration rate for EVs in the U.S. has gone up significantly in the past two or three years, and experts believe it will go up further this year and beyond. At the current rate, the U.S. market could reach half a million by the end of the decade. Nissan LEAF has already struck a chord with buyers, and the company can reap big dividends if it acquires a sizable portion of the market.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.