THE NISSAN LEAF: FIRST MOVER Or AHEAD of ITS TIME?
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THE NISSAN LEAF: FIRST MOVER or AHEAD of ITS TIME? J. Michael Cavanaugh Associate Professor of Management Charles F. Dolan School of Business Fairfield University Fairfield, CT 203-254-4000 [email protected] Catherine C. Giapponi (Lead Author) Associate Professor of Management Charles F. Dolan School of Business Fairfield University Fairfield, CT 203-254-4000 [email protected] Sharlene A. McEvoy Professor of Business Law Charles F. Dolan School of Business Fairfield University Fairfield, CT 203-254-4000 [email protected] 1 ABSTRACT Nissan CEO Carlos Ghosn intends to introduce the first mass-produced all-electric car, the Leaf, in December 2010. His expectation is that by 2012 the vehicle will be mass marketed to the public. If electric cars account for one tenth of all auto sales globally by 2020, as Ghosn predicts, Nissan’s investment could pay off handsomely and Nissan could lead the industry and the country in this transformational transportation technology. Mounting concerns over climate change, growing demand for clean energy alternatives, and the volatility of oil prices pose opportunities for the launch of the Leaf. However, in the role of “pioneer” Nissan faces many challenges, not the least of which is the lack of a fully developed infrastructure to support the vehicle. The uncertain pace of the recovery from the economic crisis of 2007-2008 poses an additional threat. Will Nissan persuade drivers to abandon familiar gas-powered vehicles and embrace a new emission-free technology that will bring its initial headaches, no doubt, but at the same time dramatically signal the end to our dependence on OPEC? Will this first-to-market launch usher in a new era of sustainable automotive transportation or will it prove too beta? As a confident CEO Carlos Ghosn’s contemplates the December introduction, the key question is whether to proceed with the launch. 2 Nissan Motor Company CEO Carlos Ghosn envisions a “world where we ‘fill up’ an EV (electric vehicle) with energy in a matter of minutes while shopping at a supermarket or relaxing at a coffee shop.”1 Ghosn is committed to the company’s zero-emission leadership strategy in launching its first electric vehicle in 2010 and mass marketing these vehicles in 2012.2 He is confident that all-electric models will be well established worldwide by 2020.3 The decision to be an early mover and leader in the electric vehicle market is high risk, but potentially high return. Ghosn believes that EV’s are the future for the automobile industry and he looks toward forging ahead sooner rather than later: This is not a bet, but the result of a thorough analysis. The only question is, When? Do we do it now or in five years? Our competitors may see it differently, but we at Renault-Nissan believe it is now.4 But Ghosn faces many challenges in implementing Nissan’s first mover strategy. Notwithstanding the uncertainty of the recovery from the 2007/2008 global financial crisis, the major hurdle identified by critics is the lack of an established battery charging infrastructure necessary to support and charge electric vehicles. As skeptics scoff at the viability of the all- electric vehicle, Nissan Motor CEO Carlos Ghosn remains convinced that electric cars will account for 10% of all auto sales by 2020.5 A passionate Ghosn responded to critics this way: They don’t have one, so it is not a surprise. People who are challenged by innovation are going to fight it in the beginning…But people who buy electric cars, they will never ever buy another type of car again.6 But is the timing right and are the risks too great? Is Ghosn’s corporate vision ahead of its time? The decision to launch in 2010 is a weighty one. NISSAN MOTOR COMPANY Nissan, established in Yokohama Japan in 1933 under the name Jiosna Seizo Co., Ltd, was officially renamed Nissan Motor Company in 1934.7 Although the Japanese government restricted the company’s production to airplane engines and trucks during World War II, Nissan got back into the automobile business through a licensing agreement with Austin Motor UK in 1952.8 The company initially expanded into the U.S. automotive market with the introduction of the Datsun in 1958 and established the Nissan Motor Corporation USA two years following in 1960.9 Nissan continued its geographic expansion through the establishment of Nissan Motor Co. 1 Nissan Annual Report 2008, p. 26. 2 Nissan Annual Report 2009, p. 15. 3 Hiroko Tabuchi, “In Critics of the Leaf, Nissan’s Chief Sees Rivals Just Being Envious,” N.Y. Times, Dec. 3, 2010. 4 Alex Taylor, “Here Comes the Electric Nissan Leaf,” CNNMoney.com, February 2010. 5 Hiroko Tabuchi, “In Critics of the Leaf, Nissan’s Chief Sees Rivals Just Being Envious,” N.Y. Times, Dec. 3, 2010. 6 Ibid. 7 “Nissan: 2010 Company Profile Edition 2: Chapter 5 Key Events,” Just Auto, August 2010, p. 13-21. 8 Hoovers Company Information, 2010. 9 Ibid. 1 Pty, Ltd. in Australia in 1966 and expanded its footprint in European markets through Nissan Motor Manufacturing UK, Ltd. in 1984. The company was the first major Japanese carmaker to build cars in the Europe.10 Nissan’s growth strategy, which focused on small low-cost fuel- efficient cars, was successful for many years as the company launched several new vehicle models including the high-end Infiniti. Nissan’s success, however, hit a snag in the early 1990’s, suffering four straight years of losses from 1992-1996.11 Even with a loan of $827 million from government-owned Japan Development Bank in 1998, Nissan continued to struggle incurring a loss of $30 billion the following year.12 It was at this time that an equity-based strategic alliance with France’s Renault SA was crafted. Renault’s stake enabled the installation of Carlos Ghosn, who had been an executive vice president at Renault, as Chief Operating Officer of Nissan in 1999. Ghosn vowed to turn Nissan around by fiscal 2001. He made good on his promise and in 2001, as Nissan’s newly appointed Chief Executive Officer, led the company to its first profitable year in seven years.13 This success continued until the recent global economic downturn, with Nissan posting its first loss in a decade in fiscal year ending March 31, 2009.14 Under Ghosn’s leadership, Nissan rebounded in 2010 and projected a net profit of $3.2 billion by year end, which was twice that of previous estimates.15 Ghosn recognized the important role the Renault-Nissan alliance played in advancing zero emission mobility. Through the sharing of technologies, platforms, production system and management expertise, and investment costs, the partnership fostered the development of its all- electric vehicle. Nissan and Renault have spent $5.3 billion dollars on the development of the Leaf and other all-electric models.16 Given Ghosn’s success at Nissan, he was confident that the he could lead the charge in making all-electric vehicles the standard consumer choice. Nissan Motor Company Financials Business leaders, including Ghosn, were aware of the challenges posed by the global financial crisis and fiscal years 2008 and 2009 were particularly difficult for Nissan and the entire automotive industry. The economic recession affected automobile sales globally. In fiscal year ending March 31, 2009, the company incurred a loss of $2,373 million, the first loss in a decade. Yet Nissan continued to move forward with its zero-emission vehicle.17 In 2010, Nissan’s financial performance improved with positive net income of $454 million. Although there was a decline in net sales in 2010, Nissan reduced its cost of goods sold and improved its gross profit margin from 15.6% in 2009 to 18.2% in 2010. Nissan also reduced its operating expenses in 2010. Nissan’s cost reduction efforts enabled the company to rebound from 2009 and post positive net income results during the 2010 fiscal year. But the economic recession is not over, which heightens the financial risks associated with the launch of the Leaf. 10“Nissan: 2010 Company Profile Edition 2: Chapter 5 Key Events,” see note 18. 11 Hoovers Company Information, 2010. 12 Hoovers Company Information, 2010. 13 Ibid. 14 Ibid. 15 Hiroko Tabuchi, “In Critics of the Leaf, Nissan’s Chief Sees Rivals Just Being Envious,” N.Y. Times, Dec. 3, 2010. 16Ibid. 17 Nissan Annual Report, 2009, p.7. 2 -------------------Insert Figure 1 and Figure 2 here------------------------------ THE NISSAN LEAF The Leaf, a five-passenger compact car, is the first all-electric vehicle designed and developed for the mass market. Carlos Ghosn believes that the key to Nissan’s success in the EV market will be its high-performance lithium ion battery. 18 With almost two decades of R&D committed to the development of the lithium ion battery, top Nissan battery researcher Hideaki Hori contends that, “Nissan has a superior battery. Its cost, performance, weight, and package are better –significantly better than the competition’s.”19 At $15K, the lithium ion battery is the priciest feature of the car20 but comes with an 8 year, 100,000-mile warranty.21 Powerful batteries are critical to maximizing vehicle range. Operating solely on the electric motor, Nissan claims that the Leaf can travel up to 100 miles without a charge. The mileage has come under scrutiny with the Environmental Protection Agency, which approves fuel economy stickers, contends that the car can travel 73 miles on a fully charged battery while the Federal Trade Commission counters that the correct range is 96-110 miles.22 Nissan purports that the Leaf will cost $400 annually in fuel costs compared to the equivalent $1,800 in gas at $3- per-gallon.23 However, charging the Leaf’s battery takes several hours.