The Pied Piper of the Car Industry
Nissan’s pursuit of the Electric Vehicle market is an example
of a global company placing a major bet on sustainability
megatrends. The strategy is still at an early stage, but with
the auto industry being disrupted ahead of other sectors,
there is plenty to learn for most management teams.
Nissan Case Study Interviewee
Andy Palmer
Executive Vice President and Head of Electric Vehicles
1 | Nissan Case Study 2011
Our key takeaways from Nissan’s strategy are:
• The consideration of sustainability megatrends in the board room particularly population growth and climate change - were instrumental
in changing Nissan’s strategy.
• Stretch targets, particularly wanting to bring the perceived electric “end
game” into the medium term, allowed Nissan to see solutions where
others saw insurmountable problems.
• In the context of rising fuel prices, the introduction of Total Cost of
Ownership provided Nissan with the financial confidence to back a
strategy that was very different from its competitors.
• Pioneering sustainable technologies has had a positive effect on the
sales of Nissan’s other vehicles, giving customers a reason to visit
Nissan’s showrooms.
• Electric Vehicles (EVs) are changing the way Nissan does business,
leading it to collaborate with new partners and explore lease-based
arrangements with its customers.
When announced in 2008, Nissan’s EV programme was lauded by
environmentalists and derided by the auto industry in equal
measure. Nearly three years on, and it has precipitated a seismic shift
towards EVs in the auto industry, with all the other automakers now
following suit. But will Nissan’s heavy EV investment programme
deliver the environmental benefits and market share that it hopes
for? It is too early to tell, but it is undeniably exciting.
The origins of the strategy
Nissan’s EV commitment began with the executive
management team considering issues that are
typically associated with environmentalists – the
growing global population, rising prosperity,
limited resources and climate change. Andy
Palmer, Executive Vice President and on the
company’s Executive Committee, says to
understand Nissan’s EV journey you need to start
with its corporate vision of “sustainable mobility
for all” – an internal contradiction in the minds of
many.
Nissan considers it socially equitable to close the
gap in vehicle ownership between the US and
China – standing at 77% and 5%, respectively –
which necessarily triggers a major expansion of
the global auto market. In order for this belief to be
compatible with its vision of sustainability, Nissan
knew its strategy needed to be built on radical
rather than incremental change. Not only was the
price of fuel rising, but it regarded climate change
as a real and growing problem.
Nissan Case Study 2011 | 2
Green Strategy Case Study
We already have an emissions problem with 700 million cars,
what problems are you going to have with 2 billion?”
Carlos Ghosn, CEO, Nissan
Nissan saw EVs, with their ability to run on nonhydrocarbon energy and being zero emissions, as
the ultimate end game. And it set about to find a
business case to invest in EVs in the short term.
Nissan’s analysis demonstrated that an EV would
be cheaper to the customer with the following
assumptions:
Building the business case
2. The vehicle weight was significantly reduced.
A number of factors were helping to build a
business case for EVs. The price of oil had risen to
$80 a barrel, a point where the US consumer was
starting to factor fuel costs into vehicle purchasing
decisions, and European governments were
implementing vehicle emissions reduction
programmes.
Nissan also saw a significant reputational benefit;
a chance to associate its brand with a particular
technology. Volkswagen was associated with diesel
leadership, Toyota with hybrids, and Honda with
petrol engines. For Nissan, it was an opportunity
to associate the brand with leadership in EV
technology, and leverage its EV heritage.
1. The price of oil was $80 a barrel or higher.
3. Customers have an option to lease or purchase
the battery.
4. Production costs were based on production
volumes of 500,000 batteries per annum.
5. Governments provide subsidies of £5k or
equivalent.
Believing these to be reasonable assumptions,
Nissan was the first major automaker to commit
to mass production of EVs in 2008, with a $4bn
investment programme together with alliance
partner, Renault.
Total Cost of Ownership
Despite its belief that EVs fitted with its vision,
Nissan needed to know that it could provide
a solution to the customer at a price that was
commercially viable. The auto industry had not
traditionally used Total Cost of Ownership (TCO)
to determine its vehicle investment programmes,
but with the efficiency advantage of EVs combined
with rising fuel prices, Nissan looked at the running
costs as well. It wanted to find a way of making
an EV cheaper than a diesel VW Golf on a per mile
basis.
The 1947 Nissan Tama,
a full electric vehicle
CEO Carlos Ghosn next
to a Nissan Leaf
3 | Nissan Case Study 2011
The most daring gamble in the auto world
Nissan’s announcement surprised the automobile
press and other automakers, who saw major
obstacles in the form of a lack of charging
infrastructure, the high battery costs and the range
issues.
In 2009, an Economist magazine article entitled
“Mr Ghosn bets the company”, said “within the
industry, the adjective most often used to describe
Mr Ghosn’s plan to make the Renault-Nissan
alliance the first big manufacturer of zero-emission
vehicles is “bold”- in other words, somewhere
between very risky and certifiably mad .”2
In February 2010, the late auto journalist Jerry Flint
wrote “the most daring gamble in the automobile
world is Nissan’s electric car, the Leaf.”3
But it may not be as risky as it looks
To Nissan, the risk of not developing the most
efficient technology in an era of rising oil prices
and lower emissions was high. This different way
of thinking perhaps comes down to whether a
board factors projections for population growth,
oil scarcity and climate change into core strategy
or not.
Nissan tells us that its strategy of investing in
the mass production of affordable lithium-ion
batteries, with production capacity of 500,000
units per annum by 2014, significantly reduces
the strategic risks. It believes that demand for
lithium-ion batteries will grow for the next 20 years
even without the adoption of EVs, as hybrids and
fuel cell technologies will both rely on batteries for
storing energy. With Nissan’s Leaf and the massmarket version of the Mitsubishi i-MiEV,
UK price of diesel/litre (Jan 07 - Oct 11)
Source: www.whatgas.com
Nissan estimates that battery cell prices of
¥40,000–¥60,000/kW4 are achievable due to its
production volumes. Battery production accounts
for a major part of Nissan’s EV programme
investment, offering it exposure to a variety of
different technologies.
How sustainable are EVs?
The case is pretty clear cut. Electric cars are
regarded as around five times more efficient
than fossil-fuelled cars, according to analysis by
Professor David MacKay5, while life cycle analysis
by Ricardo has shown that a typical EV will emit
around 25% less CO2 than a standard gasoline on a
cradle-to-grave basis6.
Nissan’s own research shows a significant variation
by country depending on the carbon intensity of
the local grid, but on a global basis EVs contribute
41% of the CO2 emissions of an equivalent petrol
engine - see the chart below.
How central are EVs to core strategy?
Nissan launched its 6-year plan to 2016, known
internally as “Power 88”, with the following
comments from Ghosn: “As we accelerate our
growth, we will bring more innovation and
excitement to our products and services, as well as
cleaner, more affordable cars for everyone around
the world.”6 The word “clean” is embedded in an
aggressive growth strategy that is designed to
inspire designers, employees and shareholders
alike. The aim is to increase Nissan’s global market
share to 8% by 2016, up from 5.8% in 2010 and
4.6% in 1999.
EV CO2 emissions vs petrol equivalent
Source: Nissan management
Nissan Case Study 2011 | 4
Green Strategy Case Study
Zero emission leadership is one of the six pillars
of Power 88. In the shareholder Annual Report for
2010, Nissan states that it is taking a leadership
role in every aspect of EVs. It states that the
intention of the Renault-Nissan alliance is to put
1.5 million EVs on roads worldwide by 2016.
An integrated sustainability programme
Whilst pioneering the EV may turn out to be
the single biggest step in making the auto
industry more sustainable, Nissan should also be
evaluated on its broader sustainability strategy.
Research shows that 23% of standard vehicle
emissions are generated in production – 46% for
EVs – emphasising the importance of internal
resource efficiency matching a product efficiency
programme.8
Nissan launched its “Green Programme 2016” on
the 21st October 2011, with five objectives for
2016. The first is EV leadership, with the other four
summarised as follows:
•
Improved vehicle efficiency by 35% from 2005
levels, average across all vehicles.
•
Reduced CO2 emissions – for corporate
activities by 20% from 2005 levels (27% for
manufacturing sites).
•
Improved resource efficiency – 25% of vehicle
materials to be recycled. Nissan claims to be
the first car company to set a recycling target.
•
Enhanced environmental management –
adopting TCO, and practising reduction and
substitution with the supply chain.
How impressive are these targets? Being absolute
targets, how impressive they turn out to be will
depend on the level of business growth that
Nissan achieves. The 2005 baseline testifies that
Nissan has been monitoring sustainability for a
while. Nissan tells us that it reduced its worldwide
carbon emissions per vehicle produced by 18%
between 2005 and 2010; which is probably ahead
of its peers. And Nissan generates 7% of its UK
production energy needs from onsite renewable
energy. Broadly speaking, these are compatible
with a sustainability leadership position.
Delivering a new business model for Nissan
Nissan’s commitment to EVs is causing it to
innovate with its business model. It is forming
new partnerships, collaborating and changing its
customer proposition. If the EV market does take
off, then it is the evolved business model that will
create the biggest barriers to entry. These include:
How Nissan sets its sustainability targets
Nissan have a clearly defined approach to target-setting, which they describe through traditional Japanese
concepts.
Nissan recognises the importance of having an element of the unknown in how targets will be met, a
feature of many of the best target setting strategies. Nissan describes it as “stretch but not break”, which
combines bottom up and top down thinking. The stretch element is seldom more than 50% of the target.
The bottom up targets are referred to as “Monozukuri”, or “the art of making things” in Japanese – Nissan ask
its managers what they think they can achieve, and look at what is demanded by regulations. Monozukuri is
generally conservative. They then look to “Kotozukuri” for stretch.
Kotozukuri means “the art of storytelling” in Japanese, and broadly speaking accounts for the more
ambitious 30-40% of its targets. Management looks at what their experience suggests is achievable,
factoring in changes in technologies that may not have been identified by factory workers, and they look at
how the targets fit with the story being told by Nissan.
2
Mr Ghosn bets the company. The Economist, October 17th, 2009. http://www.economist.com/node/14678942
3
Why Nissan’s Electric Car Will Flop. Jerry Flint. Forbes. February 29th, 2010. http://www.forbes.com/2010/02/19/flint-nissan-leaf-business-autos-electric.html
4
UBS Investment Research – Q-Series. October 2010
5
Sustainable Energy, without the hot air. Professor David MacKay. UIT Cambridge, 2008. http://www.inference.phy.cam.ac.uk/withouthotair/c20/page_127.shtml
6
Ricardo report for The LowCVP. June 2011. www.lowcvp.org.uk/assets/pressreleases/LowCVP_Lifecycle_Study_June2011.pdf
7
Nissan 2010 Annual Report, Message from the CEO. http://www.nissan-global.com/EN/DOCUMENT/PDF/AR/2011/AR2011_E_All.pdf
8
Ricardo report for The LowCVP. June 2011. www.lowcvp.org.uk/assets/pressreleases/LowCVP_Lifecycle_Study_June2011.pdf
5 | Nissan Case Study 2011
Nissan tells us that it reduced its worldwide
carbon emissions per vehicle produced by 18%
between 2005 and 2010; which is probably ahead
of its peers.
•
Creating partnerships with organisations that
Nissan didn’t previously regard as natural
allies. It currently has 140 memorandums of
understanding (MOU) with governments,
utilities and telecom companies.
•
Looking at different ways of supplying
customers. In some markets, including France,
the Renault-Nissan alliance is leasing the
battery and selling the car to reduce the upfront purchase cost.
•
EVs have broadened Nissan’s manufacturing
capabilities. Not only has it entered the battery
market on a major scale, but it is also building
fast chargers in a car factory – the first time
that Nissan has manufactured anything that
does not have wheels on it.
•
It is starting to explore supplying stored energy
to households. It is working with GE on smart
technology that allows customers to download
electricity at cheap night rates to their car
battery, in order to run their household in
the day. A Nissan Leaf can power the average
household for two days.
worth $1bn. The winning NV200 vehicle is a
basic commercial van in other markets, and
won because it was the cheapest vehicle to
run on a TCO basis. Nissan included an option
to convert the cars to become fully electric,
further reducing the running costs. Andy
Palmer is clear that Nissan’s electric knowledge
was critical to winning this contract.
3. EVs have already been positive for the Nissan
brand. Measuring the brand contribution of a
sustainability strategy is always difficult, but
Nissan attributes some of the improvements
that it is seeing to its EV strategy. According to
a number of recent articles, some customers
are attracted to Nissan’s showroom by the Leaf,
and end up buying a less adventurous car.
4. The Nissan Leaf is the biggest selling EV in
history. As of the end of October 2011, Nissan
had sold over 15,600 Nissan Leafs, outselling
any other EVs throughout time.
The Nissan NV200
When can we judge Nissan’s EV strategy?
It is too early to judge whether Nissan has ignited
an EV market that it will then dominate, and
therefore too early to judge its success as a
sustainability strategy. But the following points can
be made at this stage:
1. All of the major automakers now have an EV
programme. The next 12 months will see the
arrival of EVs from Renault, GM, Ford, Toyota,
BMW and Mercedes, in what some are calling
an “EV Spring”9. This may have the effect of
“normalising” EV technology in the minds of
consumers, which could be a pivotal moment
in market adoption.
2. EV played a major role in Nissan winning the
New York taxi contract. In May 2011, Nissan
won an exclusive 10-year contract to supply
New York taxis from 2013, estimated to be
9
EV Spring Coming Soon. Chris Vander Doelen. Windsor Star. October 18th, 2011. http://www.windsorstar.com/cars/Spring+coming+soon/5562839/story.html
Nissan Case Study 2011 | 6
Green Strategy Case Study
Global sales of the Toyota Prius
The sales of the
Toyota Prius took
several years to
take off.
Source: Green Car Congress
The Prius may indicate the growth profile
Sales of the Nissan Leaf to date, represent less
than 0.5% of Nissan’s 2010 global vehicle sales,
and there is going to need to be a big pick up in
EV sales for the Renault-Nissan alliance to hit their
target of 1.5m sales by the end of 2016.
Nissan may be reassured by the slow sales start
for the Toyota Prius, the pioneer of Hybrids, which
sold 921,000 in its first 10 years, but less than 2%
of these sales were in the first two years. Nissan
has a significantly faster global roll-out for the Leaf
than Toyota had for the Prius.
Nissan is not out of the woods yet. If the price of diesel increases
from the current £1.39 to £1.70 over the next year, which could
happen with a return to global economic growth, it will be in a
good position. But let’s not rule out a Eurozone crisis having the
opposite effect.
7 | Nissan Case Study 2011
Dynamic Charging - the long term game changer?
There are battery-charging technologies that are currently in their infancy that could transform the
case for an EV over a combustion engine. Most importantly, they could overcome range anxiety, whilst
creating a financial dynamic that would be difficult to compete against.
“Dynamic Charging” allows EVs to recharge their batteries wirelessly while in motion. A number of
companies are developing solutions that will allow vehicles to recharge from wireless points embedded
in the road, and pay using their mobile phone. It means the battery size, and cost, can be reduced by over 75%.
Halo IPT is one of the companies that is developing a technology that is already proven in the medical
arena. It has estimated that 15% coverage of the UK road network is all that is needed for EVs to be able
to reduce battery sizes by 75%, with dramatic impacts for TCO calculations.
The chairman of Halo IPT, John Miles, will be speaking at Green Strategy 2011 on 16th November.
Conclusion
Prior to the arrival of Carlos Ghosn in 1999, Nissan
was not associated with innovation. The first
period of his tenure was about returning Nissan
to financial health, and the second is focused on
introducing innovation and leadership in a way
that has not previously been associated with
Nissan. Its EV programme is at the heart of this
change.
Nissan describes its EV investment as: “Not
betting the house, but would be pretty painful if
it doesn’t work”. What we can say with certainty
is that it is one of the bravest and most inspiring
sustainability strategies we have seen, and it has
the potential to see Nissan emerge as one of the
business stories of the next decade.
Will EVs make Nissan the Apple of the car
industry? Ghosn has said of EVs: “This is the future,
and everything else is going to look obsolete, like
sending messages with pigeons”10. That future
is yet to be a reality, but the next two years will
tell us whether EVs will play a substantial role
in decarbonising the auto industry. If Nissan
can retain its EV dominance until then, it could
become the biggest global car marker.
The 50 Most Innovative Companies. Fast Company. March 2011. http://www.fastcompany.com/magazine/123/the-worlds-most-innovative-companies.html
10
Nissan Case Study 2011 | 8