Blog: Dave LeggettThe range anxiety gamble

Dave Leggett | 24 June 2009

This looks like a week in which electric cars are going to be very much in the news – in part due to government initiatives on both sides of the Atlantic. And there are plenty of announcements being made by the OEMs to coincide with that. Nissan's yesterday about manufacturing electric plug-in vehicles – not hybrids - in the US is particularly intriguing.

It's the latest news from Nissan on this subject and follows on from Carlos Ghosn's consistently stated view that electric cars represent the long-term future for the automotive industry. He has perhaps stood out among car firm bosses as a real believer in electric drive technology and the opportunity presented - and on a business planning horizon that he earnestly believes is with us now. Working with partners like Project Better Place has demonstrated a serious intent to grapple with things like infrastructure, too.

At first sight, 100,000 units a year of production in the US sounds pretty ambitious. And maybe it is, given that we're talking about electric drive vehicles that don't come with a back-up gasoline engine. That raises the 'range anxiety' question alongside consumer acceptance of frequent battery charging rather than occasionally filling the tank with the black stuff.

How far can these cars really go on a single charge? (Nissan says the car will offer 100 miles of range, but what if the heater is on and there are hills to climb...); how often does it need charging?; how much will that cost me and just how robust is the battery? (And the truly environmentally aware may even ask how the juice coming out of the power socket was generated...but I suspect that question will be overlooked or fudged in the minds of many.)

Nissan will have to come up with a very good product to get initial consumer acceptance of this new technology. And - leaving aside the considerable product development and technology issues ahead - I'm sure there is a lot of discussion still to happen concerning the precise business model, too (like the retail price and how battery leasing might work in practice).

But that's 100,000 units in a passenger vehicle market of almost 16m units (or wherever we are on the recovery path by 2012, when Nissan plans the start of US production). It's way under a 1% share. Nissan can target sales in US cities where it thinks the car will sell.

Do Americans buy small, more energy-efficient cars? They are now buying more of them – look at the success of Smart's Fortwo. And Nissan can be cute and look to market the car in places where city authorities are suddenly looking for more EV solutions (like Baltimore, for example).

Market analysts can argue about how quickly US market segmentation will shift, but there is a consensus that smaller and more energy-efficient vehicles will be growing in sales. Electric drive vehicles in various formats will clearly be a part of that broader trend, though it is far from clear exactly where the numbers will be and on what timescale (and the internal combustion engine is doing much to make itself more efficient).

But which way is the oil price wind blowing? I wouldn't mind betting that in 2012, when global economic recovery is really kicking in, the price of a barrel will be a lot higher than today. That could provide a very fair wind to both hybrids and pure-electrics.

Is range anxiety really a big issue? Incremental improvements are helping, but the issue is not going away. Having said that, there is a point at which range becomes acceptable for many who would consider such a car primarily for relatively low-mileage daily use - the commute to the office, say.

And with that pattern of usage, range anxiety may not be as big an issue in America as in Europe because American households have more multi-vehicle ownership than Europe does.

Whereas a pure EV might be severely limiting in Western Europe (asking the single car household's sole vehicle to do many jobs for the lowest cost explains why the C-segment is Europe's largest – cars like the Volkswagen Golf are fine around town and for motorway cruising) US households are perhaps more likely to have a larger vehicle available for longer journeys. 'I use the EV every day, but the F-150 is just great for the weekends.'

Ghosn is taking a gamble though, that he can lead investment in electric vehicles for 'mass transportation' and steal a march on rivals, who are playing much safer with hybrids and 'range extenders' (like the Volt) that deal with range anxiety up front. And it's a pan-global strategy to spread the technology investment across as many units as possible under the Renault and Nissan brands. Later on, when scale economies permit, maybe a viable low-cost 'Logan-style' electric car can be developed for price-sensitive emerging markets - which will likely not be figuring too much early on.

If Ghosn gets it right, the EV push could leave Renault-Nissan as one of the most powerful groups in the global auto industry for a generation. But it could be an expensive drag on profitability at a time when the industry's worst performers come under increasing pressure to cut capacity still further.

It's a gamble. And Ghosn is perhaps a brave man. But you wouldn't expect him to have a vision on where the industry is headed and not give it his best shot would you?

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