Blog of RENAULT NISSAN Alliance

Some 40 analysts and investors recently spent a full day in Japan getting a deep dive into the Alliance’s EV strategy.

It was their first opportunity to drive Nissan LEAF, visit the AESC battery production plant and discuss with senior Alliance management our EV business model.

Four main topics were the focal point for day. In summary:

• “the autonomy / range will not be sufficient”:

Driving usage data shows that the forecast range is in-line with most customers’ daily needs (80% of daily use below 80kms); since our objective is not to replace the main car in the household, the Alliance demand assessment (10% of TIV in 2020) and planned capacity (500,000 units from 2014) are in our view not a source of risk for the business. We believe that with growing levels of urbanisation (creating higher fuel consumption, lower distances driven), EVs are a rational economical answer to a demand that today is not rationally fulfilled.

• “EV needs a huge infrastructure to work efficiently”:

Again, driving usage data shows that 90% of the recharging activity will be done at home or at work, where it will be easier and cheaper to install and operate a charging unit. We further pointed out that there was no slowing down (over 60 agreements to date) in the development of our partnerships with cities, regions and states aiming at supporting the development and installation of a sponsored or supported charging network.

• “State purchase incentives will not last forever”:

We see no slowing down in public support towards low CO² and zero emission technologies. Most recently the UK confirmed its support to Nissan’s plans to manufacture both cars and batteries at its Sunderland plant. China has introduced as a first step incentives in five cities with others likely to come in the near future. And across the world, we continue to see government and private opinion increasingly voicing concerns over the reliance on an oil-based transportation system.

Furthermore, we detailed how we expect the costs of our EVs and batteries to continue to fall over the coming years as we realize the benefits of mass-production and the scale effect on technological development.

• “High investment outlays mean no profit for the first lifecycle”:

Altogether the Alliance will have spent $5bn on its EV program during the 2008-2012 period, out of a total R&D budget of $50bn. Like any vehicle the Alliance develops, we expect each EV to be profitable through its life cycle and that growing volume and scale to drive down costs was a key constituent of profitability. We also detailed that with an EV, the revenue generation and profit sources were wider than just selling the car. Not only with the battery in the car, but in its ‘second life’ outside of the vehicle, could be a significant source of additional value.

Finally, we also noted the value that will be generated by EVs ultimately having a significant halo effect for the brands. If we look at how the financial markets have reacted to both battery and vehicle makers like A123 or Tesla, we believe the Alliance EV strategy for mass-market leadership is likely to be a significant valuation driver in the future.