Nissan faces dilemma in bringing the Leaf electric vehicle to China

I’m in China on a consulting gig for the Specialty Equipment Market Association (monster trucks!) www.sema.org. But of course I’m also cramming in as much electric vehicle nosing around as I can. In that spirit, I attended the kickoff of Nissan’s Safety and Environmental Technology Tour in Beijing.

The tour’s intent (in my estimation) to allow Nissan to 1. Brag a bit and 2. Tout its dedication to reducing road deaths in China and improving the environment,  two causes both commercially and politically correct. I was mainly interested in number two, because it includes the launch of Nissan’s Leaf electric vehicle in China.

 I also wanted to find out more about a project between Nissan and the government of the central China city of Wuhan. Oh, and I wanted to drive the Leaf, which Nissan plans to launch here in 2011.

Despite all the Chinese government’s talk about how big the new energy vehicle sector will be in China, it seems Nissan is taking a bit of a plunge introducing the Leaf here because the actual demand for such cars is far from certain.  That makes the chance that Nissan will produce the Leaf in China uncertain, as well.

I met with Tsunehiko Nakagawa, vice president of Nissan (China) Investment Co. Ltd. 

We discussed some of the hurdles to growing the electric vehicle sector in China. And a reported plan that seems to require foreign automakers of electric vehicles to hand over their technology if they want to sell electric vehicles in the China market. (He was suprisingly sanguine about the plan, though it may have been a front.)

Nakagawa san said the biggest hurdle is (not unlike the U.S.) the lack of a recharging infrastructure. Committing to a nationwide build out aside, China needs to decide on a plug standard for recharge stations. And any decision on that is at least a year off, figures Nakagawa san.

“The concerned party is going to make a standard, but maybe it will take a year. The decision process is quite complex,” he told me with an emphasis on complex.   

One issue is the number of “concerned parties.”  Industry sources say Miao Wei, vice minister of China’s Ministry of Industry and Information Technology, favors local standards, no surprise as he was previously the chairman of Dongfeng Motor Corp. ( the former Third Auto Works). It is owned by the Wuhan government, though a subsidiary, Dongfeng Motor Co, is 50 percent owned by Nissan.

Another concerned party: Wan Gang, head of the Ministry of Science and Technology. Wan Gang, who has a PhD from a German university, previously worked at Audi in China, then was dean of the New Energy Automobile Engineering Center at Beijing’s Tongji University.  http://www.most.gov.cn/eng/organization/leadership/

Wan favors a national standard, sources say. (Wan Gang has reportedly been grilling the scientists at Argonne National Lab in the U.S. about the standards there.)

But, said Nakagawa san, “Finally, the State Grid will decide.”  The State Grid builds and operates China’s power distribution system.

China is leaning toward a standard that more closely resembles the European standard, he said, with elements of the U.S. standard, which was created by the Society of Automotive Engineers. But, Nakagawa added, China wants the standard to have Chinese characteristics, as well. So, a “complex” decision process indeed.

Promoting the Leaf was also part of the event. I drove one. Nice car. Much better acceleration than BYD’s e6 electric vehicle. A nice interior, too. And roomy.  http://www.nissanusa.com/leaf-electric-car/

For the Leaf to succeed beyond the test city of Wuhan, however, the government will have to decide on a charging standard. That’s one necessary condition, in any case. Meanwhile, Nissan is moving ahead with a joint program with the Wuhan city government to make Wuhan an electric vehicle hub.

 http://www.nissan-global.com/EN/NEWS/2010/_STORY/100325-01-e.html

The program will start in 2011 with 25 Nissan electric vehicles.  Wuhan will build 250 slow EV chargers. Nissan will also provide two (imported) quick-charging stations.  They will collaborate on an educational program.

Nakagawa san said the program aims to resolve two issues. The first, how many recharge stations are needed in one square kilometer so people can use an electric vehicle “without resistance?” 

The other is more fundamental—education. “People have to know what is an electric vehicle,” said Nakagawa. Because BYD is the poster child for electric vehicles in China, and BYD is known for producing small, cheap cars, Chinese consumers think all electric vehicles are small and cheap, he said.

We also discussed a rumored Chinese government plan may require foreign automakers to turn over their electric vehicle technology to a Chinese partner if they want to sell in the domestic market. There’s a lot of uncertainty around the law.

Said Nakagawa: “We don’t know what the law means. We can’t collect the information about the actual process, or the approval criteria for what and how much we have to disclose.”

So, I asked him, does that influence when, or if, Nissan will produce the Leaf in China? Not really, said Nakagawa. Since Nissan has a 50/50 joint venture with Dongfeng Motor Co, technology transfer would occur if the Leaf was produced locally, he said.

The real deciding factor for local production of the Leaf is the size of the market in China for electric vehicles, said Nakagawa. And that is unknown.

“Especially with the battery plant, it is necessary to make a huge investment,” he said. “Therefore the decision (to produce the Leaf locally) is quite difficult.”

Nissan is in a bit of a Catch 22. It wants to know what the demand for the Leaf will be before it decides whether or not to produce the car in China.  But, if the Leaf is not produced locally it won’t qualify for a the government’s new energy vehicle purchase subsidy, so the price will be high, suppressing demand. http://www.chinadaily.com.cn/bizchina/2010-03/09/content_9560631.htm

In any case, Nissan Motor Co. is expanding its production capacity in China.  In September,  CEO Carlos Ghosn said Nissan aims to nearly double its capacity in China by 2012 to 1.2 million units.  http://www.cnbc.com/id/39264109/Nissan_to_Double_China_Capacity_to_Tap_Hot_Market

At the time, Ghosn said that the future of electric vehicles in China was “very bright.” Whether it is bright enough for Nissan to produce the Leaf locally remains to be seen, however.