Will Nissan Abandon Its $1.4B Stimulus-Backed Battery Factory?

Ghosn photoReuters sources inside Nissan are saying the production of batteries in Tennessee for the all-electric Leaf, which stimulus-subsidizing U.S. taxpayers backed with a $1.4 billion loan, could be eliminated.

According to the report, at minimum there is sharp debate over whether the company will continue to manufacture electric vehicle batteries in-house or contract with an outside supplier. Nissan partner Renault, which has 43.4 percent shareholder ownership in the joint company, is said to be pushing for outsourcing battery production – possibly to LG Chem. None who revealed the information were identified for the Reuters story.

“We set out to be a leader in battery manufacturing but it turned out to be less competitive than we’d wanted,” said a Nissan executive to Reuters, on condition of anonymity. “We’re still between six months and a year behind LG in price-performance terms.”

If they’re really thinking about a move as dramatic as outsourcing, it would seem that Nissan is much farther behind LG Chem than 6-12 months. The change – which would come only two years after Nissan launched the auto- and battery-assembly plant for the Leaf near Nashville – is said to be the result of a “tense procurement review” with Renault. Even with the benefit of $1.4 billion, this global auto manufacturer can’t make up the cost difference with what LG Chem would produce?

“Renault would clearly prefer to go further down the LG sourcing route, and the Nissan engineers would obviously prefer to stay in-house,” another Nissan insider told Reuters. “The write-off costs are potentially huge.”

The report dismissed any chance that Nissan would default on its stimulus loan from the Department of Energy, but nevertheless the use of a billion and a half dollars of Other People’s Money for another green energy flop would add to the shame of Obama’s Recovery Act. It would also taint the image of Renault-Nissan CEO Carlos Ghosn (pictured), who has stood strong in his commitment to the company’s pursuit of electric vehicle development – if for no other reason than to reap the massive government subsidies for alternative energy boondoggles around the world.

That Nissan might unload its EV battery production to someone else wouldn’t surprise, however. For all the hoopla, the Leaf is not an efficient or sensible car, and just recently lost its Consumer Reports recommendation because of safety problems. There are no signs that electric vehicle sales have grown, or will grow, beyond fringe interest. And the company keeps coming back to its dependence on government subsidies to try to keep EV production viable.

“Yeah, [government support] is the key,” said Francois Bancon, Nissan’s global general manager of product strategy and planning, in June 2012. “This technology is expensive; the car is expensive. Where we sell the best is where the governments offer their support…which is not only the incentive for the direct purchase, but also they are investing in the infrastructure.”

And in a sign that Nissan was less-than-excited when the Tennessee battery plant was finally ready to open, the automaker abruptly cancelled a grand opening ceremony celebration in November 2012 after more than two years of build-up and anticipation for the big event. Only a month later a top Nissan official admitted the company was “a little bit arrogant” in boasting about the demand and expectation for the Leaf roll-out.

“Global electric car sales will remain shy of 1 million in 2020, according to forecaster IHS Automotive, less than one percent of the total vehicle market, and one-tenth of the demand Ghosn had predicted,” Reuters reported.

Now here we are with Nissan having an internal discussion about whether battery making in-house was worth all the money and trouble. Laughably, they are eyeing another dependency case as the alternative: LG Chem. The Korea-based manufacturer built its own plant in Michigan with $151 million in federal stimulus funds and $100 million from Wolverine State taxpayers. Not long after its opening it was discovered that employees at the plant had no real work to do, and they spent their time playing games, reading magazines, watching movies or helping charities like Habitat for Humanity – that is, when they weren’t off-duty on their cyclical furloughs. After an Inspector General’s report, LG Chem was forced to return a small amount of the money it had been given by the Department of Energy.

It’s not clear whether, if the change is made, where the production of Leaf batteries would be focused, but the justification for Nissan’s Tennessee plant was to have the batteries built closer to where the U.S. cars are produced. Meanwhile the company’s public relations flacks have issued non-denial denials, stating that Nissan is still “100-percent committed” to EVs without saying where they plan to make batteries. But Ghosn reportedly said, “we can’t get stuck with supply monopolies — even internal ones.”

Yes, a huge pile of unwanted batteries and paying back $1.4 billion that you borrowed to make them is a lot to swallow.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.