A Free-Market Energy Blog

Nissan: Green Car Junkie as Casualty?

By -- August 5, 2019

“One thing … which is going awry generally – is the money being wasted on electric cars for which there is no market. Or rather, which there’s no money to be made from the making.”

– Eric Peters, Eric Peters Autos, July 25, 2019

There are nearly always multiple realities that impinge on economic events in the mixed economy. The recent report that Nissan Motors may go out of business by 2020 due to a sudden deterioration of its razor thin 1% to 2% annual profit margin is attributed to:

But what is the apparent major determinant in Nissan’s downturn? The mainstream media dodges this with these contributing factors:

The financial wrongdoing of former Nissan CEO Carlos Ghosn is cited because an $80 million reserve was created for deferring his pay. Ghosn was known as a cost-cutter who previously pulled Nissan out of a hole. But recently Nissan has had to lay off 6,400 auto assemblers by the end of the year with planned layoffs to reach 12,500 employees by March 2023Nissan’s net income plummeted from about $67 billion yen to 6.4 billion yen ($59.3 million) in the three-months from April through June 2019.

But Ghosn’s deferred compensation is not crippling Nissan. Neither is Nissan’s ongoing transmission issues costing 66 billion yen ($6.12 billion), as a write-off to cover costs extended the warranty from 5 to 7 years. 

Nor would partner Renault’s problems with higher steel tariffs be fatal, as shifting to lighter aluminum instead of steel to meet California’s proposed higher fuel efficiency standards (55-mpg) would cost three times what steel costs.

Furthermore, the Alliance (Nissan- Mitsubishi-Renault) is not where the problem lies, as Renault rescued Nissan in 1999 and in 2016 Mitsubishi was bailed out by Nissan.

Digression:
How Tesla has escaped Nissan’s problems: ZEV Credits. In 2012, the

California Air Resources Board (CARB) mandated automakers to sell at
least 60,000 ‘Zero Emission Vehicles” (ZEV’s) per year, or lose its license
to sell vehicles in the state. This resulted in the birth of the Honda Fit
Electric Vehicle (EV), Chevrolet Spark EV, Ford Focus EV and Fiat 500e.
Nissan was already selling the Leaf EV by 2011. Tesla was exempt from the CARB mandate purportedly because of its relatively small number of sales. Other than California, EV’s are only sold in the eastern coastal states as
well as New Mexico and Oregon.

If car manufacturers cannot meet their ZEV quotas, they can buy ZEV
credits to sell more conventional cars from Tesla, which has amassed a
large number of credits and sold them for a significant sum of money.
Without these credits, GM, Fiat-Chrysler and others could not sell
conventional cars in the state.

Source: Larry E. Hall, “What the Heck is a ‘Compliance Car?’, thoughtco.com, Feb. 7, 2019.

Nissan has been averaging between 1 to 2 percent profit on sales of all its models for the last 8 years; and Leaf car sales have also averaged between 1 to 2 percent of its total vehicle sales per year. So, Nissan has been very dependent on its EV sales to keep its head above water.

But as auto expert Eric Peters asserts, it is Leaf sales that are undoing Nissan.

Nissan’s Leaf – the company’s first electric car – cost Nissan almost as much money to develop as it continues to lose “selling” it. And when the federal subsidy for electric car “purchases” goes away, it will cost Nissan – and everyone else “selling” electric cars – even more as people decline to “buy” them at all.

Which will happen, because the ending of the subsidies amounts to a $7,500 effective increase in the cost to the buyer – the price of “green,” as it were. Nissan, et al, will then have to resort to discounts of their own equivalent to the federal subsidy, just to get the electric turduckens off their lots.

This would be no big deal if it were only a handful of electric Turduckens. But because of “climate change,” Nissan and everyone else has been forced to commit billions to development of hundreds of thousands of electric cars they won’t be able to sell – unless the ability of people to buy them somehow increases by 30-50 percent or more, this being the rough difference (all else being equal) between an electric car and an otherwise equivalent non-electric car….

The going-away subsidy all by itself is equivalent in value to 3,125 gallons of regular unleaded at current prices (about $2.40 per gallon). That fills up a 12- gallon gas tank about 260 times – enough to take you 93,000 and change miles at 30 MPG.

However much people may believe the sky is about to fall because ‘climate change,’ most aren’t going to walk away from what amounts to free fuel for nearly 100,000 miles of driving – by not driving an electric car.

The 12,500 jobs that just went up in smoke – along with Nissan’s profits and possibly Nissan itself – are just the beginning. A real scheisse show is percolating.

This may be why Nissan is rolling out a luxury Infiniti EV car aimed at buyers with even higher incomes.

Even worse, it would cost a Nissan Leaf owner $163 per ton to avoid average auto emissions of 4.6 metric tons per year, times, say, 10 years ($7,500/46).  Thus, a Nissan Leaf owner would pay 9.3 times what it costs heavy industry to pay for an equivalent carbon emission offset ($17.45 per ton) at California’s May 2019 Cap and Trade auction ($163/$17.45).

So, everybody loses big time except Tesla and possibly Nissan. The winner? The Climate Complex.


Wayne Lusvardi worked for California’s largest urban water agency for 20 years and is an independent public utility, water rights, and land appraiser in Rancho Mirage. His previous posts at MasterResource are here.