Nissan motors   leading toward green transformation
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Nissan motors leading toward green transformation

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Follow up with the current industry’s trend to produce friendly, fuel-efficient gas-powered vehicles; Nissan is putting more effort into its R&D, as well as its engine segment in order to gain an ...

Follow up with the current industry’s trend to produce friendly, fuel-efficient gas-powered vehicles; Nissan is putting more effort into its R&D, as well as its engine segment in order to gain an optimal mass-market sale of affordable fuel-efficient cars- what would help the company to continue competing efficiently. Besides the traditional products, the company is recommended to pay thorough attention to developments of electric cars, which is seen as the future of the industry. By introducing Nissan LEAF –the first mass-market priced total-electric car in 2010 in the world, Nissan displayed its clear direction going forward: “SHIFT_the way you move”

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Nissan motors leading toward green transformation Document Transcript

  • 1. Duong Le Nissan Motors: leading toward “green” transformation NISSAN MOTORS’ EXECUTIVE SUMMARY Nissan Motor Company Ltd. is a Japanese-based multinational automaker. It was a core member of the Nissan Group. Under the total downsizing and restructuring process started in late 1990s that was orchestrated by the firm’s current CEO - Nissan Motor has become more independent from Nissan Group. Nissan was the sixth largest automaker in the world behind Toyota, General Motors, Volkswagen AG, Hyundai Motor Group, and Ford in 2010. In 1999, the company made its well-known two way alliance with France-based Nissan Renault S.A., which observe the acquisition of 43.4% total shares of Nissan by Renault, while Nissan, in turn, holds 15% of Renault shares, as of 2008. Alongside the normal range of Nissan-branded cars, the company also produces the upscale models branded Infiniti. As being a big player within the competitive automobile industry, Nissan possesses all required capabilities to overcome market’s threats, as well as utilize potential opportunities to stay strong in the automotive race. It operates factories in 18 countries, selling 4.7 million passenger cars and commercial vehicles worldwide in 2011. Out of the total 36 automakers selling cars in the U.S in 2011, Nissan came fifth in total cars sold, accounted for almost 950 thousand units – up 17.3% from the previous year. The company is aiming to further increase its global market-shares in the coming years. Follow up with the current industry’s trend to produce friendly, fuel-efficient gas-powered vehicles; Nissan is putting more effort into its R&D, as well as its engine segment in order to gain an optimal mass-market sale of affordable fuel-efficient cars- what would help the company to continue competing efficiently. Besides the traditional products, the company is recommended to pay thorough attention to developments of electric cars, which is seen as the future of the industry. By introducing Nissan LEAF –the first mass-market priced total-electric car in 2010 in the world, Nissan displayed its clear direction going forward: “SHIFT_the way you move” (Nissan’s mission statement). Even though there are issues over the uncertainties of the new segment for environment-friendly vehicles that Nissan is pursuing, the company has what it takes to be successful: strategic and financial core competencies.
  • 2. NISSAN MOTOR: LEADING TOWARD “GREEN” TRANSFORMATION Over the last decade, there have been growing issues on protecting the environment. Politics and governments have conducted laws and incentives to reduce pollutions from all perspectives. This fact certainly influences how corporations would run their business. Within the automobile industry, automakers have to come up with constant product innovation strategies to meet both legal and social demands. Nissan Motors- the six largest automaker in the world, also perceives the importance of innovation. The company does even better: it leads the way towards producing price-competitive zero-emission vehicles by successfully introducing the LEAF – Nissan’s first all-electric car in 2010 in Japan. While the current market seems to be flooded with the amount of fuel-powered models produced by dozens of automaker brands, Nissan is trying to be the first one getting out of the crowd to walk its new way to the future. Considered by many to be a pragmatic approach, the company’s strategy still involves potential issues that required extensive evaluation and analysis. The global automobile industry is undoubtedly one of the largest elements of the world’s economy. Since its so-called inception in the 1930s with Henry Ford’s mass production techniques of making assembly affordable vehicles to serve the society, the automobile industry has marked its significance, changing the way the world operates itself. Throughout its history, the industry observed tremendous technological shifts in how a vehicle would be produced to satisfy its contemporary period. Nissan’s recent efforts of introducing mass-market zeroemission car- if successful - would showcase yet another disruptive change. Nonetheless, to become the first mover of producing electric vehicles, Nissan will have to face tremendous uncertainties. First of all, given the requirements implementing battery production and public charging stations system – the two fundamental components making electric car a practical vehicle, Nissan will have to reserve a lump-sum amount of capitals for its Research and Development. Secondly, provided the ongoing efforts and successes of automakers to produce better conventional fuel-efficient cars, there presents a big challenge for Nissan on how to feature its product to lure customers. Finally, once Nissan was able to resolve those issues, there will be other concerns over the strategic ways the firm could market its sales of the electric vehicles, making the cars mass-market efforts, and not just niche cars – as predicted by Nissan’s CEO Carlos Ghosn. Putting things short, the questions to ask include: Does Nissan possess all required capabilities to take on their zero-emission mass-market effort or should they just stay committed to their current operation system? Is it
  • 3. practical for Nissan’s electric car approach to be profitable? If yes, how would they market the product to their customers to achieve optimal sales and profit? In order to analyze the above issues sufficiently, it is necessary to evaluate Nissan Motor’s internal strengths and weaknesses, as well as the potential external factors including opportunities and threats that are potentially influential to the company’s business. Perhaps the most prominent strength that Nissan has acquired over its entire appearance in the market is its global brand. The name Nissan has become familiar to all car drivers in the world, for the fact that Nissan markets its products in over 190 countries. Brand strength provides Nissan a significant competitive advantage that can offset the current extreme level of market competition. Along with the qualitative strength, Nissan also displays promising quantitative capabilities shown by the company’s financial information. Exhibit 1 and Exhibit 2 on the company’s Consolidated Income Statement and Financial Highlights (Nissan Global 2011) shows the company business is getting back to the sucessful trend after the horrendous economic crisis in 2008. The fiscal year ended March 2011 observed a significant increase in operating income of 72.5% from the previous fiscal year, accounted for the total operating income of approxiamted 540 billion yens – equivalent to approxiamtely 6.7 billion US dollars. Returns on Equity of the same fiscal year showed 11.3%, which is getting closer to its peak in 2007 of 13.68%. Nissan’s strategic cooperative business by Nissan’s joint venture with Renault since 1999 adds yet another strength to the portfolio. The alliance has so far provided great advantages for both partners with higher market coverage, faster penetration, sharing of common platforms; conponents; and engines. Regarding Nissan’s current dedication for zero-emmision vehicles, it would have been extremely difficult for the company to build and mass market the electric car without each other. Nissan’s highlighted weaknesses that were addressed in recent years are the overseas over-dependencies and product innovation lag in the U.S. market. The fomer weakness is due to the fact that Nissan has been producing more vehicles abroad than at home in Japan, and as a consequence, has been generating more operating income internationally than domestically. Some could debate that this issue is caused by the globalization force that Nissan cannot advoid. Nevertheless, being increasingly dependent on overseas markets impose the risks associated with foreigness-status threats including different government policies or currency fluctuation. The latter weakness mentioned Nissan’s lack of innovation in the U.S. is caused by the company being
  • 4. a relatively late-mover into this high-profit margin and high-volume pick-up market. Nissan used to be unable to compete with other players such as Toyota of Honda in the compact vehicle segment in recent past, due to misjudging its US models strategy. However, Nissan is making up for its loss within the innovation war by being the first brand to introduce an all-electric passenger car with competitive price named LEAF in early 2012, follow the successful launch in Japan in 2010. Just as important as analyzing Nissan’s internal capabilities, there are external forces that play a part in determining the company’s success. The first opportunity Nissan and other global automotive makers should consider is the exponential increase in demand of fast emerging countries in Asia and Europe, such as China, India, or Russia. Exhibit 3 presents the amount of 18 million new car sales in 2010 for China– a 32% growth from 2009 and almost double the 11.5 million US new car sales of the same year (Schifrin 2011.) The table also presents the one-year growth from 2009 to 2010 of both 30% of India and Russia. Government policies, as well as continuous rise in incomes from these mentioned countries contributed to this remarkable jump in automotive demands. Besides the promising new geographic distribution, Nissan also should pay attention to a brand new car segment that just opened up due to ongoing environmental and resource- scarcity concerns: lower or zero-emission vehicles. In fact, these markets are either just recently developed such as the hybrid car segment, or still in its inception phase with an instance of the electric car. Therefore, if Nissan could effectively penetrate this future-ofthe-industry segment, it would be well regarded as the most innovative brand in the future. However, despite these foreseen opportunities, there are also potential threats that could hamper Nissan’s automotive business growth. Those most prominent are the hyper-competition level resulted from total globalization, or market high saturation level due to increase in sales stagnation from crisis period, or declining in key economies terms. When discussing highlighted points from the SWOT analysis above, the emphases are for the company to be more innovative in producing their vehicles, as well as the strategic focus on selling to niche markets with high potential returns. Considering this, alongside Nissan’s solid financial capabilities shown earlier, the company is recommended to continue following through with its current endeavor to approach the promising electric vehicles segment. There are multiple forces that could push consumers toward electrified automobiles, not only because of technological feasibility, but also due to governmental and social supports. First of all, gasoline prices have
  • 5. increased dramatically in recent years, influencing political decisions and even military actions. Exhibit 4 shows U.S historical gas prices from 1991 to 2012 (U.S. Energy Information Administration 2012.) Auto emmisions that directly lead to air pollution and climate change is another factor favoring the adoption of new auto technology. To combat with carbon emmision problems, governments around the world have began enacting transportation emissions regulations. In the U.S., the mandated miles per gallon for passenger cars is 27.5 mpg, increasing to 39 mpg in 2016, and proposed to meet the minimum of 62 mpg in 2025 (Schifrin 2011.) On the flip side, U.S. Federal Government also created a tax incentives program to promote sales of electric vehicles, deducting $7,500 from every purchase. Manufacturers are also to receive government funds of $2.4 billion grants, and up tp $25 billion direct DOE loans. In summary, it will be a wise choice for Nissan to invest in electric cars. Provided a through analysis of the situation, Nissan’s next recommendations are for the company to strengthen its current battery industry by both joint ventures strategy, and to strategically focus on selling electric cars to niche, specialized markets afterwards. Battery is - by far -the most important and expensive component of an electric car. According to Boston Consulting Group, the 2010 cost of an automotive lithium-ion battery pack as sold to an original equipment manufacturer was estimated at $16,000 (BCG 2010.) Given that a LEAF is currently sold for around $27,000 after all government tax incentives, the cost of battery accounts for more than 50% of total cost. Therefore, it is a must to Nissan to touch into this industry and try to reduce the cost. The company is set up its first joint venture with Japanese battery maker called Automotive Energy Supply Corporation (AESC), owning 51% of the JV. The collaboration helps Nissan gain multiple advantages because haivng AESC as a supplier meant Nissan can control the required supplies to meet its demands for battery in electric cars production. Also through simultaneous engineering and coordination, Nissan can have quicker time to market and lower cost – the core desire. However, figures has shown that the single JV self-supply model will not be suficient enough to serve Nissan’s increasing demand for batteries. It is predicted that in 2015, the required number of batteries would reach the behemount amount of 500,000 units in order to supply Nissan’s plan of mass marketing its electric vehicles, whearas by the end of 2011, AESC only has a capacity of 90,000 units. This is the main reason why the company has been outsourcing batteries outside AESC and its Renault’s alliance , purchasing from other battery makers in recent years. Given Nissan’s total focus on the electric car segment, it is recommended for the company to take another step ahead, alliancing with other battery corporations. By producing more, Nissan will not have to spend for
  • 6. outsourcing, also unit price would certain drop as well- due to economies of scale. One particular firm Nissan should consider is the Korean based LG Chem, a large player in battery industry who is a direct competitor of AESCselling batteries for other automakers, notably Chevy Volt. The reason Nissan should choose LG Chem is because they possess similar technology as AESC, being inclose distance to both Nissan’s headquarter and AESC, which would expedite the joint venturing process. Turning to a different matter, “Range Anxiety” has always been the term associated with customers’ being afraid of getting stuck on the road when electric vehicle’ batteries run out and there is no other back-up engine. At the present, record shows that Nissan LEAF has a total maximum range of 100 miles per charge, meaning car drivers have to charge their vehicles every 100 miles they drive. Even though record shows that 95 percent of Americans drive less than 100 miles per day, or 75 percent drive less than 40 miles per day (Jensen 2012,) the need for long-range drives- travelling, for instance- is also there. To solve this problem, Nissan has been trying to develop the supported infrastructure of public charging station to aid drivers. However, building sufficient amount of electrical stations require huge amount of capital investments, as well as bureaucratic work. Therefore, Nissan is recommended to only concentrate their effort on specialized markets that show good sights of support to their electric cars system. For example, an ideal market would be a state or country small in size, with large percentage of car owners driving less than the maximum specific range (for LEAF this amount is 100 mpg), and perhaps with all major cities or towns being in close proximity from each others. As far as the geographic distribution is analyzed, it is idealistic for Nissan to focus sales on small and developed countries with great demand for high –tech vehicles such as Japan, Korea, Israel in Asia since they are close to Nissan’s headquarter and electric cars’ factories, or the Northern European countries- also relatively small in size- with constant environmental responsibility. Nissan can also look to market in big cities in emerging markets such as Beijing or Shanghai in China, Mumbai or Delhi in India, Moscow or Saint Petersburg in Russia. Those are the cities of promising markets with highest growth for new car sales. In conclusion, even though it would involve tremendous work for Nissan Motor to complete the quest of being the first automotive brand to provide mass-market sales for electric zero-emission vehicles at an affordable price, Nissan does possess what it requires to successfully implement this breakthrough technology. Nevertheless, the company has to carefully consider its strategic decisions over the next few years. Once Nissan reaches its goals, both the company and the society will be greatly benefitted.
  • 7. Works Cited BCG. "Batteries for Electric Cars: Challenges, Opportunities, and the Outlook to 2020." Boston Consulting Group (2010). Jensen, Cheryl. "Pouring Over The New LEAF." Chicago Tribune (2011). Nissan Global. "Nissan Annual Reports 2011." March 2011. Nissan For Investor. http://www.nissanglobal.com/EN/IR/LIBRARY/AR/index.html. Schifrin, Debra. "Nissan's Electric Vehicle Strategy in 2011." Standford Graduate School of Business: Case SM-189 (2011): 22. U.S. Energy Information Administration. www.eia.gov. May 2012. http://www.eia.gov/petroleum/gasdiesel/.
  • 8. Exhibit 3 New Car Sales for Selected Countries and Regions in 2010 (In million dollars) 2010 Growth from 2009 U.S. 11.5 10.5% China 18 32% Japan 5 7.5% European Union 13.4 -5.5% India 2 30% Russia 13 30% Exhibit 4
  • 9. Feb 01, 2012 Apr 01, 2011 Jun 01, 2010 Aug 01, 2009 Oct 01, 2008 Dec 01, 2007 Feb 01, 2007 Apr 01, 2006 Jun 01, 2005 Aug 01, 2004 Oct 01, 2003 Dec 01, 2002 Feb 01, 2002 Apr 01, 2001 Jun 01, 2000 Aug 01, 1999 Oct 01, 1998 Dec 01, 1997 Feb 01, 1997 Apr 01, 1996 Jun 01, 1995 Aug 01, 1994 Oct 01, 1993 Dec 01, 1992 Feb 01, 1992 Apr 01, 1991 Dollars Per Gallon 4.5 U.S. Gasoline Prices Historical Chart 4 3.5 3 2.5 2 1.5 1 0.5 0