DETROIT -- Nissan CEO Carlos Ghosn opened his press conference last week at the Detroit auto show with a bombshell: Nissan will cut the base price of the Leaf electric vehicle by $6,400.
Ghosn was heading off a likely barrage of questions about the sales-challenged Leaf. But the scale of the price cut was extraordinary.
Starting next month, the 2013 Leaf will go on sale with a base price of $28,800 before shipping, an 18 percent reduction from its current base price of $35,200 before shipping. Shipping is $850 for the current model but has not been announced for the 2013 Leaf.
How Nissan pulled that off is one story, especially given that Ghosn said the base vehicle will remain profitable. Another is what impact the move will have on Nissan's competitors, who are trying to determine effective pricing for EVs and plug-in hybrids.
Hearing the news during last week's show, General Motors' North America President Mark Reuss called Nissan's move "aggressive." He predicted it "will certainly have an effect" on the market for EVs and plug-in hybrids.
He noted that GM's Chevrolet Volt plug-in hybrid tripled in U.S. sales last year from the year before, a result helped by lower-priced leasing programs.
"The electric car is not dead," Reuss assured an audience.
Jim Lentz, CEO of Toyota Motor Sales U.S.A., urged other automakers to bring down the cost of EVs and plug-in hybrids to make the market more mainstream.
"CAFE is not coming down and the price of gas is not coming down over time," Lentz said. "It's the right play to make."
Making the Leaf more mainstream is precisely Nissan's gamble.
With a $7,500 federal tax credit for EVs, the 2013 Leaf will now be available starting at $21,300 before shipping. In some cities and states, additional incentives will bring the entry price down to $18,800, Nissan says. Last year, U.S. retailers sold fewer than 10,000 Leafs -- half of what Ghosn had projected.
"We wanted the Leaf to be at the point where Americans transact their cars," says Brendan Jones, Nissan North America's director of Leaf marketing and sales strategy. "We're now at a price point to compete directly with comparable internal combustion engine cars."
Here's how Nissan cut the Leaf's cost:
- Most significant was moving Leaf production to Smyrna, Tenn., from Japan.
- Nissan brought production of two of the car's most expensive components -- the lithium ion battery module and the electric motor -- in-house to plants in Tennessee. The motor will now be made in Nissan's Decherd, Tenn., engine plant, while the battery module comes from a dedicated new plant adjacent to the Smyrna assembly operation.
- The Leaf is now assembled on an existing production line, sandwiched between two high-volume cars, the Altima and Maxima. Nissan can merge the Leaf's production costs with those models.
- The U.S. team made assembly more efficient. For instance, the onboard charger system and motor have been combined into one module, meaning less handling and faster installation.
- Nissan reconfigured trim packages, taking two models to three. The change created the low-end S trim; a midlevel SV package; and a more loaded SL trim level with Bose speakers and leather seats, which also has been reduced in price.
- In creating the S package, Nissan eliminated the car's telematics system for that trim level. That means the entry-level model will come without navigation, Bluetooth and some other high-end electronics. Telematics are still on the higher trims.
Jones acknowledges that Nissan faces other challenges to making the Leaf mainstream, including creation of more public charging stations. Analyst Rebecca Lindland of IHS Automotive agrees.
"Cost is definitely an issue, but it's not the biggest one," Lindland says of Nissan's move. "The biggest one is education, really."
She believes consumers need to learn more about how EVs work, and consumers need to be reassured by the presence of more public charging stations. But, she adds, "lower prices will help."
Mike Colias, Dave Guilford and Mark Rechtin contributed to this report