Nissan Motor may have solved China electric car puzzle

The carmaker’s sale of its electric battery business to a Chinese private equity fund may shift its China business into top gear.

Nissan Motor’s sale of its electric battery business to Chinese private equity fund GSR Capital could be a major step towards local procurement of batteries in the world’s biggest electric vehicle market.

In China, electric vehicles are not eligible for subsidies unless batteries are procured from a manufacturer certified by the Chinese government. No foreign-owned carmaker has this certification. On the other hand, few Chinese battery makers can meet the technological requirements of global automakers.

This has proved a conundrum for Japanese automakers that are losing market share to Chinese upstarts in the global race to dominate electric vehicle sales. Nissan Motor may have solved the puzzle with the sale.

Nissan said on August 8 it was selling Automotive Energy Supply Corporation (AESC) which makes lithium-ion batteries, to Beijing-based GSR Capital. AESC’s batteries power more than 270,000 Nissan Leaf vehicles, one of the best-selling electric vehicles in the world.

Sonny Wu, chairman of Beijing-based GSR Capital, said in a statement announcing the deal on August 8 that it planned to build electric battery production facilities in China and Europe.

This excited equity pundits who saw this development as a possible route for Nissan to procure high-quality batteries locally.

“While we expect some cash inflow from this deal, we are interested less in the proceeds from the sale and more in the building of a global procurement structure for batteries that should be competitive in terms of both price and quality,” said Nomura equity analyst Masataka Kunugimoto. 

China jackpot

There is much at stake for Japanese carmakers.

For the first time, China overtook the US in terms of number of electric vehicles on the road in 2016, according to research from consultancy McKinsey. Still, penetration in China's massive light-vehicle market was only 1.4%.

The electric vehicle market in China will grow to 1.7 million vehicles in 2020 and 2.4 million vehicles in 2025, according to Goldman Sachs forecasts.

Turbo-charing this growth have been Chinese government subsidies, aimed at reducing fuel imports, improving air quality and fostering local champions. Some Chinese cities have made electric vehicles exempt from license-plate lotteries and registration fees that apply to cars with internal combustion engines.

The policy has boosted local manufacturers. Chinese car component makers accounted for 40% of electric vehicle production worldwide in 2015, this increased to 43% in 2016. This market grab is mainly at the expense of Japanese companies, which lost market share year on year, said McKinsey.

At the same time Japanese automakers are struggling with localising procurement of key battery components. The Chinese government requires automakers to choose from suppliers it has approved on a white list to earn certification for electric vehicle-eligible vehicles.

Many local battery makers in China are still making the shift from iron phosphate cathode materials used two generations ago. However Japanese automakers seem loath to invest large sums ahead of the appearance of all solid state and lithium-sulfur batteries on the scene from 2020.


Japanese carmakers are trying to fight back. Honda plans to launch electric vehicles specifically for the China market in 2018.

When Nissan released the Leaf electric vehicle in 2010, there were no battery manufacturers in China capable of supplying batteries with the specifications and prices Nissan required.

It therefore developed and produced batteries in-house, building up expertise in the process. That business developed into AESC. Now Nissan appears to have shifted to a policy of external procurement and is selling AESC.

"AESC will remain a very important partner for Nissan as we deepen our focus on designing and producing market-leading electric vehicles," said Hiroto Saikawa, chief executive officer of Nissan in the statement.

The sale is a two-step process. Nissan will first acquire NEC Corp’s 49% stake in the battery maker, and then sell all shares to GSR Capital.

It will also sell its battery operations in the US and the UK to GSR Capital. The sale price has not been disclosed.

GSR said it would be joined by other limited partners including Hong Kong private investment firms, Hong Kong conglomerates and other industrial investors in making this acquisition.

¬ Haymarket Media Limited. All rights reserved.
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