Are battery makers due for a "Ghosn shock"?
Battery makers in the Japanese auto market are quite nervous, with concern that "Ghosn shock" may return in the wake of low-selling lithium-ion powered electric vehicles.
In 1999, Nissan chief Carlos Ghosn put the squeeze on steel materials suppliers, pressuring them to reduce prices as part of his corporate rehabilitation agenda. That's when the term "Ghosn shock" was invented, and it's believed to have triggered the steel industry's reorganization in Japan.
While Nissan has established a joint company with NEC Group producing lithium-ion batteries, the automaker wants to have access to lower prices from Hitachi. Nissan wants to add li-ion batteries produced by Hitachi to its next-generation, eco-friendly Altima and Pathfinder models, slated to be sold in the U.S. in 2013.
Lithium-ion battery manufacturers have been disappointed at the sluggish sales of electric vehicles because they expected to supply a huge amount of batteries to auto manufacturers. Now, the batteries are oversupplied and cutting into battery maker profits. For example, the Nissan Leaf sold little more than 20,000 units in 2011, only 40 percent of the company's stated goal.
Automakers had been limiting their battery suppliers, many times through jointly-owned ventures. Examples include Hitachi forming a partnership to supply li-ion batteries to General Motors for its hybrid cars, and Toyota working closely with Panasonic. Mitsubishi has a jointly owned company established with GS Yuasa Corp, but started to obtain batteries for low-priced models of electric vehicles from Toshiba Corp. Honda did the same – adopting Toshiba batteries for the Honda Fit EV.
The joint venture relationships offer benefits to automakers, such as product quality and specifications right for the car. The new priority for automakers, though, is price competition, and building more working relationships with more battery makers could mean cheaper batteries. Automakers know they need to bring down the MSRPs on electric vehicles and hybrids to increase the sales volume. Since li-ion batteries make up a big part of the production cost, battery makers are being pulled into a more competitive, tough market ... Ghosn style.