Will Nevadans be doing Electric Slide?

I hate to pull the plug on the statewide celebration of the Tesla Motors tax giveaway, but the deal to secure the electric car company’s massive lithium-ion battery plant for Northern Nevada received quite a shock of reality last week.

Nissan, which has made huge investments in electric cars, is about to dramatically cut battery manufacturing. As reported Monday by Reuters, the Japanese carmaker is preparing to phase out battery production in the United States and Britain and switch to cheaper LG batteries made in Asia.

“We set out to be a leader in battery manufacturing, but it turned out to be less competitive than we’d wanted,” one executive told Reuters on condition of anonymity. “We’re still between six months and a year behind LG in price-performance terms.”

In other words, Nissan needs to dramatically reduce battery costs to make its electric cars more affordable.

Tesla Motors CEO Elon Musk has said his so-called “gigafactory” — a planned $5 billion plant that is supposed to employ 6,500 people by 2020 — will slash battery manufacturing costs through economies of scale and make his cars cheaper. Gov. Brian Sandoval and Nevada lawmakers bought into that promise in a big way, providing Tesla with tax abatements and credits worth about $1.3 billion over 20 years, as well as reduced-cost electricity to back up the factory’s renewable power generation.

The plant, which should open by 2017 and eventually be capable of producing 500,000 batteries per year, is the lynchpin of Tesla’s plan to produce the Model 3, a car that would retail for less than $40,000. The company’s only current vehicle, the Model S, has a starting price of $70,000.

But plenty of analysts are skeptical that Musk can reduce battery costs enough to sell 500,000 cars per year by the end of the decade. Tesla projects to sell just 35,000 cars this year.

Nissan had similar goals a few years ago, when climate change alarmism convinced plenty of politicians that electric cars were the next big thing. Nissan took advantage of subsidies to build a $1 billion battery plant in Tennessee, and invested about $5 billion total in electric models such as the Leaf. The plan was to manufacture — you guessed it — as many as 500,000 batteries per year.

“Renault-Nissan were definitely ahead of their time — in a bad way,” Stuart Pearson, an Exane BNP analyst, told Reuters. “There’s nothing wrong with ambition, but when that involves excess investment, then it’s also a risk. Their targets were really excessive on volume and battery capacity.”

Sales of the Leaf, a compact electric car with a starting MSRP of about $29,000, are growing, but aren’t anywhere near where Nissan hoped they’d be. About 3,200 Leafs were sold last month. Sales of the plug-in Chevrolet Volt are dropping.

The Los Angeles Times reported this month that the overall market share for plug-in electric vehicles is actually falling. “The whole automobile market has grown. We’re not seeing electric vehicles as part of that growth,” Jessica Caldwell, Edmunds senior analyst, told the Times.

It turns out there is an exceptionally limited market for expensive electric cars with a range of about 200 miles. The vast majority of the population needs cars that can actually get out of town. Personally, if I had $40,000 to spend on a car, I’d go with an Infinity Q50 or an Audi A5.

Predictions of $8-per-gallon gasoline haven’t been realized, thanks to North America’s fracking and shale oil boom. On Wednesday, inflation fell for the time in 16 months. The reason? Lower gasoline prices. Analysts expect gasoline prices to hit a four-year low this fall.

Can all of this change? Of course — especially if Iran decides to nuke Israel and start World War III.

The point here is that Tesla is nothing close to a sure thing. It’s a huge gamble. The gigafactory — and Tesla’s cars — wouldn’t be built without taxpayer assistance.

And now Nevada, unlike American car buyers, is all in.

Glenn Cook (gcook@reviewjournal.com) is the Las Vegas Review-Journal’s senior editorial writer. Follow him on Twitter: @Glenn_CookNV. Listen to him Mondays at 4 p.m. on “Live and Local with Kevin Wall” on KXNT News Radio, 100.5 FM, 840 AM.

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