Not surprisingly, Nissan will lose money on first LEAF replacement battery packs

Nissan surprised some people when it announced LEAF replacement batteries will cost just $5,499 plus the return of the old pack. The company has now confirmed it is subsidizing the cost to an undisclosed degree.

The question of electric vehicle battery costs is obviously a big factor in the purchase price of new plug-in vehicles, but is important at the end of the battery’s life as well. Since most battery packs won’t have a useful automotive life of more than 8 or 10 years, reasonable battery replacement costs are vital to maintaining a healthy used EV market.

Nissan sought to answer any doubters by offering a very fair price for a 24-kWh LEAF replacement battery: $5,499 plus installation and the return of the original battery pack valued at $1,000.

At the time, virtually every EV advocate and enthusiastic LEAF owner with a calculator rushed to determine that the cost of a LEAF replacement battery equates to $270/kWh. This would be a remarkable number, but not so fast – Nissan could be subsidizing the pack to give the future used LEAF market a boost when the cars start coming off leases in droves.

Nissan will initially lose money on replacement packs

This is exactly the case, confirmed Green Car Reports yesterday. Jeff Kuhlman, Nissan’s VP of global communications, declined to share Nissan’s cost of producing battery packs but conceded that “Nissan makes zero margin on the replacement program. In fact, we subvent every exchange.”

This means that the company is subsidizing the replacement battery packs – their actual cost to Nissan is something higher than $5,499, but it was considered necessary to offer a fair price for a replacement pack to ease worries about 8-year-old LEAFs being consigned to the scrap heap.

We will point out that not a single replacement pack has yet been sold, and the automaker no doubt doesn’t expect to sell many for at least a year or two. By the time replacement packs are in high demand, Nissan may have lowered battery costs to the point where it no longer loses money on the low-cost replacements.

Difficult to say for sure how much battery packs cost

The cost of EV batteries is a closely guarded secret for most automakers. Estimates from various studies and those based on vague comments by executives tend to result in a range of projected battery costs, and it is sometimes even unclear if the number refers to the finished pack or only the lithium-ion cells.

Projections of future battery costs fluctuate even more wildly depending on the source (and who funded the study), and thus are extremely unreliable.

As recently as early 2011, many estimates placed the cost of battery packs as high as $800/kWh. Costs have fallen dramatically since then, however. A reasonable estimate for the current industry average is more like $350 - $400/kWh.

If Nissan is able to produce batteries at a cost of $350/kWh, it would be losing $1,900 on every 24-kWh replacement battery it sells today if the value of the old pack is taken into account. Again, this will change significantly as volumes grow.

Tesla is the king of low battery costs, of course, and will re-stake their claim to the throne when the Gigafactory comes online. Rumors, vaguely confirmed by Tesla, have indicated that Model S batteries cost somewhere around $260/kWh including the cells and all associated electronics, packaging, and cooling.

Experts are largely in agreement that once costs fall below $200/kWh at the pack level, electric vehicles will at last become cost-competitive with conventional vehicles. It is impossible to predict when that day will arrive, and it will certainly get here sooner for some companies than for others. But it is a target to keep an eye on.