Renault-Nissan CEO Carlos Ghosn: 'Now Is the Time for the Electric Car'Published: October 28, 2009 in Knowledge@Wharton
The electric car is real. It's here. And before long -- when curbside charging stations become as ubiquitous as parking meters -- it won't seem all that complicated, either.
So says a man who has thrown his corporate reputation into the post-gasoline car: Carlos Ghosn, CEO of Renault and Nissan. In a wide-ranging Wharton Leadership Lecture that touched on everything from managing a multicultural conglomerate to pushing for targeted government regulation, Ghosn was at his most optimistic when discussing a future where zero-emissions vehicles are embraced -- not out of altruism towards Mother Earth or hostility towards the oil-rich Middle East, but because they are good business.
"The electric car appeared at the beginning of the century, then disappeared, appeared in the 1950s, then disappeared, appeared in the 1970s, then disappeared," Ghosn said. "But a lot of things have changed.... We are putting our chips and we are putting our investment and we are putting our efforts behind this belief that now is the time."
Why now? Ghosn says one critical element was technological progress. "The battery of today is capable of doing things that the battery of 10 years ago was not capable of," he said. Where the task of supplying enough energy for a car's wildly varying power needs was once impractical, it's available today at reasonable prices.
The second element is the price of oil. Noting that the cost of a barrel is $68 in the middle of a recession, Ghosn asked his audience whether anyone thought the price would go down. No hands went up. With the U.S., China, Brazil, Indonesia, Eastern Europe and Western Europe all growing, "imagine what the price of oil [will be] if we don't change the consumption," he said.
Also affecting costs, he predicted, would be a third factor: Regulations. During his lecture, he asked for another show of hands from people who believed environmental restrictions would become less stringent. Again, no hands went up. "The car industry is 14% of CO2 emissions," he said. "In the eyes of the public, the car industry is responsible for 50%. We have no choice."
The coming boom in car ownership in emerging economies will likely increase this perception. Ghosn predicts a spike from 700 million cars today to some 1.5 billion globally: "If you're going to let developing countries have as many cars as they want -- and they're going to have as many cars as they want one way or another -- there is no absolutely alternative but to go for zero emissions. And the only zero-emissions vehicle available today is electric.... So we decided to go for it. We decided not to wait for the next battery and the next car in five years. We decided now is the time."
Ghosn went into significant detail in describing how his firm can make electric cars a practical reality -- and a consumer favorite. "Driving an electric car is pure pleasure," he said. "I'm sure when the car is on the market in the U.S. and people start to drive it, it will totally change the image of an electric car." Starting next year, Nissan and Renault plan to offer a wide range of such vehicles, not just a single marquee product marketed to show off a driver's green inclinations. "We want the car to be affordable, which means, if you want to buy an electric car, it has to cost the same" as regular cars.
The logistics, on the other hand, will require a certain degree of investment from individuals, businesses and perhaps governments. Ghosn said car buyers with garages at home should be able to upgrade their electric outlets to facilitate an electric car's plug for around $500. In big cities, he predicted, electric companies will pay about $1,000 for devices resembling parking meters that can be arrayed along curbs to charge the vehicles. He predicted that price would fall as companies began mass-ordering the devices, and said firms would quickly recoup their expenses as customers pay to charge their batteries.
Both of those options, though, require a car to be charged overnight, like a mobile phone, for a charge that gets a car fewer miles than a tank of gas. Drivers in a hurry will have to go to a quick-charge station, which can fill up 80% of a battery in 30 minutes. The equipment isn't cheap: A quick-charge device, Ghosn said, costs $30,000 -- an investment that might make sense once there is a critical mass of electric-car drivers already on the road, but something that could seem expensive for service station owners in a market where electric cars remain rare. He called for governments to step in and spur the market via regulation. One idea: Make quick-charge facilities mandatory for anyone operating a gas station starting in 2012.
Ghosn indicated that he foresees epic battles over his ideas, commensurate with the major economic interests at play. "It's not possible unless government supports you. It's not because the technology is more expensive. It's because you can't compete against 68 million cars being produced in the whole system.... That's why we need support from the government, in order to make the ramp-up from 500,000 to one million cars. And then the system works by itself. Governments are all lined up. They are all agreeing to say, 'Okay, I want an electric car in my country. I'm going to put in the incentives that are necessary. I'm going to put in the infrastructure that is necessary, because we need to get out of dependence on oil. We need to get out from CO2 and global warming. And we need to get out from the risk of oil going to $150 and $200 a barrel.'"
Comic Book Hero
Ghosn's career makes him the ideal person to translate once-fantastic ideas into practical nitty-gritty. Born in Brazil, he moved to his parents' native Lebanon at age six. Educated there and in France, he went to work for Michelin and became chief operating officer of its South American division at age 30. By 34, he was running the firm's North American operations, where he led a merger with Uniroyal. He moved to Renault in 1996 in time for the French automaker's takeover of Nissan. In 2001, he became the first non-Japanese to run the firm, which was deeply in debt and had lost nearly $6 million the previous year. In 2002, it turned a profit. Ghosn's turnaround skills made him a celebrity in Japan, where his story was featured in a comic book.
Ghosn said he never planned a career as a turnaround specialist. Rather, he said, he chose the transportation industry because "I liked cars, I liked products and I liked to work with people." Were he in a position to hire someone to fix a distressed firm, he would focus on three more specific qualities: Someone who had previous experience with tough business challenges, someone who was rigorously factual and willing to question assumptions by using data, and someone who could connect with other people to enlist their help with difficult parts of the recovery effort, such as layoffs.
Ghosn described his firm's multinational character as a plus: In addition to its well-known French and Japanese components, it also owns or partners with automakers in Korea, Romania and Russia. "We are a hybrid of different cultures -- one French, one Japanese, one Russian. Every company is autonomous, but we develop synergies together.... We are a unique combination of different cultures, and it works. It's complicated, it goes against all the advice, but it works." In 2008, the company had more than $100 billion in global revenues.
Ghosn, 55, says a diverse firm like Renault Nissan, with 300,000 employees around the world and head offices in Paris and Tokyo, is a fairly good reflection of a business world where management culture has become as diverse as labor and market locations. "Six or seven years ago, the BRIC [Brazil, Russia, India and China] countries were a new frontier," he said. "Now they are at the heart of the system.... 'Multicultural' used to be American leaders, Japanese leaders and West European leaders. Not anymore." The current downturn, which has seen China, India and Brazil remain comparatively resilient, will only serve to strengthen this trend.
Ghosn sees major new possibilities for those countries, and other emerging economies, in his industry. His advice to nations dreaming of an auto sector: "You have to bring something to the table." Japan, he noted, started by introducing cheap cars that were bedeviled by quality problems. Once the quality problems were fixed, Japanese firms ruled the market. Korean automakers followed the same model, occupying the low-cost niche Japan had vacated, and then moving up as quality soared. He sees Chinese firms following suit. India's auto industry, on the other hand, appears not to be copying the pattern, focusing instead on "frugal engineering -- a habit that's lost elsewhere" -- for cars like Tata's low-budget Nano. The vehicle might come to dominate parts of Asia, Africa and Latin America, although Ghosn doubts it would clear Western safety hurdles.
The increasingly multinational nature of automakers and auto buyers stands in contrast to a strain of nationalist dialogue that has been especially prevalent as the U.S. ponders its reliance on gasoline.
In the case of the automobile industry's move away from oil, one factor that is frequently cited by American politicians is not high on Ghosn's list of motivations: national security. An audience member asked whether a transition to batteries would really help America's push for energy independence, since many battery ingredients come from China, a country that presents its own set of foreign-policy challenges for Washington. But Ghosn said the point wasn't to cut potentially competing governments out of the action: Instead, it was to liberate the market from the environmental risk and price uncertainty that are specific to oil.
In addition, he said, the oil and battery industries are both more diverse than the national security rhetoric would have people believe. Slash transportation's dependence on oil by 50% and there will still be a large market in heating, industrial products and countless other regions. And while the least expensive batteries and several key raw materials do come from China, the most sophisticated batteries are made in Japan and Korea.
The very unpredictability of his own path -- like the technological change his industry is now experiencing -- offers a fairly good lesson about managing a career, Ghosn said.
"A career, no matter what, you can't predict, you can't plan. You're going to be offered much more opportunity than you ever think could happen. The only thing to make sure of is that your mindset is open enough so that when the opportunity comes, even though it's completely bizarre or completely strange or in a place in the world that you never thought you would be, you're ready to take it," he said. "If somebody had told me six months ago that ... I would be sitting in [the Tokyo neighborhood of] Ginza managing one of the largest car manufacturers in Japan, I'd have said [he was] crazy. Not going to happen. If you don't maintain your open mindset, if you say, 'This is my plan and everything else is a distraction,' you're not going to go anywhere."