The release of Nissan Motor’s Leaf EV line of cars has generated strong optimism for those owning the company’s stock. The car is now the best-selling electric vehicle on the market, though Tesla Motors Inc (NASDAQ:TSLA) sold more of its Model S vehicle in May. Despite increasing sales, the Leaf still doesn’t appear to be making an impact on Nissan’s income statement.
That’s because while many people would like to own an electric vehicle, these automobiles aren’t practical for every consumer and are still considered a niche product. This is largely due to perceptions about issues surrounding a short battery life and few charging stations available countrywide. Furthermore, the vehicle’s price tag was a deterrent, that is until the major price cut in the 2013 Leaf, which is priced at about $32,000. This all adds up to meaning it could be a few years before companies like Nissan, Tesla Motors Inc (NASDAQ:TSLA), and General Motors Company (NYSE:GM) are making healthy profit margins to justify really pushing electric vehicles to the masses.
Time for a turnaround?
Things could be turning around for Nissan, with U.S. sales up 25% in May. Much of that is driven by a price cut of about $6,000 and other incentives to owners. Also, the devaluation of the Japanese yen (Nissan is a Japanese company) makes maximizing profits in the U.S. a priority. This is revving up efforts to turn Nissan into the car of choice for Americans. However, the vast majority of the company’s revenue is from Nissan’s gas-fueled vehicles.
The company has increased revenue by 28% from fiscal 2010 to fiscal 2012. However, the share price has gone up by about 30% in that time, so Nissan’s healthy is no secret. Last year’s profit margin was only about 4%, which is well below the 10% I use as a benchmark for my purchases. Nissan has grown to the point where it is dominating the auto market in Japan. If it continues to add incentives in the U.S., then it will increase its American market share.
GM making a comeback?
General Motors Company (NYSE:GM) announced on June 10 a $5,000 discount for the Chevy Volt. In May, vehicle sales were fairly flat at 7,157. By comparison, Nissan sold 7,614 Leafs in May after a $6,000 price cut. The company also launched the Chevy Spark EV in late May. The starting price is only $27,495, showing the electric vehicles are becoming much more affordable than in the past and are actually close to the price of regular compact cars.