Nissan goes big on self-driving cars

Nissan's self-driving car

(Fortune)

The bill for this kind of extravaganza is steep. When everything from travel to hotels to the actual costs of staging the event (buildings, cars, technology displays, and so on) is included, the total cost of the event will run about $10,000 per guest -- some $9 million in all. But as one executive explained, "When you spend billions on R&D, investing a few dollars more to show off the hardware makes good sense."

Nissan CEO Carlos Ghosn was scheduled to attend a 360 session at the end of August but became a no-show when he had to tamp down an uprising in his executive ranks. One of his protégés, Carlos Tavares, the chief operating officer of Nissan's partner Renault, had seen himself succeeding Ghosn as head of the Nissan-Renault alliance But when it became apparent that Ghosn, 59, wasn't going anywhere, Tavares, 55, made his impatience publicly known by announcing to a Bloomberg reporter that he was making himself a candidate for the CEO job at General Motors (GM, Fortune 500) or Ford (F, Fortune 500) instead. Two weeks later, Tavares was out of his job at Renault

With Ghosn absent, the biggest attraction at Nissan 360 was not the GT-R supercar known as "Godzilla" or the van-like "taxi of tomorrow" soon to venture onto New York streets as the city's official yellow cab, or even any of the 37 historic and concept cars on display. Rather it was a homely Nissan Leaf outfitted with lasers, radar, sensors, and cameras that is Nissan's down payment on its pledge to develop the first production-capable autonomous vehicle: a car that drives itself.

MORE: Infiniti vs. Lincoln: The race to join luxury's elite

As I learned on a test ride, "semi autonomous" is a more accurate description since the driver's seat must still be occupied by someone who has his eyes on the road and can take control in an emergency. A driver is also required in congested urban situations where the jumble of images would overwhelm the capacities of its electronic eyes and software algorithms. But as I watched from the back seat, the battery-powered Leaf overtook and passed a slower vehicle, exited a highway, and swerved around a pedestrian without any guidance from the driver beyond the activation of a turn signal.

Ghosn loves precise targets almost as much as he loves results, and he promises to have a semi-autonomous car ready to sell by 2020. Looming larger than the technical challenges are the regulatory and insurance issues that need to be solved by then, along with the adoption of common-sense behavioral issues. Does the ability of a car to drive itself mean that the person behind the wheel can text more intently or drink more heavily? And who pays the bills if a mishap befalls him as he does?

The real payoff from self-driving cars lies further in the future. Traffic will move more smoothly, fuel will be consumed more economically, and accidents will occur less often, leading to a day when side panel safety beams can be removed and airbags become obsolete. Ghosn foresees a day when autonomous cars are responsible not only for zero emissions but also zero fatalities.

Still, Nissan is taking the plunge into AVs at a time when its bet on EVs -- electric vehicles -- has yet to pay off in acceptance or sales. The company has sold 30,000 battery-powered Leafs in the U.S since they were introduced in December 2010 but has the capacity to manufacture several times that number at its plant in Tennessee. Customer response has been restrained by range anxiety, the uncertainly that arises out of fear that the battery will discharge before the destination is reached. Despite cutting Leaf prices $6,400 at the beginning of the year, Nissan had sold just 11,703 in through July.

If they are fazed by the Leaf's slow sales, Nissan executives aren't showing it, and they claim the car has helped lift Nissan's image with customers in a way that is reflected in higher transaction prices. In 2009, the company commissioned a McKinsey study that measured the revenue gap between Nissan and best-in-class vehicles across different segments and markets. It found that lower transaction prices were costing Nissan $6 billion annually. Over the past four years, Nissan has narrowed that gap by around $4 billion with new products, an enhanced dealer network, and advanced technology like the Leaf.

Going forward, Nissan hopes to further rid itself of the "discount brand" label by using identifiable design executions consistently across its product lines. Today, you wouldn't think that the elegant Altima sedan shared parentage with the awkward Murano convertible or the truly bizarre Juke crossover. That's going to change as Nissan creates thematic similarities among models, and it released an impressionistic sketch of the 2015 Maxima with coupe-like styling to prove its point.

MORE: Why Nissan is trying to jumpstart Datsun

Besides design, Nissan executives believe there are numerous opportunities to boost sales in the U.S. after what they concede are five years of disappointing performance. Two obvious subjects: the Sentra, a homely compact that sells at less than half the rate of Honda Civic, the segment leader; and the Titan full-size pickup, which was introduced with great fanfare in 2004 but is still little more than an afterthought for truck buyers. Improvement in all areas is essential if Nissan is to reach its goal of attaining 10% of the U.S. market. It currently stands at 8%, leaving it in seventh place beyond the Detroit Three, Toyota (TM), Honda (HMC), and Hyundai/Kia. Nissan believes its 10% goal is reachable within the next several years, given its current rate of growth and product cadence.

Globally Nissan finished fiscal year 2012 with a 6.2% share of a 79.3 million unit global market, and Ghosn pledges to reach 8% market share (and 8% return on sales) by the end of fiscal year 2016 on March 31, 2017. A big part of the push will come from a new emphasis on marketing. For instance, Nissan put in place a global advertising campaign for the Nissan GT-R, leveraging a collaboration with Olympic sprinter Usain Bolt. This campaign appears in dozens of international airports around the world, so when you depart from Hong Kong and arrive in London, the GT-R advertisement you see from Nissan is identical. It has also taken to engaging in big ticket marketing programs -- like Infiniti's entry in Formula One and its sponsorship of the 2016 Olympic Games in Rio -- to better raise Nissan's visibility in key markets around the world.

Says one executive: "As we've expanded from a company that sold 2 million vehicles a year in 1999 when we formed the alliance with Renault, to one that now sells nearly 5 million vehicles, we haven't always increased our marketing resource to stay in step with our sales. Now we're doing this" -- as 900 international journalists experienced first-hand by driving 124 cars and riding in one.

First Published: September 4, 2013: 7:22 AM ET

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