Nissan underlines value of outsourcing R&D

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Nissan’s agreed disposal of its battery business to the Chinese investment firm GSR Capital for a reported US$1bn confirms that it can be more profitable for giant motor manufacturers to let third parties invest in the R&D they need for their vehicles of the future rather than to do it themselves.

The decision might at first seem surprising, given the importance that Nissan attaches to the development of electric cars. However, the Japanese company clearly believes its Automotive Energy Supply Corp subsidiary will ultimately be able to produce more competitively priced products under GSR’s ownership.

Nissan CEO Hiroto Saikawa insisted the deal was a win-win arrangement that would improve his group’s competitiveness with AESC remaining “a very important partner” in the design and development of its electric vehicles (long-term contractual commitments are obviously a key element of transaction).

This view is not that far-fetched. For GSR manages a US$5bn M&A fund that is targeting car-battery producers (as part of a wider remit to invest in clean technology) in order to help Chinese car makers take a lead in the market for electric vehicles (GSR is currently also looking to buy a substantial holding in the giant Chilean lithium producer Sociedad Quimica Y Minera).

With ample funds to pursue further acquisitions in the sector and ready access to a potentially vast market for electric vehicles in China, it is not hard to see how GSR could easily reduce AESC’s unit cost of production to a level that Nissan would not be able to match. (While GSR is committed to maintain the AESC three current production facilities in Japan, the UK and US, it will certainly open more lower-cost plants at home and elsewhere over time.)

The deal is not Nissan’s first significant move to outsource the supply of key components – coming less than a year after it agreed to sell its 41% stake in Calsonic Kansei to KKR in a deal worth US$4.5bn – and other leading global auto makers are likely to follow its example.

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