Inside Nissan's $300 million battery factory

April 26, 2013: 2:07 PM ET

Not surprisingly, the Japanese company has big hopes for its new high-tech U.S. facility.

By Doron Levin

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FORTUNE -- Modern auto factories hardly resemble their noisy, dirty, chaotic forebears of the previous century. Nissan Motor Co.'s new lithium-ion battery plant in Smyrna, Tenn. goes one step further with an atmosphere reminiscent of a laboratory.

The $300 million factory, which operates with 100 workers --many clad in white smocks, toiling away amid robotized machines in clean rooms -- manufactures battery packs for the electric Nissan Leaf. The Leaf's initial slow sales are perking up, thanks to steep discounting announced by Nissan in January.

"The people who buy the Leaf are incredibly enthusiastic," said Brendan Jones, Nissan's (NSANY) head of electric-vehicle strategy. Leaf, he said, is developing a cult-like following. "We've never sold a vehicle that has had so many of its owners calling, talking, suggesting ideas for improvements."

The Leaf body is assembled nearby on a production line along with Nissan Altima and Maxima -- but instead of an engine and gas tank, it gets a 600-pound battery pack and electric motor. Building the Leaf and its battery in the U.S. keeps transportation costs low and reflects appreciation for $1.4 billion the U.S. lent to Nissan in 2007 for the project.

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Fair's fair, after all, since Nissan mightn't be manufacturing batteries or electric vehicles if California didn't mandate (and the U.S. didn't permit California to mandate) the sale of a greater and greater number of emission-free vehicles in the state to combat smog. The auto industry last month petitioned the U.S. Environmental Protection Agency to drop the requirement to sell 1.4 million electric, plug-in hybrid and fuel cell vehicles by 2025.

Lithium-ion technology has been the center of debates over safety because the batteries, while powerful, tend to generate quite a bit of heat. The manufacturing process, therefore, is precise and can be tricky. The batteries while in operation must be managed carefully in order to prevent problems of the type that recently grounded the Boeing (BA) 787 Dreamliner.

Nissan's battery design, a series of laminated sheets inside steel modules, is buried below the passenger cabin. Its heat is dissipated by air; designs by other manufacturers require a liquid coolant.

Nissan's top Japanese competitor, Toyota (TM), has avoided lithium-ion technology in its gas-electric hybrids, hinting that it foresees a breakthrough in some other type of battery chemistry.

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Meantime, U.S. Leaf sales nearly quadrupled in March to 2,236 from 579 a year earlier after Carlos Ghosn, Nissan chairman, announced in January a $6,000 discount of its least expensive version. The new net price in some states, depending on federal and state subsidies, could be as little as $20,000.

With a range of 84 miles the Leaf promises to be ideal way to save money on gasoline -- although many still regard frequent recharging as a drawback, especially if an owner has access to only one car. Nissan recently upgraded, retroactively, its warranty on the Leaf's battery for five years or 60,000 miles to cover loss of more than 70% of its power. Some owners, especially in hotter climates, had complained that the Leaf's batteries degraded more quickly than Nissan said they would.

It's still early days for the new generation of electric cars like the Leaf, which depend heavily on government subsidies and a driving public that has grown quite comfortable with the internal combustion engine over the past century. The battery factory is operating at less than one-third capacity -- but Nissan most assuredly will introduce more electric models: Ghosn sees the trend as part of his legacy.

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