Will the Nissan Leaf Be a Bigger Meltdown Than Solyndra?

The Obama administration seems to have the worst luck with eco-initiatives. First, their $529 million handout to Solyndra went down the drain after the solar panel producer failed spectacularly last year. Now, it looks like their $1.4 billion investment in the all-electric Nissan Leaf is poised to face a similar fate. Here’s why.

Back in 2007, the Department of Energy established the Advanced Technology Vehicles Manufacturing Incentive Program to foster the growth of hybrid and electric vehicles. The program was given $25 billion in federal funding, which it used to support companies like Tesla and Fisker Automotive. At the time, the economy was stable and going green was all the rage. It made sense.

Unfortunately, Tesla and Fisker failed to make any real impact in the market, so when the Obama administration took over a year later, they decided to aim higher. In 2010, they chose Japanese manufacturer Nissan as the next beneficiary of the ATVMIP program. This also made sense.

Nissan is the eighth-largest auto producer in the world and has a reputation for pushing the envelope with technology. Their Leaf concept vehicle was making waves at all the auto shows, and it seemed a surer bet than the Volt EV, which GM was pushing. So the Department of Energy gave Nissan $1.4 billion to retrofit its production facility in Smyrna, Tennessee, thereby enabling it to produce Leaf models as well as lithium-ion batteries.

That facility is finally set to open late this year, but when they cut the ribbon they won’t have much to celebrate. For all of the hype electric vehicles enjoyed a few years ago, it seems like the public’s enthusiasm has already waned. Following the 2008 economic fallout, few consumers are willing to invest $30,000 or more in a compact car that needs to be recharged after 200 miles for the sake of preserving the environment. As Rep. Patrick McHenry (R-NC) put it earlier this year:

“The policies this administration has put in place have actually increased the cost of fuel at the pumps. They have increased the cost of commuting for my constituents…and to tell my constituents, with 10 percent unemployment in Western North Carolina, that they need to buy a Nissan Leaf? That in order to commute for 50 minutes a day they’re going to have to have an employer who is wonderful enough to provide them a place to plug in their car, so they can get home? It’s absolutely ridiculous.”

Predictably, the Leaf hasn’t exactly been a hit. Since the car’s launch in late 2011, customers have bought fewer than 10,000 vehicles, and sales are already declining.  Sales for March, April and May come in at 579, 370 and 510 respectively. That’s less than a third of the number of Chevrolet Volts sold.

The Tennessee plant is supposed to double sales of the Leaf in 2012. That’s an admirable goal, but even if it happens, the Leaf will likely still trail the Volt by 1,800 units. Considering that the market is about to become even more diluted when Ford, Fiat and Cobra introduce their own EVs in 2013, things aren’t looking good. And to make matters worse, Nissan is now telling the press that this potential flop of a vehicle owes its very existence to government financing.

“Yeah, [government support] is the key,” said Nissan Australia exec Francois Bancon. “This technology is expensive, the car is expensive.”

It certainly is, Francois, and if the Leaf fails to win the hearts of America’s drivers, it’s going to be that much more devastating to the Obama administration and to the eco-initiative movement as a whole. As a niche automobile, EVs are lovely. But they aren’t worth a billion dollars in federal funding. You don’t need to be a financial expert to realize that.