Is Nissan is thinking of closing its US and British battery plants? According to Reuters (via Green Car Reports), the company may end up sourcing cells from South Korea’s LG Chem.

Nissan currently produces its own batteries through a joint venture with NEC. With the help of governments eager to aid domestic manufacturing, it built battery plants in Zama, Japan (partly funded by $215 million from Japanese taxpayers); Smyrna, Tennessee ($1 billion from Uncle Sam); and Sunderland, England ($341 million from the Brits).

Total annual production capacity of 220,000 battery packs far exceeds the 67,000 EVs Renault-Nissan sold in 2013. “Renault-Nissan were definitely ahead of their time – in a bad way,” said Stuart Pearson, an Exane BNP analyst. “Their targets were really excessive on volume and battery capacity.”

More to the point, LG Chem may be building more advanced and cheaper batteries. “We set out to be a leader in battery manufacturing but it turned out to be less competitive than we’d wanted,” an executive told Reuters on condition of anonymity. “We’re still between six months and a year behind LG in price-performance terms.”

Based on replacement prices, Nissan’s current batteries cost about $270/kWh, but the true manufacturing cost is probably over $300, according to consulting firm AlixPartners. The next generation LEAF will use lithium nickel manganese cobalt oxide (NMC) cathodes, which LG is already producing, rather than the current lithium manganese oxide (LMO) chemistry, and the cost target is $200/kWh, according to Reuters’ sources.

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There are disagreements over battery strategy not only between factions at Nissan, but also with partner Renault, which decided in 2010 to purchase LG batteries for its Zoe EV. “Renault would clearly prefer to go further down the LG sourcing route, and the Nissan engineers would obviously prefer to stay in-house,” said an unnamed insider. “The write-off costs are potentially huge.”

Responding to the Reuters report, Nissan/Renault CEO Carlos Ghosn said that Nissan may open battery procurement to LG and other suppliers, but that no decision had yet been made. The fate of the US and British battery plants is to be decided next month.

“We have to open up,” Ghosn told reporters this week. “We will continue making batteries but we can’t get stuck with supply monopolies – even internal ones.”

Source: Reuters, Green Car Reports