Here comes the electric Nissan Leaf CEO Carlos Ghosn drives the Leaf during the opening ceremony of the company's new Yokohama headquarters. By Alex Taylor III, senior editor

(Fortune Magazine) -- Carlos Ghosn -- in shirtsleeves -- walks briskly into a conference room on the 21st floor of Nissan's global headquarters in Yokohama, Japan. Awaiting his arrival are 15 executives in two ranks of chairs. Subject of the meeting: how to spread the news about Ghosn's pet electric-car project.

His communications staff wants a traditional publicity campaign to build excitement, but Ghosn (rhymes with "phone") has other ideas. He believes that Nissan has a headstart over the rest of the industry -- and he doesn't want to tip his hand.

"Our communications about the electric car should not be very convincing," he says. "I don't want to wake up the competition. Every day they don't decide [to develop electric vehicles] is a good day for us."

The competition would have to be on another planet not to know about Nissan's big bet on electric vehicles (EVs). For one thing, a documentary crew filmed the 21st-floor meeting, which was also attended by a reporter from Fortune, so Ghosn's feint wasn't likely to fool anybody very long.

For another, Nissan and its corporate partner, Renault, have hardly been close-mouthed about their expectations for EVs. Already public are their product plans (four EV models each from Nissan and Renault) and the size of their investment (more than $5 billion by 2016). For his part, Ghosn has been an outspoken EV booster and has frequently repeated his prediction that EVs will account for 10% of the global auto market by 2020 -- higher than most forecasts from other automakers and analysts.

In December 2010, in the U.S. and Japan, Nissan is due to roll out the Leaf, a five-passenger compact car that is the first EV designed for the mass market. The Leaf is powered by a 480-pound pack of lithium-ion batteries that Nissan says will propel the car 100 miles and can be recharged overnight on household current.

Lots of details remained unclear at presstime, including the price of the car (figure around $25,000) and the batteries (another $10,000; a lease plan is looking less likely). But that didn't stop Ghosn from stepping out of a battery-powered concept car at the Tokyo Motor Show last fall and declaring to hundreds of onlookers, "The race to zero emissions has begun."

The way Ghosn sees it, every automaker will eventually have to invest in EVs, given the direction of government regulation, oil prices, and consumer preference. Under those circumstances, he figures, why shouldn't Renault-Nissan be first? "This is not a bet, but the result of a thorough analysis," he says. "The only question about zero emissions is, When? Do we do it now or in five years? Our competitors may see it differently, but we at Renault-Nissan believe it is now."

He is right about one thing: Nissan's competitors do see it differently. Toyota (TM), General Motors, and Hyundai are putting more emphasis on plug-in hybrids, which don't have the range limitations of EVs; they have small gasoline engines in addition to their electric motors. Since they carry more batteries than conventional hybrids, they can travel up to 40 miles in all-electric mode.

Nissan has, in fact, been a laggard in the race to alternative fuels. It introduced its first hybrid, a version of the Altima, nearly a decade after Toyota came out with the Prius. That is still the only hybrid car it sells, compared with a half-dozen hybrid cars and trucks offered by Toyota.

Some competitors, therefore, view the Leaf as a Hail Mary pass, with little chance of being completed. The car is a technological long shot, but Ghosn believes that Nissan has a secret advantage: its battery, the key to success in EVs. The company began R&D work on lithium-ion batteries nearly two decades ago and developed the laminated cell, with its improved cooling and packaging ability, in 2002. "Nissan has a superior battery," says Hideaki Horie, its top battery researcher. "Its cost, performance, weight, and package are better -- significantly better -- than the competition's."

Powerful, energy-dense batteries are essential for alleviating the greatest obstacle (after price) to EV popularity -- range anxiety: the fear that the batteries will become discharged and leave drivers stranded.

Ghosn figures that the Leaf's 100-mile range will make it practical for "95% of the people on earth [who] drive less than 100 miles per day." But drivers tend to get anxious once a battery reaches 50% depletion.

And that 100-mile range is based on a driving cycle, devised by the Environmental Protection Agency, that consists of a pattern of starts and stops meant to replicate driving in Los Angeles, and that produces an average speed of 19.6 miles an hour.

Push the Leaf closer to its top speed of 90 miles an hour up and down hills, with the air conditioner and radio blasting, and your mileage, as they say in the TV commercials, will differ. Experts say a more typical blend of city and highway driving might yield a range closer to 70 to 75 miles.

As with any new form of energy for automobiles, be it ethanol, natural gas, or hydrogen, the difficult question is, Which comes first, the vehicle or the infrastructure to support it? Nissan is working the problem from all sides. It has established partnerships with more than 40 states, counties, municipalities, and utilities to apply for government subsidies and build public plug-in stations.

In January it designated a supplier of home charging stations that will enable owners to replenish their batteries in under eight hours with a 220-volt plug similar to the one used for clothes dryers. Nissan has also teamed up with Japanese trading and financial giant Sumitomo Corp. to start a battery-recycling business.

The debate over EVs vs. hybrids seems to have sparked Ghosn's competitive instinct. "A hybrid is like a mermaid," he says. "If you want a fish, you get a woman; if you want a woman, you get a fish." He believes that only Nissan is following the true path toward environmental purity. "If you have an efficient battery for a hybrid, why not go all the way and go for electric cars?" he asks. "It has the most zero emissions of anything."

At times Ghosn sounds messianic. "Le Cost Killer," the nickname he earned while restructuring Nissan a decade ago, might be replaced by "Carlos, the Climate-Change Crusader." "Our course is right," he declared at Bill Clinton's Global Initiative in New York City last spring. "This isn't about cars -- it is about saving the planet."

Several years after it started research on lithium-ion chemistry, Nissan developed a cylindrical battery that it installed in four small city cars between 1996 and 2001. Toyota and Honda (HMC) were using older nickel metal-hydride batteries in hybrid cars like the Prius and the Insight. Word of mouth on the Nissan battery spread. Sci-fi writer Michael Crichton specified Nissan batteries for the maintenance vehicles he created for Jurassic Park.

When Ghosn arrived at Nissan to rescue it from near bankruptcy in 1999, he was surprised to find the battery research program in place. It would have been an easy decision to sell it as part of his restructuring of the all-but-insolvent company, but instead he left it intact. It turned out to be a smart move. Researchers have made impressive progress since. The change to a laminated battery gave Nissan a source of power that had superior energy density yet was less expensive. Those batteries are what power the Leaf.

In 2006, Ghosn introduced a companywide program called Nissan Green 2010 to push Nissan toward sustainability. The Leaf project was approved a year later. "The push was led by the boss," says North American product-planning chief Larry Dominique. "We were criticized for not developing a hybrid electric vehicle. Mr. Ghosn felt we should take the next leap."

Laid down at the outset were conditions for the car that to some might seem counterintuitive: Nissan did not want an EV that called attention to itself. "It had to be a real car, not an upgraded golf cart," says Dominique. "It couldn't be odd-looking. And it had to be affordable."

From the beginning, the needs of the customer, not the corporation, got priority. "From a product-planning standpoint, we were focused on the price of the car, not how much it cost to make," he says. "Also, we focused on the cost of ownership rather than the upfront cost."

On May 13, 2008, Nissan announced a zero-emissions program as part of its midterm business plan. Ghosn established an ambitious goal and set a deadline: He declared that Nissan would introduce an all-electric vehicle in the U.S. and Japan in 2010, and market it globally by 2012.

The Leaf was revealed to the public in August 2009 in conjunction with the opening of Nissan's Yokohama headquarters. Its design is quirky, but as Ghosn directed, it doesn't immediately signal the presence of nearly 500 pounds of batteries under its floor. "We made it stable, solid, and reliable -- not a toylike city car," says head designer Shiro Nakamura.

One tip-off to its identity is the absence of a grille; with no engine up front, there is no need for a radiator or a grille to shield it. Since electric cars produce no noticeable engine noise, containing the decibels created by other sources becomes a design challenge. The Leaf's headlamps, for instance, are more aerodynamic than is usual to reduce wind noise.

Fortune had the opportunity to drive a Leaf test vehicle, known as a mule, at Nissan's proving ground at the Oppama track outside Tokyo. The Leaf's electric power train and controls were mounted in the body of another car to give the experience of driving the car without revealing the overall design.

Instead of familiar engine noises, there is only a quiet hum as the car gets underway. Acceleration is perfectly smooth; there is no shifting of gears. Like hybrids, the Leaf is slow to get going and doesn't reach 60 miles an hour until nearly 10 seconds have elapsed (vs. seven seconds or less for most new cars). Once it gets cruising (top speed is said to be 90 miles an hour), the Leaf feels like a conventional car. It rides smoothly, steers smartly, and brakes with assurance. All that extra weight beneath the floor never reveals itself. One caveat: While Nissan advertises the Leaf as a five-passenger car, the production version is cramped in the rear seat for normal-size adults.

A lot more is new about the Leaf than just its drive system. It is a "drive-by-wire" car, meaning that there is no direct mechanical linkage to the controls. The gear selector is a joystick-like knob in the center console rather than a lever going down into the transmission. Other electronics are aimed at alleviating range anxiety. An onboard computer includes a display that shows the battery strength, points out charging stations within the driving radius, and calculates how close the vehicle is to its destination.

Nissan has chosen an unusual marketing strategy for the Leaf. Instead of emphasizing its unique technology, it will stress the appeal of other features like styling and safety, with its zero-emissions capability touted as a bonus. In theory that will keep the Leaf from being pigeonholed as an eco-car.

The response from potential customers so far has been enthusiastic. Nissan's North American boss, Carlos Tavares, had counted more than 40,000 "hand raisers" -- car buyers who have expressed an interest in the Leaf -- as of early February. Nissan will start taking reservations accompanied by cash deposits this spring. Its goal is to confirm at least 20,000 reservations by the end of 2010.

Early adopters seem driven as much by practicality as by environmental consciousness. "In the U.S. access to garages and the convenience of home charging units is the No. 1 driver of interest in EVs," says Tavares.

At first the Leaf will be assembled in Japan, but Nissan is investing nearly $2 billion in its Smyrna, Tenn., manufacturing complex so that it can begin building Leafs and their batteries beginning in 2012. "At 90 yen to the dollar, it's very challenging to import cars from Japan," says Dominique. "Just 30% of our global production today is in Japan." When running at full capacity, Nissan will be able to build 150,000 Leafs a year at Smyrna, along with 200,000 batteries.

After the purchase of the car and the batteries, operating costs run in the EVs' favor. For instance, a car that gets 30 miles per gallon will cost $1,500 to fuel at $3 per gallon for an average year. Even at peak charging times, Nissan figures that an EV would cost about $450 a year. At off-peak electricity prices, the cost could be only about $150 annually. The value equation looks more favorable when government incentives are figured in. In the U.S., for instance, the first 200,000 EVs sold by any manufacturer will qualify for a $7,500 tax credit. At the state level, deals range from a $5,000 sales tax credit in Georgia on down.

Still, without a steep rise in oil prices, it could be a while before sales take off. IHS Global Insight forecasts volume of just 50,000 units a year in the U.S. by 2013. In market share, that's roughly 0.5% of industry sales at 2009 rates. The forecaster expects the same share of sales for Chevrolet's Volt, which operates like a plug-in hybrid. As more EVs from other manufacturers reach the market, interest should grow. Jeff Schuster, executive director of global forecasting for J.D. Power & Associates, says there may be as many as 30 electric vehicles or plug-in hybrid models undergoing testing or in production by 2012 or 2013.

Nissan's partner, Renault, has created a different scenario for EVs, using Nissan's battery technology but employing a much different method for recharging. It has developed a subcompact, called Fluence, that can be recharged by swapping its depleted battery pack for a fresh one.

It is selling the cars to entrepreneur Shai Agassi, who is developing battery-swap networks in Denmark and Israel with government support. Agassi's company, called Better Place, has plans to order tens of thousands of cars from Renault to put on the road by 2016. Agassi's scheme was deemed impractical by Nissan for the vast distances of North America because it would require too many swap stations, so it will not be widely available in the U.S. for now.

Can Nissan make any money on its EVs? Ghosn deflects the question: "The business case starts with [the idea that zero-emissions vehicles are] unavoidable," he snaps.

His subordinates offer a bit more detail. When asked whether the Leaf will be highly profitable, Andy Palmer, the senior vice president of product planning, program management, and market intelligence, replies, "No, but it won't lose us any money." Hideaki Watanabe, division general manager of Nissan's global zero-emissions business unit, says the payback on the initial investment will be longer than five years but shorter than 10. That's longer than typical new-car programs, which are expected to start paying back after three years.

As with other breakthrough projects, the Leaf may look better in version 2.0. Dominique believes that the next generation of Nissan's battery pack will give the Leaf significantly greater range. Wolfgang Bernhart of Roland Berger consultants agrees. He figures that by 2020 lithium-ion batteries will store almost twice as much energy and cost about a third of what they do today. He believes that EVs might command 4% of the North American market by then. That's a more modest forecast than Ghosn's but would still allow for sales of 600,000 cars in a good year.

The Leaf represents a big bet on the future, but then Ghosn has been making big bets since 1999, and he hasn't lost many. As one of two CEOs running auto companies on two continents (the other is Fiat-Chrysler's Sergio Marchionne), he has a broader vision than most. It is hard to argue with his thesis that the world is headed toward zero-emissions solutions. The question for him is: Can Renault-Nissan afford to keep funding its battery program if that solution is further off than he thinks?  To top of page