Nissan plunges in Tokyo after worrying forecasts

by Daniel Leussink

TOKYO (Reuters) – Nissan Motor shares suffered their biggest fall on the Tokyo Stock Exchange in more than 20 years on Friday, after the automaker lowered its global vehicle sales outlook in the face of fierce competition from China .

Japanese automakers, like their American and European competitors, continue to lose market share in China to fast-growing local brands, such as BYD, which have launched more affordable electric vehicles (EVs) and plug-in hybrids.

However, the stakes are higher for Nissan which, until 2022, counted China as its largest market. The company has also struggled to fully recover from several years of internal turmoil sparked by the arrest and fall of its former CEO Carlos Ghosn.

Compared to domestic rivals Toyota and Honda, Nissan is most vulnerable in China, where it has less brand equity and value, said James Hong, head of mobility research at Macquarie. “They are the ones feeling the most pressure,” he added, as “many Chinese manufacturers are becoming more and more aggressive and clearly looking to grab market share.” Its stock lost 11.6% on Friday, erasing $1.8 billion (1.67 billion euros) from its market capitalization. In releasing its financial accounts on Thursday, Nissan reported third-quarter operating profit of 141.6 billion yen – a fifth below the estimate of analysts surveyed by LSEG – and reduced its forecast for global sales of 150,000 cars, bringing them down to 3.7 million.

The group nevertheless maintained its forecast of an annual profit of 620 billion yen.

Its chief financial officer, Stephen Ma, told reporters that forecasts had been lowered due to Nissan’s performance in China, where sales fell by a quarter in the nine months of 2023. He also cited stronger competition in other key markets, such as the United States.

The company is taking steps to strengthen its competitiveness, including adjusting incentives, he added.

ZERO MARGIN?

Given the fierce competition, foreign automakers are forced to reduce their prices in China, which only worsens the difficulties. For Nissan, its net income per vehicle fell 8% in the country compared to the previous year.

This has raised the specter of a “zero margin business” for Nissan, which could face sales barely breaking even, analyzes Macquarie’s James Hong.

Shinya Naruse, senior analyst at Okasan Securities, said Japanese automakers “need to develop models tailored to the Chinese market” and that could take a few years.

Chinese buyers, especially younger ones, are attracted by options such as driver assistance systems, automated parking and voice recognition, which are increasingly common among domestic manufacturers.

To meet this challenge, Japanese manufacturers could launch models meeting local desires and use excess capacity in Chinese factories to build vehicles for export.

Nissan said in November it would begin exporting cars from China to other overseas markets from 2025, initially targeting annual volumes of between 100,000 and 200,000 vehicles.

Honda will also seek to optimize its production capacity in China, Chief Financial Officer Eiji Fujimura told reporters on Thursday, without giving further details.

Analyst James Hong, however, warned that using China’s production capacity for exports resulted in a low return on invested capital.

According to Nissan’s chief financial officer, the group made progress in reviving sales in China in the fourth quarter, focusing on cities and regions where electrification is happening at a slower pace.

This allowed the automaker to increase its sales by almost 20% in the last three months of last year, Stephen Ma added.

“We intend to stay in China and we want to be a relevant player and a strong player,” he said.

(Reporting Daniel Leussink; French version Kate Entringer)