Struggling to manage more challenging car industry conditions and address escalated internal weaknesses, Nissan Motor Co. was forced to cut payroll, production, and its goals for this fiscal year.
In response to a net income plunging 94% in the first half, Nissan cut 9,000 employees’ jobs and a fifth of its manufacturing capacity. As a result, the company’s shares fell 6% Friday. Nissan also plans to sell off some of its stake in Mitsubishi Motors Corp. after the company has exhausted $2.9 billion in cash during the last six months.
“In this new climate and until we have more details on the restructuring plans, it is difficult to gauge whether Nissan will be able to reduce fixed costs as quickly as last time,” Goldman Sachs Japan Co. analyst Kota Yuzawa wrote in a note.
A Hefty Price
According to a credit-default swaps trader, on Friday, the cost to insure Nissan’s bonds against nonpayment jumped to 180 basis points, a 15-point hike compared to 165 points earlier that week.
Other prices the company faced were rating agency JCR, which placed Nissan’s A rating on watch for possible downgrade, and S&P Global Ratings, which stated that pressure would mount for Nissan’s creditworthiness if its performance did not show signs of improvement soon.
These costly results led Chief Executive Officer Makota Uchida to forfeit half of his compensation starting this month.
Nissan now forecasts its operating income dropping further in the fiscal year, which ends in March.
High Expectations
Taking over as CEO in 2019, when Nissan was in crisis after former chairman Carlos Ghosn’s departure, Uchida has had difficulties getting the company back on track while facing stiff competition from companies such as Tesla Inc. and China’s BYD Co.
Uchida told investors that the company had been impacted “not only by external challenges but also by our specific issues,” hinting at the rise of Chinese automakers and the issue of Nissan setting overly high sales targets.
“Meeting our sales goals will be a challenge,” Uchida said. “We need to rebuild our strength so that we can pivot toward a more positive direction.”
The CEO is about eight months into a three-year turnaround plan to revive Nissan. However, earlier this year, Nissan backtracked, cutting its annual operating profit due to poor sales in China, Japan, and North America.
“Nissan is the weakest one,” said James Hong, an analyst at Macquarie Securities Korea. “The only way for the company to improve sales is through price cuts.”
Nissan plans to sell roughly a third of its shareholding in partner Mitsubishi Motors, cutting its current stake to just over 34%. The company will offer up almost 10% of its shareholding through the Tokyo Stock Exchange.
Other steps leadership has taken include lowering its revenue outlook by more than 9%, meaning Nissan expects no growth for the year.
“The decline in second quarter profit wasn’t a surprise, but the figure itself was even lower than expected,” said Bloomberg Intelligence analyst Tatsuo Yoshida. “The main problem is the gap between what the company wanted to achieve, and what was realistically possible.”
Moving Forward
Uchida’s plans to help rebuild Nissan include expanding the company’s lineup of electric vehicles, building new partnerships, and selling an additional 1 million cars a year by 2027. Yet, analysts argue that the company’s latest lineup lacks enough hybrid models, which presents a significant problem when consumer demand for EVs wanes.
“The demand for hybrids is what’s allowing Toyota and Honda to enjoy strong profitability,” Macquarie’s Hong said. “That strategy also needs to be revisited.”
Nissan plans to produce fewer cards than last fiscal year and lower its retail sales outlook to 3.4 million vehicles, cutting forecasts for its major markets: China, Japan, North America, and Europe. The company also agreed to work with Honda Motor Co. and Mitsubishi Motors on software development, batteries, and other EV components to boost Nissan’s investment efficiency and product.
