Daniel Leussink
TOKYO (Reuters) – Shares of Nissan (OTC:) Motor fell 12% on Friday, their biggest drop in more than two decades, after quarterly profit came in well ahead of expectations and cut auto sales estimates due to fierce competition in China. . .
The emergence of fast-growing Chinese brands such as BYD (SZ:), which make affordable electric vehicles aimed specifically at young Chinese drivers, has led to a steady loss of market share for foreign rivals in the world’s largest auto market.
However, the stakes may be higher for Nissan, which until 2022 counted China as its largest market. It is also struggling to fully recover from years of internal turmoil following the arrest and ouster of former chairman Carlos Ghosn.
Compared to competitors Toyota Motor (NYSE:) and Honda (NYSE:) Nissan is the “most vulnerable” company in China, where it has less capital and brand equity, said James Hong, head of mobility research at Macquarie.
“They feel the most pressure,” he said. “Many Chinese manufacturers are becoming more aggressive and are clearly chasing market share.”
Friday’s 11.6% drop wiped out $1.8 billion from Nissan’s market value.
A day earlier, the company reported third-quarter operating profit of 141.6 billion yen ($948 million) – a fifth below LSEG analysts’ consensus forecast – and cut its global auto sales forecast by 150,000 vehicles to 3.55 million. .
Chief Financial Officer Stephen Ma told reporters the sales forecast was cut due to the automaker’s performance in China, where Nissan’s sales fell by a quarter in the nine months to Dec. 31, and also cited increased competition in other key markets, including the United States. States.
The company is taking steps to improve its competitiveness, such as adjusting incentives, he added.
ZERO MARGIN?
Given stiff competition, foreign automakers are being forced to cut prices in China, adding to the pain of falling sales. Nissan said net revenue per vehicle in China fell 8% from the previous year.
This has raised the specter of a “zero-margin business” for Nissan, where the company could face sales that simply break even, Macquarie’s Hong said.
Japanese automakers “need to develop models suitable for the Chinese market,” said Shinya Naruse, senior analyst at Okasan Securities. Such restoration could take a couple of years, he said.
Chinese buyers, especially younger ones, are gravitating towards technology features such as driving assistance systems, automatic parking and voice recognition, which are increasingly common among Chinese manufacturers but which international brands have been slow to offer.
One strategy Japanese automakers could use would be to produce models to suit local tastes and then use excess capacity at factories in China to produce models for export.
Nissan said in November it would begin exporting cars from China to other overseas markets from 2025, initially aiming for annual sales of somewhere 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, but did not elaborate.
Hong warned that using China’s manufacturing capacity for exports has a low return on investment.
Nissan’s Ma said Nissan made progress in increasing sales in China in the fourth quarter, shifting its focus in China to reviving sales in cities and regions where electrification is progressing at a slower pace.
That helped the automaker increase sales by nearly 20% in the final three months of last year, he said.
“We are committed to staying in China and want to be an important and significant player in China,” he said.
($1 = 149.3500 yen)