- Nissan is moving forward after the scandal-plagued departure of former CEO and now wanted international fugitive Carlos Ghosn by making significant progress on a global restructuring plan.
- The Japanese manufacturer is on track to accomplish the goals outlined in its “Nissan Next” turnaround plan one year earlier than the target date of March 2024.
- Following nearly a decade of leadership by Ghosn, Nissan Next is a combination of cost-cutting, product investment, and culture reform.
On a prototype of its new all-electric Ariya crossover, Nissan has lighted its logo. The vehicle’s grille reflects Nissan’s Z Proto sports car, while an updated Nissan Pathfinder SUV is seen in the distance.
As it moves past Carlos Ghosn’s scandal-plagued departure, Nissan Motor is making considerable strides in a global restructuring plan to downsize operations and return to profitability.
In a video interview from Nissan’s headquarters in Yokohama, Japan, Gupta, who is in charge of the transformation, said: “Despite the headwinds, we have pulled ahead the recovery by one year.” We are far ahead of schedule compared to what we predicted, which enabled us to weather the pandemic’s headwinds in 2020.
Following almost 20 years under Ghosn, who fled Japan to Lebanon in December 2019 while awaiting trial on allegations of financial wrongdoing, Nissan Next is a blend of cost-cutting, product investment, and culture transformation. Nissan CEO Makoto Uchida outlined the recovery plan as a road map to long-term profitability and “competition for the next ten years.”
The company’s operations are being significantly scaled back in order to place more of an emphasis on higher profits than on Ghosn’s goals of sales volume and growth. Nissan still has a ways to go in terms of profitability, but according to Gupta, there are some encouraging indicators.
Nissan’s 2020 fiscal year, which ends in March, saw a loss of 367.7 trillion Japanese yen ($3.4 billion) through the first three quarters. However, it exceeded its initial objective by 100 billion Japanese yen ($921 million) in the third quarter, producing an operating profit of 27.1 billion Japanese yen ($250 million). Additionally, compared to its earlier plan of 300 billion Japanese yen ($2.8 billion), it has reduced fixed costs by 330 billion Japanese yen ($3 billion).
According to Gupta, cutting fixed costs by closing operations, leaving markets like South Korea, and lowering plant shifts internationally allowed the corporation to arrive ahead of schedule. Other goals of the transformation plan include a 20% reduction in the world’s manufacturing capacity, a tripling of operating profit margin to 5%, and a marginal increase in worldwide market share from 5.8% to 6%.
Analysts are cautiously optimistic that Nissan can turn things around based on the early findings. According to FactSet, the price of Nissan shares listed on the Tokyo Stock Exchange has increased by nearly 51% in the past year.
Following the company’s third quarter earnings, Morgan Stanley analyst Kota Mineshima wrote in a letter to investors, “Our impression is generally one of progress.”
In This Article...
Summary
- Nissan has predicted a $1.8 billion net profit for FY 2022, reversing a six-year trend of diminishing profits and net losses.
- Following turbulent leadership change and tense relations with French subsidiary Renault SA, new vehicle types are looking to gain traction.
- During the shift of the global auto industry from fossil fuels to battery electrics, automaker’s financials are strengthening.
- Looking for a collection of concepts similar to this one? Exclusive access to our model collection is available to Auto/Mobility Investors members. Find out more A>>
By almost all standards, it has been wise to steer clear of Nissan Motor Co. (OTCPK:NSANY) stock for at least the previous three years. The share price of the ADRs began to trade in a constrained range around $20 in 2011, having recovered from a sharp fall during the global financial crisis.
Then followed the Carlos Ghosn scandal in 2018, which resulted in the global chairman of Nissan being detained in Japan for a number of alleged financial offences. He later escaped Japan before his trial with the aid of conspirators who hid him in a box (and managed to skip bail). It should come as no surprise that Ghosn’s unexpected exit prompted a number of concerns about the automaker’s governance as well as its partnership and equal stock ownership with French automaker Renault SA (OTCPK:RNSDF).
Despite Supply Chain and Covid Risks, Nissan Increases Profit Forecast
On Tuesday, April 28, 2020, at the Port of Los Angeles in Wilmington, California, U.S., a new Nissan Motor Co. Rogue sits on a car carrier trailer inside an automotive processing terminal run by WWL Vehicle Services Americas Inc., a division of Wallenius Wilhelmsen Logistics. Ports are bracing for an even worse scenario, shipping ceasing entirely as the recession worsens, as they struggle to deal with surplus auto inventory. Photographer: Bloomberg/Bing Guan
The (Bloomberg) In an effort to increase the likelihood that its recovery strategy will succeed despite risks from parts shortages and the development of the highly contagious omicron variant in Asia, Nissan Motor Co. increased its 2017 profit outlook.
The Japanese manufacturer increased its prediction from 180 billion yen stated in November to an operating profit of 210 billion yen ($1.8 billion) for the fiscal year ending March 31. The revised forecast also went above and above the 202 billion yen average analyst prediction. In contrast to experts’ average forecast of 36.6 billion yen, Nissan posted an operational profit for the three months ending in December of 52 billion yen.
The more optimistic outlook demonstrates how Nissan’s turnaround strategy is supporting profitability even as it reduces production. Nissan’s strategy, which was unveiled almost two years ago, focuses on cost savings, the introduction of new models, and lowering incentives to increase margins—actions that analysts believe are necessary for Nissan to recover.
Nissan’s production suffered greatly in the most recent quarter, with global output falling 22% from a year earlier. Additionally, unit sales decreased, falling 18% from the previous year when the industry was recovering from the initial wave of pandemic lockdowns.
Nissan’s capacity to profit from the vehicle industry, which has quickly recovered this year in important markets like the U.S., is currently hampered by low output. Nissan’s overall recovery may be delayed in the long run if the chip scarcity and other pandemic-related problems persist.
According to Bloomberg Intelligence, Nissan’s full recovery won’t happen until the first quarter of the following fiscal year, which starts in April. At this time, production is expected to return to normal.
Nissan’s manufacturing is “on a recovery road,” according to Chief Executive Officer Makoto Uchida, despite the fact that the chip scarcity scenario is still unknown. Covid will continue to be a serious concern in the coming months, but according to Uchida, “we are expecting the market to recover overall.”
The automaker is also boosting its profit margins on its recently announced models and decreasing expenditures. Strong demand and exorbitant car prices are also enhancing automakers’ profitability on a global scale. Nissan raised its fiscal year profit prediction in November despite aiming for lower unit sales due to these positive factors.
Satoru Aoyama, a senior director at Fitch Ratings, stated that when it comes to revenue and profit production, Nissan is improving or at least moving in the right way, but that the benefits of those efforts are “not entirely revealed yet in consolidated results.”
Ahead of the findings on Tuesday, Nissan shares decreased by 1%. After declining each of the previous six years, the stock is up 6.7% this year.
Nissan Increases Profit Expectations Despite Supply Chain and Covid Risks
On Tuesday, April 28, 2020, a new Nissan Motor Co. Rogue sits on a car carrier trailer inside an automotive processing station run by WWL Vehicle Services Americas Inc., a division of Wallenius Wilhelmsen Logistics, in Wilmington, California, in the United States. Ports are bracing for an even worse scenario as the crisis worsens—deliveries completely ceasing—as they struggle to deal with the extra auto inventory. Bing Guan/Bloomberg, the photographer
Forbes (Bloomberg) Despite threats from parts shortages and the spread of the highly contagious omicron strain in Asia, Nissan Motor Co. increased its annual profit projection in an effort to ensure that its recovery plan will go as planned.
The Japanese automaker increased its prediction from an operational profit of 180 billion yen published in November to 210 billion yen ($1.8 billion) for the fiscal year ending March 31. The revised perspective also topped the 202 billion yen average forecast made by analysts. In contrast to experts’ average forecast of 36.6 billion yen, Nissan announced an operational profit of 52 billion yen for the three-month period ending in December.
The more optimistic outlook shows how Nissan’s turnaround strategy is supporting profitability even as it reduces output. Nissan’s nearly two-year-old plan, which focuses on cost reductions, new model launches, and lowering incentives to raise profitability, is seen by analysts as a necessary step before the company can recover.
Nissan experienced significant production setbacks in the most recent quarter, with global output falling 22% from a year earlier. A year ago, as the market was recovering from the initial wave of pandemic lockdowns, unit sales decreased as well, plummeting 18% from that time.
Nissan’s potential to profit on the vehicle market, which has recovered quickly this year in important markets like the U.S., is hampered in the short term by low output. In the long run, this could delay Nissan’s overall recovery if the chip shortage and other pandemic-related problems continue.
Bloomberg Intelligence predicts that Nissan’s full recovery will not occur until the first quarter of the following fiscal year, which begins in April, at which time production is anticipated to return to normal.
While the chip shortage scenario is still unresolved, Nissan’s chief executive officer Makoto Uchida stated in an interview with Bloomberg Television last month that manufacturing is “on a recovery road.” Although Covid will continue to be a serious threat in the coming months, “we are expecting the market to recover overall,” Uchida added.
The automaker is also succeeding in reducing expenses, and the profit margins of its most recent models are increasing. The profitability of automakers as a whole is also being boosted by strong demand and sky-high automobile prices. Nissan, although aiming for lower unit sales, increased its profit prediction for the fiscal year in November as a result of these positive factors.
Satoru Aoyama, a senior director at Fitch Ratings, stated that Nissan is improving or at least moving in the right way when it comes to revenue and profit generation, though he added that the effects of those efforts “are not entirely revealed yet in consolidated results.”
In advance of the news, Nissan shares decreased 1% on Tuesday. Following six years of declines, the stock is up 6.7% this year.
Why was Nissan kept alive?
Nissan, a Japanese automaker, was on the edge of bankruptcy in 1999 as a result of massive debt. Nissan formed partnerships with Renault, a French automaker, in order to survive. They were fortunate to endow Nissan with Carlos Ghosn, who not only salvaged the business but also turned a $2.7 billion loss in just three years into a $2.7 billion profit.
Nissan Motor Corporation is a global Japanese automaker with headquarters in Nishi-ku, Yokohama. With in-house performance tuning equipment branded under the Nismo name, the company distributes its automobiles under the Nissan, Infiniti, and Datsun brands. In 2013, Nissan ranked sixth in terms of global vehicle production, behind Toyota, General Motors, Volkswagen Group, Hyundai Motor Group, and Ford. Moreover, if the Renault-Nissan Alliance is taken into account, it ranks fourth in the globe.
However, Nissan was on the edge of bankruptcy in 1999 with a staggering $35 billion in debt. Since its automobiles haven’t generated a profit in eight years, Nissan was on the verge of bankruptcy. An organization with a well-known and respected brand in the automotive industry was doomed to extinction.
The struggling Japanese automaker was compelled to seek partnerships. With Daimler-Chrysler out of the picture, Nissan’s sole chance of surviving lay with Renault. Renault acquired a 36.6% equity holding in Nissan in exchange for taking on $5.4 billion of Nissan’s debt. Nissan’s success in North America covered a critical vacuum for Renault, and Nissan’s debt was lowered by Renault’s cash flow.
There were still billions of dollars in debt even after the $5.4 billion. They hired Carlos Ghosn as their new CEO to address the issue and turn the company around.
Businessman Carlos Ghosn was born in Brazil and also holds French and Lebanese citizenship. Before beginning his employment at Renault in 1996, he spent 18 years working as an engineer at Michelin. He gained notoriety by organizing a significant reorganization for the merger with Uniroyal Goodrich Tire. Ghosn became somewhat of a national hero after taking the helm in Nissan’s resuscitation and was depicted as a “Super CEO” in the manga, a style of Japanese comic book. He was shown on a stamp for Lebanon as well. He is a wanted fugitive as of January 2020, yet to every child who had a “Nissan Skyline GT-R” toy vehicle, he is known for preserving an iconic brand.
“Turning around a sinking business with massive debts into one with a few billion dollars in profit requires taking many risks. When it comes to growth, there is a right time and a wrong time. Carlos Ghosn had to accomplish both at once.” -Author
Is Nissan a struggling business?
It is widely known that Nissan is having problems. It is still battling to reclaim some of its former glory from the time when vehicles like the ZX, Sentra, and GT-R were class leaders, a full year after realizing its predicament. Although it continues to lose a lot of money, it has made substantial improvements. Now, Nissan’s brand-new COO explains how Nissan bungled it.
Nissan’s operating losses totaled $400 million in 2019. Additionally, Carlos Ghosn, the company’s CEO, was detained on suspicion of fraud and other wrongdoings. Nissan’s fortunes also began to quickly decline around that period.
Nissan: Will it endure in India?
Nissan India MD Rakesh Srivastava has formally denied rumors that the company intends to leave the Indian market. As part of a bigger global transformation strategy, Nissan India, according to Srivastava, is concentrating on its core models and market sectors.