May 11, 2023

Nissan Profit Outlook Tops Projections on Improving Chip Supply

Supriya Singh, Bloomberg News

Nissan Motor Co. Sakura electric vehicles during a test driving event in Tokyo, Japan, on Monday, April 17, 2023. Renault SA is set to cut its holding in Nissan to 15% from 43%, while Nissan intends to take a stake of as much as 15% in Renault’s EV business, Ampere. , Bloomberg

(Bloomberg) -- Nissan Motor Co. forecast operating profit for the current fiscal year that exceeded analyst projections, as the Japanese carmaker gets costs under control while expanding output, thanks to improving supplies of semiconductors.

Operating profit will be ¥520 billion ($3.9 billion) for the period through March 2024, the Yokohama-based company said Thursday. That compares with the average estimate for ¥402.8 billion. Sales should be ¥12.4 trillion, more than the ¥11.2 trillion the market is looking for.

Nissan embarked on a cost-cutting plan three years ago and shifted its focus toward making more money from each car it sells, departing from the high-volume strategy embraced by former Chairman Carlos Ghosn. The question now is whether the auto manufacturer can expand production and profitability while rolling out new electric vehicles, especially for buyers in China and the US.

“Nissan used to sell its cars at a discount but it doesn’t have to discount anymore,” said Seiji Sugiura, an analyst at Tokai Tokyo Research Institute Co. “They’re actually raising their prices tremendously, so that’s more beneficial.”

For the fiscal year that ended in March, operating profit was ¥377 billion on sales of ¥10.6 trillion, in line with the company’s guidance issued last month, as well as analyst estimates.

New Fall Plan

For the current fiscal year, Nissan is looking to produce 4 million units, in line with its existing sales target. That still falls short of the company’s goal of reaching 80% of its production capacity of 5.4 million units.

Nissan sold 3.3 million cars in the latest financial year. It lowered its global vehicle sales target to 3.4 million units from 3.7 million units in February.

“The prolonged shortage of semiconductors and tight supply of parts due to the shutdown in China had a sizable impact on production plans and vehicle supply,” the company said in Thursday’s statement.

The automaker’s outlook also fell shy of its target of reaching a 5% operating margin for the current fiscal year. Chief Executive Officer Makoto Uchida is planning to announce a new mid-term growth plan in the fall.

China Woes

For the fourth quarter, retail unit sales increased in the US and more slightly in Japan from a year earlier, but plummeted in China, affected by a scale-down of incentives by the Chinese government.

“The company is struggling in China, not just due to the pandemic but the price war that started in the first quarter,” Uchida said. “I was in China three weeks ago after three and a half years. I was much impressed by the speed and the change of the market.”

Uchida added that BYD Co., the Chinese carmaker that only makes electric and hybrid vehicles, was “very aggressive.”

“I test drove their vehicles and their quality is becoming better,” he said. “I felt a very strong threat and their pricing level is very low. What we have to consider moving forward, especially in the mid-term plan, is how we can kind of re-transform the China operation. There is a sense of urgency there.”

Nissan and its long-time partner and shareholder Renault SA revamped their alliance earlier this year, seeking to work on new projected while rebalancing their shareholding structure. As a result, Renault plans to reduce its stake in the Japanese carmaker to 15% from 43%.

Nissan shares closed down 0.3%, trimming gains for the year to 21%.

(Corrects time period for operating margin target in the ninth paragraph.)