Nissan Motor’s shares (7201.T) experienced a significant drop of 12% on Friday, marking the most substantial decline in over two decades. This downturn followed disappointing quarterly earnings that fell well below expectations, leading to a downward revision of car sales estimates, primarily attributed to intense competition in the Chinese market.
The rise of rapidly growing Chinese brands like BYD (002594. SZ), which offer affordable electric cars tailored for the younger Chinese demographic, has resulted in a consistent loss of market share for foreign competitors in the world’s largest auto market.
This development holds particular significance for Nissan as China was its most significant market until 2022. The company has faced challenges in recovering from internal turmoil triggered by the arrest and downfall of former Chairman Carlos Ghosn.
In comparison to rivals Toyota Motor (7203.T) and Honda Motor (7267.T), Nissan is considered the “most vulnerable” in China due to lower brand equity and brand value, according to James Hong, head of mobility research at Macquarie. Friday’s 11.6% decline in shares erased $1.8 billion of Nissan’s market value.
The company reported a third-quarter operating profit of 141.6 billion yen ($948 million), 20% below analyst estimates, prompting a reduction in its global vehicle sales outlook by 150,000 cars to 3.55 million. Nissan cited weaker performance in China, where sales dropped by a quarter for the nine months ending Dec. 31, and increased competition in key markets like the United States.
Facing cut-throat competition and the need to cut prices in China, Nissan acknowledged an 8% decline in net revenue per vehicle. Analysts warn of a potential “zero-margin business” for Nissan in China, where sales might barely break even.
To enhance competitiveness, Nissan is adjusting incentives and focusing on regaining sales in cities and regions where electrification is progressing more slowly.
Japanese automakers, including Honda, are urged to develop models tailored to local Chinese preferences, with a potential strategy of utilizing excess capacity to manufacture export models. However, analysts caution that utilizing production capacity in China for exports may yield low returns on invested capital.
Nissan aims to export cars from China to overseas markets starting in 2025, with an initial target of 100,000 to 200,000 vehicles annually. While seeking to stay relevant and sizable in China, Japanese automakers face challenges in adapting to the dynamic preferences of Chinese buyers, especially in technology features.