Shares in Nissan Motor (7201.T) plummeted 12% on Friday, marking their most substantial decline in over two decades.
This drastic dip followed quarterly earnings that fell significantly short of expectations and a downward revision of car sales estimates, attributed to intense competition in China, according to Investing Insider.
The rise of rapidly expanding Chinese brands like BYD (002594.SZ), which offer budget-friendly electric cars tailored for younger Chinese drivers, has steadily eroded market share for foreign competitors in the world’s largest automotive market.
Nissan, previously considering China its largest market until 2022, faces heightened stakes, compounded by struggles to fully rebound from internal upheaval triggered by the arrest and downfall of former Chairman Carlos Ghosn.
James Hong, head of mobility research at Macquarie, remarked that compared to rivals Toyota Motor (7203.T) and Honda Motor (7267.T), Nissan appears the most susceptible in China due to its lower brand equity and value.
He noted, “They feel the most pressure. Many Chinese makers are becoming more and more aggressive and obviously chasing market share.”
Friday’s 11.6% nosedive wiped out $1.8 billion of Nissan’s market value, following a third-quarter operating profit of 141.6 billion yen ($948 million), which was a fifth lower than analysts’ consensus estimates.
Nissan also revised its global vehicle sales outlook downwards by 150,000 cars to 3.55 million.
Chief Financial Officer Stephen Ma explained that the sales forecast adjustment was primarily due to the company’s performance in China, where sales dipped by a quarter for the nine months ending Dec. 31.
Ma also cited intensified competition in other key markets, including the United States, prompting Nissan to recalibrate its incentives strategy to enhance competitiveness.
With competition driving price reductions in China, Nissan faced an 8% decline in net revenue per vehicle compared to the previous year.
Macquarie’s Hong raised concerns about the prospect of Nissan operating in a “zero-margin business” in China.
Shinya Naruse, a senior analyst at Okasan Securities, suggested Japanese automakers need to tailor models to Chinese preferences, a process that may require a couple of years to yield results.
He highlighted Chinese consumers’ inclination towards technological features like driving assist systems, automated parking, and voice recognition, which are increasingly prevalent in domestic brands.
One potential strategy for Japanese automakers is to produce models catering to local tastes and utilize excess production capacity in China for export.
Nissan announced plans in November to commence car exports from China to other markets by 2025, targeting initial annual volumes of 100,000 to 200,000 vehicles.
Honda also aims to optimize its manufacturing capacity in China, according to CFO Eiji Fujimura.
However, Hong cautioned that the returns on investment for using Chinese production capacity for exports may be limited.
Nissan’s Ma highlighted progress in bolstering sales in China in the fourth quarter, focusing on regaining traction in cities and regions with slower electrification rates.
This strategy facilitated nearly a 20% sales increase in the final quarter of the previous year.
“We aim to stay in China and we want to be a relevant player and a sizeable player in China,” Ma emphasized.