Nissan's Nightmare Isn't Over Yet

On Tuesday, Nissan (OTC: NSANY) posted its earnings on November 12, clearly showing that the nightmare that started with Ghosn's arrest is not nearly over. The Japan's second biggest automaker's shares were 19% down for the year, but its profits pl

Benzinga · 11/18/2019 14:12

On Tuesday, Nissan (OTC: NSANY) posted its earnings on November 12, clearly showing that the nightmare that started with Ghosn's arrest is not nearly over. The Japan's second biggest automaker's shares were 19% down for the year, but its profits plunged way more than expected, 70% to be exact. The company is losing market share pretty much everywhere and is not showing any signs that an effective turnaround plan is in place.

Earnings

The revenue for the quarter dropped 6.6% in line with analyst expectations, amounting to $24 billion. But more importantly, Nissan decreased its sales forecasts for the fiscal year that ends in March 2020-, expecting sell 5.2 million car, which is 5.4% less than what it initially anticipated. Consequently, post-operating profit is expected to be less than previously estimated $2.1 billion for the year, the figure being slammed to $1.4 billion.

Ghosn Made Bail And Is Fiercely Seeking To Prove Innocence

After 130 days of being imprisoned in a Japanese detention centre, Ghosn still denies every charge and is fiercely seeking to have his case proclaimed null and void- despite his own defence and other legal experts finding it unlikely. But despite costing Nissan a whole year and immense losses, the Ghosn scandal has also uncovered hidden problems of the Japanese system framework that need to be mended. Moreover, Ghosn's financial misconduct shattered the trust between Nissan and Renault (OTC: RNLSY), something it will take far more than sliding sales volumes to mend.

Vehicle Recalls

Moreover, the company recalled almost 400,000 vehicles in the US over potential fire safety hazard. Just in September, the company recalled 1.3 millon vehicles to fix the problem with its reversing camera displays.

Competition

The car industry as a whole is racing to meet huge new challenges. Only last year, Nissan with Renault managed to sell total of 10.76 million vehicles last year along with the help of an ally Mitsubishi Motor Corporation (OTC: MMTOF) and the trio was ahead of competitors Toyota Motor (NYSE: TM) and Volkswagen (OTC: VWAGY).

Interestingly, just after the electric leader Tesla Inc. (NASDAQ: TSLA) announced that they will enter Europe by building a plant in Germany, on Friday, the German giant announced it will spend even more money than previously planned ($66.3 billion) on building its electric future in the era of digitalization. Today, the company confirmed its full-year outlook but cit its medium-term targets, emphasizing that strict cost discipline is beyond necessary to achieve them.

Operating profit is expected is expected to grow at least 25%, down from the expected more than 30% in the 2016-2020 period with sales growth expected around 20% as opposed to previously estimated 25%. As a reminder, three plants in Germany are due to be entirely converted whereas plants in the US and China with either be partially or also fully transformed and all surely making their way to impact the company's bottom line. The company is pleased with the resilience it has shown in this increasingly difficult environment and hopes that the electric shift will help them to reach new and stricter CO2 emissions targets.

But do not be fooled, as Volkswagen also had its fair share of legal cases over the Diesel gate scandal as in 2015, the company admitted it illegally fitted cars over the world with a software to help cars pass emission tests despite exceeding limits during real-world use.

But unlike Volkswagen, Nissan Renault alliance is not an integrated group but a partnership based on cross shareholdings without a joint structure. Renault holds 43 percent of Nissan and Nissan has a 15 percent stake in Renault and a 34 percent controlling stake in Mitsubishi. And due to Ghosn's arrest one year ago, a year has been lost in the clean-up.

Outlook

Ongoing problems Nissan is facing are profitability and cash generation, but all carmakers together are pressed by a burning need for technological innovations in electric and autonomous cars. The traditional car market is shrinking, the company failed to make an alliance with Fiat Chrysler Automobiles (NYSE: FCAU) who just signed with PSA Group, the company is surely on the lookout for new initiatives.

On a brighter note, Renault has a strong presence in Europe with Nissan holding a place in China and the US so their partnership still makes sense- as long as they learn to co-habit instead of ‘trying to tilt the throne' on each side, so they can exploit this synergy.

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