Nissan's prospects brighten as China rebounds, but struggle ahead for weakened car maker

Nissan Motor Co could trim its forecast for a full year loss when it reports quarterly results on Thursday, analyst estimates show, as a recovery in China marks a rare bright spot for the Japanese car maker weakened by scandal and the Covid-19 pandemic.

Nissan's second quarter results are likely to highlight how it is falling further behind domestic rivals Toyota Motor Corp and Honda Motor Co Ltd, both of which last week raised their profit estimates, thanks partly to an uptick in demand from China, the world's largest car market.

While China's rebound from the pandemic is proving a boon for Japanese car makers, Nissan is still struggling in North America, where it is hampered by an ageing vehicle line-up.

"A recovery in China is perhaps encouraging, but certainly not a panacea for Nissan's overall troubles. The key to recovery is North America, where the majority of problems stem," said Julie Boote, an analyst at Pelham Smithers Associates in London.

Toyota and Honda "are currently doing even better than Nissan in China; but, most importantly, neither of them have the same issues as Nissan has in North America", she said.

It was reported that 23 analysts surveyed by Refinitiv estimate an average operating loss of 335bn yen (roughly R473,259,664) for the full year, 28% less than Nissan forecast in July, as the pandemic raged.

Toyota and Honda both more than doubled their forecasts last week to a 2.47 trillion yen (roughly R365,458,730,000) operating profit and 420bn yen (roughly R62,142,780,000) gain respectively.

Vehicle sales in China, the world's biggest auto market, expanded 12.8% year-on-year in September for a sixth straight monthly gain. That recovery shows signs of also taking hold in the US.

Revamp

However, Nissan, the maker of the Leaf, the world's first mass-produced electric vehicle launched a decade ago, is constrained by its line-up. Chinese consumers are seeking mid-sized or large luxury vehicles, while North American drivers are shifting to sports-utility vehicles and large pickups.

Aware of its competitive shortcomings after years of expansion under ousted leader Carlos Ghosn, Nissan has said it would cut production capacity and model numbers by a fifth and slash operating expenses by 300bn yen (roughly R44,389,160,220) over three years - similar to revamps at alliance partners Renault and Mitsubishi Motors Corp.

It also plans to launch new cars.

Chief executive Makoto Uchida has also announced plans to launch nine new and redesigned electric models in China over the next five years.

Nissan also unveiled the Ariya SUV, its first electric vehicle since the Leaf, with a driving range comparable to models built by Tesla Inc. It will go on sale outside Japan, including in North America, after the middle of next year.

When measured by output, Nissan at the end of September was a much smaller manufacturer than two years earlier, before Ghosn was arrested and charged with financial wrongdoing in Japan. Ghosn, who subsequently fled to Lebanon, has denied the charges.

It has since fallen behind Honda, with 1.54m vehicles produced in the six months to September, from 2.62m two years earlier.

Uchida has pledged to achieve a core operating profit margin above 5% and a sustainable global market share of 6%. Nissan in September said it would issue $8bn (roughly R124,684,400,000) in dollar-denominated debt.

In the second quarter Nissan likely posted an operating loss of 130.6bn yen (roughly R19,341,368,147), according to an average estimate of nine analysts surveyed by Refinitiv.