Nissan warns of third year of losses as chip shortage hits its turnround

Nissan has projected a third year of net losses with its turnaround efforts hobbled by "huge risks" from the global chip shortage and a surge in raw material costs.

Japan's third largest carmaker, which has an alliance with France's Renault and Mitsubishi Motors, said production was likely to drop by 500,000 vehicles between April and September because of the semiconductor crisis.

The warning echoes forecasts from rivals including Volkswagen, Ford and Stellantis for a bigger production hit in the next few months, and prompted the Japanese group to issue far weaker guidance than expected.

“The impact from the semiconductor situation and the speed of the rise in commodity prices have been very big,” said Makoto Uchida, Nissan’s chief executive on Tuesday.

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Luca de Meo, chief executive of Renault, also said that it would probably take months for semiconductor supply to catch up with soaring demand.

“There is a gap of more or less 20 per cent between demand and production capacity in general across the sectors,” he said at the Financial Times Future of the Car summit. “And to correct that is not of weeks, but rather months.”

During the financial year that ended in March, Nissan suffered a production hit of 130,000 vehicles from the chip shortage, but recovered half of that in the fiscal second half. It hopes to similarly recover half of the 500,000 production fall during the October to March period.

The chip shortage was caused by an unexpected post-Covid rebound in demand for cars late last year, which coincided with a booming consumer electronics market.

The supply chain turmoil deepened particularly for Nissan and Toyota following a March fire at a Japanese plant operated by Renesas Electronics, one of the world's largest makers of chips for the automotive industry.

For the new financial year ending in March 2022, Nissan said it expected a net loss of ¥60 billion (€453m) compared with a loss of ¥449 billion for the just-finished fiscal year, while it expected to break even on an operating level.

That came in below analysts’ forecasts for a net profit of ¥126 billion, according to S&P Global Market Intelligence.

Revenue

Revenue is expected to increase 16 per cent to ¥9.1 trillion, with global car sales projected to rise 8.6 per cent to 4.4 million units, led by growth in Japan, China and the US.

“This forecast is far worse than expected,” said Koji Endo, head of equity research at SBI Securities, who estimated that the automotive division alone, excluding profits from Nissan’s financial arm, was likely to book an annual operating loss of about ¥250 billion.

Following steep job cuts and plant closures, Nissan managed to eke out an operating profit in the final three months of 2020. But it quickly fell back into an operating loss of ¥19 billion during the January to March quarter as marketing costs also rose for new product launches.

The pace of its recovery has also been slowed by a surge in the prices of precious metals such as rhodium and palladium, which are critical components in catalytic converters for petrol and hybrid vehicles.

Ashwani Gupta, Nissan’s chief operating officer, said the group would realign its supply chain strategy so it could address “unpredictable” risks in the future.

“I think the supply chain will be under challenge in the coming year. However, it’s up to us how much resilient and agile we are in adjusting our production and sales in line with this challenge,” Mr Gupta said. – Copyright The Financial Times Limited 2021