Chip shortage dampens Nissan’s route back to profit after loss
The fiscal year 2020 was a year dominated by the COVID-19 pandemic and impacted by multiple factors including growth of environmental awareness and as well as economic changes: CEO
Nissan Motor Co expects to break even this business year, defying expectations for a return to profitability, as the global chip shortage curbs the car maker’s recovery from a record annual operating loss.
“The fiscal year 2020 was a year dominated by the COVID-19 pandemic and impacted by multiple factors including growth of environmental awareness and political as well as economic changes,” said Chief Executive Makoto Uchida.
The forecast by Nissan, Japan’s No.3 carmaker by sales, to break even for the year that began April 1 was lower than a 241.7 billion yen ($2.23 billion) profit predicted by Smartestimate.
“If we look at the immediate challenges today, there is a big impact from business risks like semiconductor and commodity price hikes... so at this point in time, we are foreseeing operating profit coming out even,” Uchida said on an online earnings call, adding that Nissan will give updates on its outlook guidance ater the first quarter.
The global auto industry has been grappling with a chip shortage since the end of last year, exacerbated in recent months by a fire at a plant of key automotive chip maker Renesas Electronics Corp in Japan and blackouts in Texas where a number of chipmakers have factories.
That forced Nissan to cut production by 130,000 vehicles in the year just ended, although the company has been able to recover half of that production, Chief Operating Officer Ashwani Gupta said.
The ongoing shortage of semiconductors, mainly due to the fire at Renesas’s plant, will impact Nissan in the first quarter and will also likely affect Nissan’s production of 500,000 vehicles this year, Nissan executives said.
The company expects to recover half of the affected production in the second half of the year, they said.
The alliance partner of Renault SA will slash production at several factories in Japan in May, three sources with direct knowledge of the plan told Reuters last month. It will also adjust production schedules at plants in North America and Mexico.
Nissan has also struggled to make money as it pulls back from the global expansion pursued by ousted chairman Carlos Ghosn that let it with an aging vehicle line-up. It has not made a profit since the year ended March 2019.
The company said its annual operating loss in the year ended March 31 widened to 150.65 billion yen, from a 40 billion yen shorfall in the previous year.
However, it beat its February forecast of a 205 billion yen loss thanks to cost cuting and a sales recovery led by China and the United States.
Nissan plans to sell 4.4 million vehicles this business year, up from 4.052 million in the previous 12 months but still significantly less than the 4.9 million vehicles it sold two years earlier. “Despite headwinds, we have reduced our losses more than we forecasted due to accelerated transformation focused on rationalization and quality of sales, while enhancing investments in new products and technologies,” Gupta said.
Mitsubishi Motors Corp, a junior partner in the three-way alliance with Renault, on Tuesday forecast an operating profit of 30 billion yen for the full year ending March.
Nissan’s bigger rival Toyota, which is due to report annual results on Wednesday, said in February that it expects a 54% rise in profit for the year that ended in March. It became the world’s biggest car maker last year and has shielded its operations better than its peers from the chip shortage. Nissan Chairman Carlos Ghosn told prosecutors during questioning on financial misconduct charges before he fled Japan that his compensation was never decided upon, according to records presented in Tokyo District Court on Tuesday.
Ghosn said the plans were just a “reference,” said a defense atorney for Greg Kelly, a former Nissan executive on trial in connection with alleged underreporting of Ghosn’s pay by about a billion yen ($10 million) per year.
Daisuke Fujiwara, a lawyer for Kelly, read more than 200 pages documenting Ghosn’s interrogations in a Tokyo jail in November and December 2018.
Kelly, who is an American and a lawyer, says he is innocent and he was only trying to find legal ways to compensate Ghosn.
The defense is trying to show a panel of three judges that Kelly had litle to do with the complex atempts by Ghosn to calculate his future pay.
Ghosn, who led Nissan for about two decades, fled to Lebanon while out on bail in late 2019. He is unlikely to stand trial since Lebanon has no extradition treaty with Japan. The prosecutors’ records show Ghosn denied the payments were “delayed,” asserting they were all “conditional.”
In one segment, Ghosn highlighted that by pointing out that if a plane he was on were to crash, his wife wouldn’t get any of of the money.