Whoever Fails to Adapt to the Times Will Be Eliminated by the Times

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Recently, media reported that Nissan Motor, once a giant and one of Japan's three major automakers, is on the verge of bankruptcy.

The clock needs to be wound back to November 29th, when two Nissan Motor executives stated in an interview with the Financial Times that the company only has 12-14 months of liquidity and the situation is getting worse. There is an urgent need for Japan and the United States to generate cash.

The Tower is Falling

To cope with this crisis, Nissan Motor has announced many measures to try to reduce expenses internally to extend the normal operation of the enterprise. The best outcome would be to delay until the next new capital enters the market.

Mass layoffs have become the first choice. On November 7th, Nissan Motor announced a 20% reduction in global production capacity and layoffs of 9,000 employees. CEO Makoto Uchida led executives in tightening their belts, voluntarily cutting their salaries by 50% and reducing daily expenses, while other executive committee members also voluntarily took pay cuts.

Furthermore, Nissan Motor has implemented various measures to reduce sales and administrative expenses, lower sales costs, and optimize the asset portfolio, prioritizing capital expenditures and R&D investments. The goal is to reduce fixed expenses by 300 billion yen and variable expenses by 100 billion yen.

At the same time, it sold a 10% stake in Mitsubishi, reducing its shareholding to about 34%, to raise 68.64 billion yen in cash to cover expenses.

However, these measures are merely a drop in the bucket for addressing the company's deeply ingrained problems, and the decline of Nissan Motor has long been foretold.

According to Nissan Motor's financial report, its net profit in the first half of 2024 plummeted by nearly 94% to only 995 million yen; by the third quarter, it even turned into a net loss of 9.3 billion yen. Previously, Moody's downgraded Nissan Motor's outlook from stable to negative, confirming a BAA3 rating. Fitch also revised Nissan Motor's outlook to negative, confirming a "BBB-" rating.

The reason for this is Nissan Motor's decline in the global market, especially in the downturn of the Chinese auto market, leading to a sharp decline in its profitability.

Data shows that as of October 2024, Nissan Motor's cumulative sales in China, including passenger cars and light commercial vehicles, were 558,200 units, a year-on-year decline of 9.98%. In October alone, sales in China were 61,170 units, a year-on-year decrease of 16.5%; sales of Dongfeng Nissan (including Nissan, Venucia, and Infiniti brands) were 57,323 units, a year-on-year drop of 18.1%.

Although overall, in the third quarter, Nissan Motor's global sales were 809,000 units, only a slight year-on-year decrease of 2.8%. However, to maintain these sales, Nissan has gone all in on a price war. The fact is that even burning through net profit cannot stop the erosion of market share.

Even more terrifyingly, as an asset-heavy industry, as sales decline, the cost per vehicle will rise rapidly, especially as the price of spare parts increases, further compressing profit margins per vehicle. This leads to a loss of price advantage, which in turn exacerbates the decline in sales. This vicious cycle will eventually drag Nissan Motor into a death spiral.

A Stab in the Back from Major Shareholders

This is not the first bankruptcy crisis that Nissan Motor has experienced.

As early as 1998, under the double blow of Japan's economic bubble and the Asian financial crisis, Nissan's operating conditions were deteriorating, with losses for six consecutive years. By the end of 1998, Nissan's debt approached 2.3 trillion yen, and the group was deeply in debt crisis. Like now, Nissan Motor urgently needed new capital infusions at that time.

Playing the role of the blood transfusion bag was the French automaker Renault. Renault acquired a 36.8% stake in Nissan Motor for $5.4 billion and gained the right to increase its shareholding to 44.4% in five years.

The reason Renault lent a helping hand was that it valued Nissan's technology and the opening up of the Chinese market, willing to invest heavily in a big gamble.

In 2000, Renault proposed the "Nissan Revival Plan" and helped Nissan turn losses into profits. In 2003, Nissan and Dongfeng established Dongfeng Motor Co., Ltd. to officially enter the Chinese market. By 2016, Nissan had acquired a 34% stake in Mitsubishi Motors, forming the Renault-Nissan-Mitsubishi Alliance. In 2017, the alliance peaked, becoming the world's largest manufacturer with total sales of 10.61 million vehicles.

However, Nissan Motor's current crisis is entirely different from the last one. Now, Nissan Motor resembles a damaged giant ship about to sink to the bottom of the sea.

The development of new energy vehicles has long been the mainstream trend in the automotive industry, yet Nissan is still reveling in the glory of past fuel vehicles. Technological upgrades are slow, and models like the Sylphy and Teana have not seen significant improvements in technical configuration for years. Moreover, the advancement of new energy technology seems to be nowhere in sight.

In the industry's view, besides losing its technological advantage, Nissan's internal management is also plagued with chaos, from previous financial fraud to falsified automotive test data. This series of scandals has also reduced consumer trust in Nissan.

And this time, Renault, which once played the role of savior, not only failed to continue to lend a hand but also pulled the rug out from under Nissan.

According to recent European media reports, Renault also intends to sell its stake in Nissan. It has previously reduced its holding in Nissan Motor from 46% to 40%.

On the other hand, Renault's cooperation with Geely is deepening. From signing a memorandum of understanding in 2021 to establish an innovative partnership to forming a joint venture named HORSE Powertrain Limited with Geely in 2024, Renault has made another move in the field of new energy vehicles.

Nissan is forced to find a stable long-term shareholder to replace part of Renault's equity, and even the possibility of cooperation with other Japanese automakers is not ruled out, with Honda being one of the potential buyers.

Japanese Automakers Form a Large Group

Former rivals have transformed into saviors. Such a dramatic plot may unfold at Nissan.

However, dramatic as it may be, huddling together for warmth is not a bad thing.

Visible Alpha's forecast data shows that Nissan Motor and Honda Motor will collectively sell nearly 6 million vehicles by 2026. Since the key markets of these two companies are basically the same, their merger may reduce expenses in various aspects from management, procurement, production, to R&D, helping to cut costs and increase profitability.

It is reported that the merger of Nissan Motor and Honda Motor is not a new idea: In 2019, the Japanese government pressured these two automakers to consider a merger.

The automobile industry is a pillar industry in Japan, accounting for 40% of Japan's total industrial output value and creating over ten million jobs in related and service industries.

The consequences of Nissan Motor's collapse are unimaginable. Perhaps guided by the government, Honda and Nissan have achieved significant breakthroughs in cooperation this year.

In March, the two sides signed a letter of intent for cooperation. In August, they officially announced a joint development with Mitsubishi of basic technologies for the next generation of software-defined vehicles. In October, they reached a cooperation agreement with Toyota to strengthen cooperation in automotive software development and plan to unify vehicle control system standards.

There are also media reports that Toyota, Honda, and Nissan are expected to join forces in the field of autonomous driving, gradually revealing a trend of a large alliance among Japanese automakers.

However, the outlook is not optimistic. Not only Nissan but also the other two Japanese automakers cannot escape the predicament of the continuous decline in the global market, especially the downturn in the Chinese auto market, leading to a sharp decline in their profitability.

In the first three quarters, the cumulative sales of Toyota, Honda, and Nissan in the Chinese market were 1,055,000, 585,000, and 497,000 units, respectively, declining by 13.5%, 29.3%, and 9.1% year-on-year.

At the same time, profits declined sharply. In the third quarter, the net profits of Toyota, Honda, and Nissan were 3.759 billion, 656 million, and -62 million dollars, respectively, with year-on-year drops of 55.11%, 61%, and 104.9%.

It can only be said that even Honda, the elder brother, is struggling to survive. The main reason for the sales decline is the slow progress of Honda China in new energy vehicles, coupled with the gradual decline in the influence of its past star models. Former star models like the Fit have seen sales below 1,000 units for four consecutive months, failing to drive customer traffic.

In the long run, the alliance between Nissan and Honda can solve short-term financial problems but will not qualitatively change long-term technological breakthroughs and the transition to new energy.

To make matters worse, with Donald Trump's ascension to power and his imposition of tariffs on American cars, the United States, as Nissan's most reliant market, is also erecting tariff barriers. It is uncertain whether Nissan can survive this challenge.