By Norihiko Shirozu, David Dolan, and Maki Shiraki
TOKYO (Reuters) – In early October, managers at Nissan ( OTC: ) Motor called into a regular online meeting with boss Makoto Uchida to hear the grim news: things were going worse than expected and the Japanese automaker had to cut jobs and production.
They listened as the 58-year-old chief executive described a worsening financial situation, which he blamed mainly on weak sales and profitability in North America and China, according to three people with knowledge of the matter.
In a question-and-answer session, some of the several hundred managers peppered Uchida with questions about responsibility for the decline of a company that five years ago had the world’s best-selling electric car model in its lifetime. Why didn’t Nissan offer gasoline-electric hybrids in the US, where customers were now clamoring to buy them? Why hasn’t the company hedged its electric car bet by making hybrids available in the US, its biggest market, as it has done for years in Japan? Who is responsible for the latest crisis?
Those questions loom large as Uchida tries to fix the automaker — and keep his job. After announcing dismal results last month, China’s former chief executive pledged to cut 9,000 jobs, 20% of global production capacity and $2.6 billion in costs. He also promised to forfeit half of his salary.
Uchida is under pressure to deliver a turnaround, according to three others with knowledge of Nissan’s thinking. The next few months will be critical for him and for Nissan’s future, one said. Activist shareholders quietly increased their shares in the car manufacturer.
The election of Donald Trump adds to the uncertainty. The incoming US president has vowed to impose 25% tariffs on Mexico, a vital low-cost manufacturing hub for Nissan and others. For Uchida, Trump represents a wild card at the worst possible time, as high tariffs could force Nissan to cut production in Mexico, the two people said.
Uchida’s tenure has coincided with a tectonic shift in the automotive landscape, with new electric car makers challenging decades-old manufacturers. The biggest names in the industry are not immune.
Volkswagen ( ETR: ) is threatening to close German plants for the first time, and Stellantis ( NYSE: ) CEO Carlos Tavares resigned abruptly on Sunday. The Jeep maker lost market share as Tavares focused on margins, making its vehicles too expensive for some.
Meanwhile, Uchida is betting on the future of electric cars. When revenge spending cooled after the pandemic, Nissan had no hybrids in the U.S. and had to offer incentives to move cars off the lot.
“What we have at Nissan today is a man-made disaster. While it’s true that there was a huge amount of uncertainty and disruption in the industry itself, it’s mostly a case of a failure of management strategy,” said Seiji Sugiura, a senior analyst at Tokyo’s Tokyo Intelligence Laboratory. .
“What Mr. Uchida needs to do now is pass the baton to the new management team.”
This account of Nissan’s missteps and the tough choices Uchida now faces includes previously undisclosed information, such as the October call, details of a missed hybrid production opportunity and Nissan’s reasoning for production cuts. It is based on interviews with a dozen people familiar with Nissan’s thinking, who spoke on condition of anonymity because they were not authorized to speak publicly.
Nissan told Reuters it would not comment on internal meetings or speculation about its recovery plan or Uchida’s future. They said that it is premature to comment on tariffs, but they are monitoring the situation.
“The CEO acknowledged management’s responsibility for our current situation,” it said, adding that Uchida is working to make Nissan more fuel-efficient and sustainable while strengthening competitiveness.
It said the global industry faced unprecedented challenges, including Chinese competition and changing consumer demand.
DECLINE AND FALL
After five years and a series of business plans, Uchida has been unable to reverse the slump caused by the 2018 arrest of former Nissan chairman Carlos Ghosn on charges of financial misconduct. Ghosn, who fled Japan a year later, remains a fugitive in his native Lebanon and denies the charges.
Nissan has been rocked by upheaval since then: Ghosn’s successor, Hiroto Saikawa, resigned in 2019 after admitting he was overpaid; Chief operating officer Ashwani Gupta left last year, as did two outside directors. Nissan later investigated Uchida’s allegations of Gupta oversight. Nissan declined to comment on the investigation.
CFO Stephen Ma is expected to step down, Bloomberg News reported over the weekend. Nissan declined to comment on the report.
As Tesla ( NASDAQ: ) and China’s BYD ( SZ: ) have eaten into market share, Nissan has been mired in talks to restructure its alliance with the French company. Renault (EPA:). The new EV, the Ariya, was supposed to challenge the Tesla Model Y, but production issues prevented it. It also doesn’t qualify for the $7,500 tax credit because it’s made in Japan, not North America.
Last year, Nissan sold 3.3 million vehicles, which is about 40% less than in 2017. The stock has fallen 70% over the past ten years, wiping out about $30 billion in value.
Nissan, which introduced the first mass-market electric car with the Leaf in 2010, is now better known for discounts than attractive cars, said Christopher Richter of brokerage CLSA.
It lost its once-enviable position in China because it couldn’t keep up with a rapidly changing market, a challenge its competitors faced. One model, the e-Power Sylphy hybrid, failed because it looked like a gasoline version, and Chinese consumers prefer hybrids with a futuristic look, one of the people said.
Nissan wanted to go all-in on electric cars in the U.S. and saw no need for hybrids there, two people told Reuters. This proved to be a misstep as demand for hybrids grew due to high electric car prices and limited charging networks.
Even after Nissan learned of demand for hybrids, it didn’t think the trend would continue long enough to warrant a change in strategy, one of the people said.
“It’s an excuse, but until this time last year, we couldn’t have predicted the rapid growth in demand for hybrids,” Uchida said at an earnings press conference in November.
Nissan has been selling e-Power hybrids in Japan since 2016 and says it will have a plug-in hybrid in the U.S. by March 2026. In general, the company plans to release 34 hybrid and electric models by 2030.
FACTORY CROSSES
Nissan has created a special task force to carry out its recovery plan, with members sitting around looking for areas to cut, two of the people said.
About 1,000 US employees have accepted early retirement, Nissan said last month. It is also considering job cuts in Thailand, according to Reuters.
China’s capacity, which has already been cut, will need further cuts, the three people said. Two other factories in China may need to close, one of the people said, adding that the British plant in Sunderland will not face any cuts because it has recently been upgraded.
In response to questions about China, Nissan said it would cut costs by closing factories and cutting lines. “Sunderland” was a strategic factory.
One option is to idle older assembly lines in North America and concentrate production on the new lines, the two people said. Nissan is considering reducing the number of shifts on some lines, they added.
A possible target is COMPAS’ Mexico joint venture with Mercedes-Benz ( OTC: ).
According to Sam Fiorani of AutoForecast Solutions, after years of slow sales of the small cars it makes for Nissan and Mercedes, the plant is producing about 50,000 vehicles a year, down from a capacity of 230,000. Its closure is “almost predetermined,” Fiorani said.
Mercedes said it is constantly revising its products and portfolio to meet changing customer demands. Nissan said it is also constantly “reviewing and adapting” to keep the COMPAS plant competitive.
The yen’s weakness has made Japan a cheaper manufacturing base and thus a lower priority for cuts, the three people said. Still, Japanese managers have been examining plant workloads for potential cuts, two of the people said.
“DO YOUR DUTY”
Activist investors are circling. Singapore-based Effissimo Capital Management acquired a 2.5% stake in Nissan by the end of September, the filing showed. Hong Kong’s Oasis Management also took a stake, the two people said, although the timing was not clear. Oasis spent about 1.5%, one said.
Effissimo declined to comment beyond confirming its stake. Oasis did not respond to a request for comment.
Nissan is no longer the second largest automaker in Japan Toyota (NYSE: ), a position he currently holds Honda (NYSE: ). Nissan and Honda have agreed to collaborate on batteries and research.
Nissan is looking for a long-term investor and is not ruling out Honda, the Financial Times recently reported.
Both automakers declined to comment on the report. Honda noted that nothing has changed in the cooperation agreement with Nissan.
So far, Uchida has given every indication that he intends to stay.
“I am determined and determined to fulfill my duty as CEO,” he said at the earnings press conference.
The October meeting with managers was not the first time Uchida has faced questions about Nissan’s direction. Analysts have been asking whether the strategy makes sense for more than a year, Sugiura said.
“We would ask, ‘Are you going to do well in the U.S. and China?’ and “What about no hybrids?” And they’d say, ‘Yeah, we’re fine,'” he said.
“They completely misunderstood the business environment and didn’t do what they needed to do.”
