The Renault partner is deep in the loss zone. The corona crisis is exacerbating the need for renovation.
Despite the corona crisis, Renault’s Japanese partner Nissan dares to make a forecast for the balance sheet – but it looks grim: For the fiscal year ending in March 2021, Nissan not only expects car sales to collapse by 16 percent due to the pandemic. The net loss of 670 billion yen ($6.4 billion) is expected to be as high as it was in the disastrous year 2019.
The free cash flow in the first quarter underlines that the pandemic is gnawing at the company’s foundations even more than its Japanese rivals. For example, Toyota predicts a profit for 2020. Nissan, on the other hand, sinks even deeper into the crisis into which the group had maneuvered itself before Covid-19: after the fall of the chief executive and Renault boss Carlos Ghosn, a chaos of leadership broke out at Nissan.
With a negative cash flow of just under three billion euros, Nissan was already the most serious restructuring case in the Japanese auto industry in the first quarter of its previous financial year. The company even burned 815.7 billion yen ($7.7 billion) this year because factories and retailers had closed due to the risk of viruses.
As a result, the Japanese financial buffer has shrunk to just 235 billion yen ($2.2 billion). CEO Makoto Uchida announced to his shareholders that he would not pay a dividend again this year.
However, Nissan’s chief financial officer Stephen Ma tried to make it clear that, unlike his last major crisis 20 years ago, Nissan was not struggling to survive. “Overall, liquidity is not a big problem at this point in time.” Ma not only pointed to unused credit lines amounting to 1.9 trillion yen ($18 billion), but also to other bonds amounting to 70 billion yen ($666 million) that Nissan recorded in July. Above all, he and the rest of the management are optimistic about the future.
Cost sharing with Renault and Mitsubishi
“The first quarter was probably the worst,” the CFO said. “With the recovery in sales, we have a good chance that cash flow will be almost or completely positive again in the second half of the year.” CEO Uchida even believes that thanks to a model offensive, despite Covid-19, the group can meet its restructuring goals.
In his three-year plan, Uchida, after taking office in December 2019, he had promised to achieve an operating profit margin of more than two percent by 2021 and more than five percent by 2023. To this end, the group is reducing its annual production capacity by 20 percent to 5.4 million vehicles per year. Nissan shares the development work and costs with Renault and the second ally of the trilateral car group Mitsubishi Motors.
In addition, Nissan wants to defend its strong position in China, where the group already had more cars in the past quarter. But above all, after years of product doldrums, the Group is also launching a product offensive in its two other main markets, Japan and North America, including its new Ariya electric car, which Nissan recently introduced. The new models are the key, says Uchida. “We want to make sure we get Nissan back on track for growth this year.”