Nissan sees Q1 profit wiped out due to US discounts, shares fall

Nissan Motor, the Japanese automotive giant, has significantly revised its annual outlook downward following a dramatic decline in first-quarter profit. The company's performance was severely impacted by aggressive discounting strategies in the United States market, leading to financial results that fell far short of analyst expectations and triggered a sharp decline in Nissan's stock price.

The unexpected poor performance has introduced a new set of concerns for investors, who must now grapple with uncertainties surrounding Nissan's prospects in the United States. This development adds to existing worries about the company's efforts to revitalize its position in another crucial market, China.

For the April-June quarter, Nissan reported an operating profit of just 995 million yen (approximately USD6.5 million), a stark contrast to the 128.6 billion yen recorded in the same period last year. This figure represents a mere fraction of the 164.4 billion yen average estimate provided by analysts, as compiled by LSEG.

Acknowledging the challenging quarter, Nissan's Chief Executive Makoto Uchida stated, "The first quarter was a very tough one for Nissan." However, he expressed confidence in the company's ability to recover, citing plans to address current challenges and introduce new models to the market.

In response to these difficulties, Nissan has announced plans to optimize inventory levels in the United States and focus on improving sales quality. The company intends to strengthen its market position by launching new and refreshed models, including the Armada and Murano SUVs, in the latter half of the financial year.

Following what has been described as its worst quarterly performance in over three years, Nissan has reduced its operating profit forecast for the current financial year by 17 per cent, bringing it down to 500 billion yen.

The company has lowered its retail sales forecast by approximately 50,000 vehicles to 3.65 million units, citing weaker-than-anticipated sales in both the United States and China.

The significance of these two markets cannot be overstated for Nissan. The United States and China collectively accounted for half of the company's global sales in the previous financial year and 51 per centin the first quarter of the current year. They are the only two markets where Nissan sold over 100,000 vehicles in the first quarter, with Japan, the company's home market, ranking as its third-largest by sales volume.

While overall sales volume remained stable year-on-year at 787,000 vehicles for the first quarter, profitability was severely impacted by extensive discounting and increased marketing expenses. These measures were implemented in an attempt to remain competitive and manage inventory levels, particularly in the United States market.

The market's reaction to Nissan's earnings announcement was swift and severe, with the company's share price plummeting as much as 11 per centbefore closing down 7 per centat 485 yen, marking its most significant single-day decline since February.

Nissan attributed its struggles in the U.S. market to an ageing product lineup and a shift in consumer preference towards hybrid vehicles. These challenges in the world's largest economy compound the difficulties Nissan faces in China, where it has been striving to regain market share amidst intense price competition with local manufacturers.

In response to these challenges, Nissan recently announced the suspension of production at one of its eight factories in China, operated through a joint venture with local partner Dongfeng Motor. This move is part of the company's efforts to optimize its operations in the face of ongoing market pressures.

As Nissan navigates these complex market dynamics, the company's ability to adapt its strategies, refresh its product lineup, and improve operational efficiency will be crucial in determining its future performance and market position in these key global markets.