Nissan shares slide on layoffs, production cuts amid weak demand

Nissan Motor Co., Ltd. (TYO:) stock slumped 6% in Tokyo trading Friday, a day after the company said it would cut 9,000 jobs and reduce its global manufacturing capacity by 20%, aiming to slash costs by $2.6 billion this fiscal year as it faces sluggish sales in key markets like China and the US.

The restructuring highlights the challenges faced by Japan’s third-largest automaker, which has struggled to fully recover since the 2018 departure of former chairman Carlos Ghosn and a scaled-back partnership with Renault SA (OTC:).

Nissan (OTC:) also lowered its annual profit forecast by 70%, expecting 150 billion yen ($975 million) in profit, marking its second downward revision this year.

Like other foreign carmakers, Nissan is facing intense competition in China, where companies like BYD (SZ:) are capturing market share with affordable electric and hybrid vehicles featuring advanced technology.

CEO Makoto Uchida admitted Nissan underestimated the demand for hybrids in the US.

“We didn’t foresee hybrid EVs ramping up this rapidly,” adding that adjustments to core models didn’t proceed as smoothly as expected. The company’s job cuts will impact about 6.7% of its 133,580 global employees.

The company has withdrawn its net profit forecast as restructuring moves forward, which is expected to yield 400 billion yen ($2.6 billion) in cost reductions this year.

Moreover, Uchida will forfeit 50% of his monthly pay starting this month, with other executives also taking voluntary pay cuts.

Nissan plans to cut production capacity by 20%, reduce development lead time to 30 months, and strengthen ties with partners Renault (EPA:) and Mitsubishi Motors (OTC:). Further, the carmaker will sell up to 10% of its stake in Mitsubishi Motors, aiming to raise 68.6 billion yen ($445.45 million).

JPMorgan analysts said Nissan’s turnaround actions “are encouraging in our view, but execution will be critical over the coming quarters to improve the company’s margin profile, particularly as continued underperformance could lead to negative rating agency actions.”

The Wall Street firm reiterated an Underweight rating on the stock, adding it “prefers Ford (NYSE:) to Nissan at current levels.”

For the July-September quarter, Nissan reported an 85% drop in operating profit to 31.9 billion yen, well below the LSEG forecast of 66.8 billion yen.

In the first half of the fiscal year, global sales declined 3.8% to 1.59 million vehicles, primarily driven by a 14.3% sales fall in China, while US sales slipped nearly 3% to around 449,000 vehicles. Together, these two markets make up nearly half of Nissan’s global sales.

In a post-earnings note, a Morgan Stanley (NYSE:) analyst said while the market recognizes the challenging earnings environment, “the size of guidance cut and the lack of interim dividend were still negative.”

“Structural reforms can be evaluated in the same way as Nissan Next (LON:)’s production cuts, but stronger brand/ sales power are needed for real EV improvement,” analyst Shinji Kakiuchi added.