Nissan faces an uphill battle to meet its target of tripling profits by 2026, estimated at $2.6 billion, to facilitate a merger with Honda.
The potential merger between Nissan, Honda (with the possible addition of Mitsubishi), could reshape the automotive industry. However, for Nissan, the road ahead is far from straightforward. The company is under immense pressure to boost its profits. If it fails to improve its financial situation, the merger may never come to fruition.
At a press conference last month, the automakers unveiled an ambitious forecast chart, with Nissan aiming to significantly increase its profits by August 2026, the expected timeline for the merger. To achieve this goal, Nissan will need to rake in approximately ¥400 billion in fiscal year 2026 – estimated at $2.6 billion at current exchange rates.
This is a challenging target, especially considering Nissan’s profits have plummeted by 90.2%, from ¥336.7 billion to ¥32.9 billion (equivalent to $2.3 billion to $225 million at current rates), resulting in an operating profit margin of just 0.5%. Meanwhile, net income has seen an even steeper decline, dropping by 93.5% from ¥296.2 billion to ¥19.2 billion (equivalent to $2.02 billion to $131 million) in the first half of fiscal year 2024 compared to the same period last year.
According to Nikkei Asia, the new alliance aims to generate ¥3 trillion (approximately $19 billion). For Nissan, this means contributing around ¥600 billion ($3.8 billion) in profits in the long term. However, if Nissan fails to present a credible strategy to triple its profits by fiscal year 2026, the merger could fall apart before it even begins.
Honda is in a far better position than Nissan. It is expected to earn around ¥1,420 billion ($9.1 billion) in operating profit for the fiscal year 2024 (ending March 31, 2025). In contrast, Nissan has recently lowered its full-year outlook to ¥150 billion (~$950 million), a 74% decrease from fiscal year 2023.
Following its planned production cuts, Nissan will be able to manufacture around 4 million vehicles annually. According to Makoto Uchida, Nissan could turn a profit if it sells 3.5 million cars per year. Unfortunately for the brand, they only expect to sell 3.4 million vehicles in the fiscal year 2024.
Many details of the merger remain to be ironed out. Nissan and Honda will finalize the share transfer ratio in June, based on the average stock price before the signing of the memorandum of understanding. Honda’s stock price has taken a hit since the merger announcement due to concerns that Nissan could hold it back.
TT (Tuoitrethudo)
References: Carscoops
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