/Nissan’s big turnaround plan is on track to hit targets a year ahead of schedule
Nissan's big turnaround plan is on track to hit targets a year ahead of schedule

Nissan’s big turnaround plan is on track to hit targets a year ahead of schedule

Nissan’s logo is illuminated on a prototype of its new all-electric Ariya crossover. Nissan’s Z Proto performance car is reflected in the vehicle’s grille, while a redesigned Nissan Pathfinder SUV sits in the background.

Michael Wayland / CNBC

Nissan Motor is making significant progress on a global restructuring plan to right-size operations and return to profitability as it moves on from the scandalized exit of former leader-turned-international fugitive Carlos Ghosn.

The Japanese automaker is on track to hit targets set in its “Nissan Next” turnaround plan a year ahead of its March 2024 schedule, Nissan Chief Operating Officer Ashwani Gupta said in an interview with CNBC. It’s an impressive accomplishment given the initiative was only announced in May. The auto industry also continues to face challenges from the coronavirus pandemic and a global shortage of semiconductor chips.

“Despite the headwinds, we have pulled ahead the recovery by one year,” Gupta, who’s leading the transformation, said during a video interview from Nissan’s headquarters in Yokohama, Japan. “We are much more ahead than what we said and that helped us in overcoming the headwinds of the pandemic in 2020.”

Nissan Next is a combination of cost-cutting, product investment and cultural change following roughly two decades under Ghosn, who fled Japan to Lebanon in December 2019 while awaiting trial on charges of financial misconduct. The turnaround plan was announced by Nissan CEO Makoto Uchida as a roadmap to sustainable profitability to “compete effectively for the next decade.”

Much of the focus is on shrinking the size of the company’s operations to focus on higher profits rather than growth and sales volumes – missions of Ghosn. Nissan still has a way to go regarding profitability, but Gupta says there are early signs of improvement.

Nissan lost 367.7 billion Japanese yen ($3.4 billion) through the first three quarters of its 2020 fiscal year, which ends in March. But it generated an operating profit of 27.1 billion Japanese yen ($250 million) in the third quarter – 100 billion Japanese yen ($921 million) ahead of its initial target. It also has cut 330 billion Japanese yen ($3 billion) in fixed costs compared to its initial plan of 300 billion Japanese yen ($2.8 billion).

The company came in ahead of plan largely by slashing fixed costs, such as closing plants, exiting markets like South Korea and reducing plant shifts globally, Gupta said. Other targets under the transformation plan include cutting global production capacity by 20%, doubling its operating profit margin to 5% and slightly increasing its global market share from 5.8% to 6%.

The early results have analysts cautiously optimistic that Nissan can turn itself around. Shares of Nissan traded on the Tokyo Stock Exchange are up by about 51% over the last 12 months, according to FactSet.

“Our impression is broadly one of improvement,” said Morgan Stanley analyst Kota Mineshima in an investor note last month after its third quarter earnings.

Product blitz

Nissan was infamously reliant on less profitable fleet customers to increase sales in North America. That’s changing, Gupta said.

The company wants to cut its fleet sales roughly in half through Nissan Next, according to an investor presentation. That starts with new products. Gupta said net revenue of a redesigned version of its top-selling Rogue crossover, which accounted for a quarter of its U.S. sales, has increased by 24%.

“We have started gaining the momentum in terms of profitable market share,” Gupta said.

Recent new products on sale include the Nissan Sentra sedan and Nissan Armada SUV. Upcoming vehicles include redesigns of the Pathfinder SUV and Frontier pickup and a new all-electric crossover called Ariya.

J.P. Morgan analyst Akira Kishimoto said a prompt recovery in Nissan’s North American operations would significantly help the automaker’s turnaround. “We are monitoring the progress made in restructuring to rebuild global earnings, but the company also needs breakthrough solutions to address the serious downturn in sales in North American and European markets,” he wrote to investors.

EVs

Nissan is taking different approaches to electrification in markets such as Europe, China and the U.S. based on consumer demand. The plans include new hybrid models with small internal combustion engines with batteries that Nissan is calling “e-Power” as well as all-electric vehicles.

Nissan expects sales of its EVs and e-Power vehicles to reach 1 million by the end of its turnaround plan. All new vehicles are expected to offer an EV or hybrid version by the early 2030s, according to the company.

“I think we have to understand what the customer is looking for,” Gupta said, adding the U.S. is far behind in EV adoption compared to China and Europe, where the company is largely concentrating its new electrified models.

Sales of all-electric vehicles were less than 4% of the global market in 2020, according to IHS Markit.

Ghosn

Ghosn, who was attributed saving saving Nissan some 20 years ago, is a ghost as far as Gupta is concerned: “For us, that is the past. From December 2019, with the new leadership team, we have launched a new culture which is driven by value not by volume,” he said.

Photo provided by Istanbul Police Department shows the case which former chairman of Nissan, Carlos Ghosn hid in while fleeing from Japan , where he was held in house arrest, to Lebanon in Istanbul, Turkey on January 08, 2020.

Istanbul Police Department | Anadolu Agency | Getty Images

Alliance

Gupta characterized the alliance as being “very strong.” He said the company does not plan to discuss a merger or further ownership between the companies. Instead, Gupta said the companies are focusing on eliminating duplication of resources and sharing operations.

“This is a new way of transactional relationship to improve each other’s’ performance,” he said. “And I think we are moving ahead with the same principle.”

– CNBC’s Michael Bloom contributed to this report.