Nissan remains a turnaround work-in-progress, having made significant progress in improving its automotive profitability in the past few years but falling short of its 5.0% China JV Proportionate Basis operating margin target by FY23 set out in its Nissan NEXT plan. A primary reason for the profit shortfall is its volumes, which remain short of its 4.0 mn target and hinder its fixed cost absorption. While the reasons for the volume shortfall are understandable, including its China strategy revamp due to changing market dynamics in that country along with transitory logistics challenges, we believe improved volumes in FY24 could be key in enabling Nissan to improve automotive profitability in the direction of most OEM peers and reigniting positive ratings momentum.

Nissan once again lowered its FY23 retail sales volume target to 3.55 mn units from a target of 3.70 mn units last quarter and an original FY23 target of 4.00 mn units it unveiled in May 2023. The volume guidance reductions in the first two quarters of FY23 reflected Nissan’s revised Chinese strategy to reduce production and sales targets based on the changing dynamics of the Chinese automotive industry. The company also lowered its sales target in other Asian countries, primarily India, as it reboots is business in that country via its new Renault-Nissan-Mitsubishi Alliance.

Management maintained its FY23 financial guidance for revenue, operating profit, and net income. While the FY23 retail sales volume target was lowered compared to last quarter’s guidance, the volume still represents an expected 8% YoY increase. The guidance reflects improving volume trends in the fourth quarter, resilient pricing, and its revised outlook for a weaker Yen compared to previous expectations. The outlook calls for an FY23 operating margin (equity basis) of 4.8%, or an expected 120 bp margin expansion compared to its FY22 margin of 3.6%.