Nidec/EVs: fast and furious trends put motor maker in a spin

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The shares of Nidec Motor, a previously stable, 50-year-old Japanese company, fell 11 per cent on Tuesday, their biggest daily drop in 15 years.

The alarming move reflects the pace at which the automotive industry is changing. The business models of vehicle parts makers can prove unsustainable in their current form, even if they are early adopters.

Electric cars require about a third fewer parts on average than conventional cars. Powertrain manufacturers urgently need to shift their focus to changing demand for electric car parts and batteries. The striking reality is that this includes motor maker Nidec, previously seen as a prime mover in the EV revolution.

On Tuesday, Nidec exposed the woes suffered by a division that makes e-axles. These are traction systems combining a motor with an inverter that modulates current and a reducer that controls revolutions.

Nidec’s e-axle business is expected to post a loss of ¥15bn ($100mn) in the current financial year, compared to previous forecasts of profitability.

E-axles had looked like a safe bet. Nidec had invested heavily in the business, especially in China where it is building plants to produce the equipment. Its China research and development unit is its biggest operation outside Japan by headcount.

Nidec’s problem is that consumer preferences have shifted suddenly in favour of motors with lower power output. Nidec’s focus had been on products with outputs of 100 to 180 kilowatts for larger EVs. In just one year, demand for units with output below 70 kilowatts doubled. This reflects a switch to smaller vehicles and waning enthusiasm for hefty SUVs.

The shares are down 30 per cent in the past year. They trade at 19 times forward earnings, less than half their level two years ago. The uncharacteristically large share drop on Tuesday underlines the high stakes that EV component makers are playing for.

Nidec has been quicker than peers to adapt to changing trends. But the problems in its e-axle division demonstrate how vulnerable any business plan is in the immature EV market. Risk premia need to reflect that.