Why Nissan’s woes in China are not just about electric vehicles

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Last week, as Nissan finally reached a historic deal with Renault to reset their troubled alliance, the subtext was clear. The Japanese electric vehicle pioneer is facing an existential crisis in China, and this is no time for infighting.

Global auto giants, including Japanese carmakers, have been caught badly off-guard by the rapid shift away from the internal combustion engine and the rise of China’s homegrown electric vehicles groups.

Sales of Japanese cars in the country have tumbled, with Nissan’s alliance partner Mitsubishi Motors recently forced to suspend production. In June, according to the China Passenger Car Association (CPCA). Japanese brands’ share of China’s auto market fell to 17.8 per cent, down from 21.5 per cent in the same month last year.

Analysts say, however, the challenges Nissan faces in the world’s largest car market go far deeper than the changes caused by the shift to electric vehicles.

For more than a year, as the Chinese market underwent sweeping changes, Nissan has been distracted by talks with Renault to rebalance their capital relationship in exchange for the Japanese company investing up to €600mn in the French group’s new electric vehicle division. During that time, a bitter clash among the two carmakers’ top brass also forced out Ashwani Gupta, the former Nissan chief operating officer who was tipped to become the company’s next president.

Having pursued an aggressive and successful expansion strategy in China with its joint venture partner Dongfeng Motor, Nissan’s downfall has been extraordinary. In the first quarter, its vehicle sales in China dropped 36.8 per cent from a year earlier, while they were down 9.8 per cent in the second quarter, because of strong competition from local car brands and a price war sparked by Elon Musk’s Tesla. 

“The fall in Nissan’s sales is abnormal and it looks like they’re going to disappear from the market if they don’t do anything,” said Takaki Nakanishi, a veteran automotive analyst who runs his own research group.

Makoto Uchida, Nissan’s chief executive, has acknowledged that the company’s struggles in China helped push him to strike a deal with Renault so that he could focus on reviving the business. He has also pledged to bring forward the rollout of electric vehicles in China.

“In this tough era, Renault, Mitsubishi and ourselves are too small in scale to drastically push for electrification,” Uchida said. “I felt we had to focus on discussions to take this alliance forward.”

Having headed the company’s business in China before becoming chief executive in late 2019, Nakanishi said Uchida should know where its problems in the market stem from. He suggested that, actually, the roots of Nissan’s current challenges date back to Uchida’s days running the business in China.

Among Japanese rivals, the producer of the Leaf electric vehicle was most enthusiastic about accelerating its electric transition in China, but failed to deliver with attractive products. However, Nissan’s current decline in market share is also because of a sharp drop in sales for petroleum cars, suggesting a more fundamental issue of brand erosion.

Tang Jin, a senior research officer at Mizuho Bank in Tokyo, said the sluggish performance in China of the local brand Venucia underscores the dilemma Nissan faces. Originally, when the Japanese group and Dongfeng launched the brand in 2012, Nissan had hoped to separate its own cars for the middle-end market and create a local brand for the lower-end segment.

But the local brand, which was taken over by Dongfeng in 2017 and later returned to the joint venture in late 2020, has struggled because Nissan cannot sell its own cars without heavy discounts, blurring the distinction with the low-priced Venucia.

Inside Nissan, officials blame the dogged pursuit of market share during the Carlos Ghosn era that encouraged the company to cut prices in order to sell more vehicles. But it was under Uchida’s watch in 2018 the company and Dongfeng announced an ambitious $9.5bn investment plan to become a top-three China brand — a goal that now seems woefully out of reach.

For all its renewed ambitions in electric vehicles, Tang said a more realistic, short-term approach for Nissan is to buy time by reviving the sales of petroleum cars. Nearly one in three cars sold in China are electric vehicles, but volume wise, gasoline vehicles are still massive.

“Even if there is a delay of one or two years with electric vehicles, the priority is to maintain sales of gasoline cars since they would lose their foundation in China without them,” he warned.

kana.inagaki@ft.com