The Lex Newsletter: Nissan seeks EV niche in trickle-charging Japan

Dear reader,

Electric vehicle sales have surged in many countries in the past two years. Japan has been an exception. Nissan may prove an unexpected beneficiary of local reluctance to jump on the EV bandwagon.

The Renault-Nissan-Mitsubishi Alliance plans to invest a combined ¥3tn ($26.3bn) to the end of the fiscal year 2026 to develop EVs and solid-state batteries. It plans to commercialise solid-state batteries by the fiscal year ending March 2029. The alliance will roll out more than 30 electric car models through fiscal 2030 using jointly developed platforms.

That timeframe looks curiously relaxed in a fast-changing industry where Tesla has taken a dominant position in just a few years. The US EV maker represented about a fifth of the global electric car market last year. That was despite advertised prices being significantly higher than for comparable products manufactured by rivals.

But Japan lacks urgency when it comes to EVs. Sales account for less than 1 per cent of the market there. Japanese motorists bought just 14,000 battery EVs in 2020. Chinese and European drivers purchased more than 700,000 in both territories. Japan’s ageing population is more comfortable with traditional technology, dislikes higher prices for EVs and often lacks convenient charging options.

Many Japanese consumers prefer hybrids. Toyota has sold a total of 15m hybrid vehicles since their launch about two decades ago. More than a decade of marketing has endeared locals to these models.

A limited choice of Japanese-made EVs is another factor. More than a decade ago, Nissan and Mitsubishi were among the first to launch affordable battery electric cars: the Nissan Leaf and the Mitsubishi i-MiEV. They have had a loyal, albeit niche, local following. Now Chinese and US makers dominate the top-selling charts globally.

Japan’s low market share for electric cars and slow adoption rate leaves room for Nissan’s future offerings. Sales should get a boost as Japan’s plan to achieve carbon neutrality in 2050 yields more subsidies. The government doubled these late last year. Japan is expanding infrastructure from the 18,000 electric car-charging stations — equal to about two-thirds the number of petrol stations — available at present.

Nissan shares are up 13 per cent in the past year, helped by tightness in the world’s supply chains for vehicles. Nissan’s break-even point has now come down to about 3.7m cars a year, from 4.4m.

But shares trading at 11 times forward earnings, a steep 95 per cent premium to global peer Volkswagen, are running ahead of reality. Operating margins have slumped from more than 6 per cent five years ago to below 2 per cent in the year to September. The growing costs of development and marketing of new electric models should mean a further squeeze on margins in the long term.

The valuation premium is unjustified given VW’s dominant position in the European electric car market. Even when Nissan’s new electric models hit markets, catching up will be tough. Nissan must brace for pricing constraints at home. Global automakers are aggressively cutting Japanese electric car prices. Tesla, for example, slashed the price of its long-range Model 3 by a quarter to $43,000 last year.

Nissan’s renewed focus on electric cars and high-performance batteries is a step in the right direction. It remains a costly and risky bet — and a catch-up exercise. Investors have better options among traditional manufacturers switching into EVs, notably VW and Toyota.

Enjoy the rest of your week,

June Yoon
Lex writer