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Automobiles

Dwindling cash saps Nissan's ability to rebuild post-Ghosn lineup

First-quarter results to show scope of pandemic fallout amid expansion drive

Nissan plans to step up the release of new models, like the Ariya all-battery sport utility vehicle.   © Reuters

TOKYO -- Nissan Motor's automobile business faces the prospect of running out of cash over the next year and a half as the pandemic exacerbates the company's financial struggles and raises doubts over its long-term competitiveness.

"Free cash flow for our automobile business this fiscal year is going to be negative," one Nissan executive said. "If we keep investing, we'll have a negative cash flow until at least the first half of the next fiscal year."

A year and a half of continued outflows "could almost deplete the net cash held by Nissan's automobile business, which came to 1 trillion yen at the end of March 2020," said Takaki Nakanishi, head of Nakanishi Research Institute. Net cash equals total cash held by a company minus total liabilities.

Nissan's net cash is on track to plunge 91% to about 96 billion yen in the two years through March 2022, Nakanishi said. This would greatly outpace the 8% fall projected for Toyota or the 3% fall for Honda.

The market on average predicts that Nissan will post an operating loss of more than 220 billion yen ($2.09 billion) for April-June when it announces results Tuesday, the automaker's first time in the red for that quarter.

But unlike some compatriots such as Toyota Motor and Subaru, which also likely logged loss last quarter as the coronavirus outbreak rages on, market watchers do not think Nissan can escape the red by the end of the fiscal year. They project a record operating loss of just under 220 billion yen for the year ending March 2021.

Nissan's predicament results from ousted Chairman Carlos Ghosn's focus on scaling up. The automaker had cut spending on developing new cars to concentrate on boosting unit sales, and the lack of attractive new models made it dependent on financial incentives to woo new customers. Ghosn's longtime leadership of Nissan ended after his arrest in late 2018 on financial misconduct charges.

This strategy of scale backfired as consumers tightened their purse strings amid the pandemic. The company's U.S. unit sales plunged 45% in June, whereas Toyota and Honda Motor declined 23% and 12%, respectively. Nissan also offered $4,800 in incentives per vehicle, significantly above the roughly $4,000 industry average.

Despite sluggish sales due to the coronavirus and a lackluster lineup, Nissan still needs to spend on research and development -- raising concerns both inside and outside of the company.

Nissan spent roughly 540 billion yen on R&D and another 500 billion yen on capital investments during the year ended in March. Without enough net cash, it could be forced to cut investments in next-generation connected, autonomous, shared and electric vehicles and fall further behind rivals.

The automaker aims to avoid this scenario, raising roughly 900 billion yen from loans and bonds in the past four months. Still, "we'll need more cash if there is a second wave of the coronavirus outbreak," a Nissan executive said. The company also has a debt-equity ratio of roughly 2, more than double many of its competitors, and could face issues with further fundraising.

Restoring its brand image will be critical to Nissan's long-term recovery. The company unveiled a new sports car in June, with plans to launch another dozen models in the next year and a half in an effort to win new fans.

But it remains to be seen how effective this strategy will be. Mitsubishi Motors, an equity-method affiliate of Nissan and a member of its alliance with French automaker Renault, said Monday that it expects a 360 billion yen net loss for the year ending March 2021. Many industry watchers await Nissan's full-year forecast, especially as the threat of a second wave of coronavirus looms heavy.

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