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Nissan to rethink supply chain forecasts after chip crunch

Japanese automaker expects to share more EV parts with alliance partners

Nissan COO Ashwani Gupta speaks to Nikkei Asia in Yokohama on June 2. (Photo by Tetsuya Kitayama)

YOKOHAMA, Japan -- Nissan Motor is rethinking the forecasts that underpin its "just-in-time" supply chain after being blindsided by a global chip shortage that has hobbled output at a string of global carmakers.

Chief Operating Officer Ashwani Gupta said in an interview that the Japanese carmaker saw no need to stockpile more chips -- putting it at odds with its domestic rival Toyota and some other manufacturers.

But Nissan needed to take into account a wider range of factors in making its long-range estimates of chip demand, after it and rivals were forced to curtail production because of a lack of supplies, Gupta said.

"We have realized that the supply chain should not be only managed within the automotive [sector], when some of the key components are dependent on the nonautomotive supply chain," Gupta told Nikkei Asia in an interview on Wednesday.

He said Nissan was working on having a "more accurate forecasting system" throughout its supply chain.

The global shortage of automotive chips emerged during an unexpectedly strong rebound in auto sales last year, just as chipmaking capacity was geared to meet strong worldwide demand for consumer electronics during the coronavirus pandemic.

The shortages have forced global carmakers to cut output. Nissan said in an earnings conference last month that it will produce 250,000 fewer vehicles this fiscal year through March 2022.

Toyota has been stockpiling sufficient inventory for some key parts for up to four months, while Ford CEO Jim Farley hinted last month that U.S. carmaker would look at building buffer stocks and procuring chips directly from chipmakers to bypass usual suppliers.

Gupta said Nissan would stick to its practice of keeping low inventories for parts. "We are not going to change our inventory standards just because this unpredictable scenario happened," he said.

"We are going to implement... concrete measures, which will take care of unpredictable scenarios and improve the efficiency of the entire supply chain, but that doesn't mean that Nissan will change the basics of JIT," he said, referring to so-called "just-in-time" delivery of inventory shortly before it is needed on a production line.

Any automobile maker now has to "have a discipline and trust in [their] deal with suppliers," he said.

Nissan, which is part of a three-way carmaking alliance alongside Renault of France, and Japan's Mitsubishi Motors, is also looking to do far more to share parts among its partners to cut costs, as it places more emphasis on developing electric vehicles.

Nissan expects to share close to 70% of key EV parts including motors, batteries as well as platform within the Franco-Japanese alliance, Gupta said.

The company has shared powertrains and platforms for conventional cars, but EVs have not made use of common components.

"When the platforms, the battery and also electronic architecture are common, it should be around two-thirds of the [total cost of the] car," Gupta said, adding that this would contribute to lower the cost of ownership for buyers.

Nissan in January announced it would electrify all new models -- including battery-powered EVs as well as vehicles with hybrid engines -- in global key markets by the early 2030s, soon after the Japanese government unveiled a goal of carbon neutrality by 2050.

Nissan is emerging from heavy losses, with the company unveiling a restructuring plan in May 2020 called Nissan Next. The four-year plan aims to rationalize the carmaker's business and spells an end to the previous expansion strategy under former Chairman Carlos Ghosn.

Nissan Next has forecast a 2% margin for operating profit this fiscal year, and the company is now expecting that it will break even on an operating level, even while incurring a net loss of 60 billion yen ($551 million).

Gupta said the chip shortage and higher raw material costs had led to the revisions. "[Because of] the two headwinds, from semiconductors and raw materials, we went ahead in forecasting break-even operating profit," he said.

However, all the three pillars of Nissan Next -- rationalization, quality of sales, and new products as well as technologies -- had shown "significant improvement," with a greater-than-expected reduction in fixed costs, Gupta said.

Nissan and other traditional carmakers are facing increasing competition from new rivals such as Tesla, while there have also been reports that Apple wants to enter the EV market and is looking for a production contractor. Gupta denied that Nissan had been approached by the U.S. iPhone maker.

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