Nissan U.S. rebound stumbles on lack of affordable cars, hybrids

TOKYO — Nissan Motor Co. had a pretty good thing going in the all-important U.S. market during the pandemic and semiconductor shortage. That was when supply was tight and dealer lots were empty.

Back then, the Japanese carmaker's comeback hinged on building quality sales: Keep the lid on incentives and boost revenue per vehicle through pricier trims and more upmarket product.

With supply so crimped, delivering on that plan wasn't too tough.

But now the market has shifted and Nissan's strategy is starting to lose traction. The new, harsher reality began dinging profits in Nissan's fiscal third quarter that ended Dec. 31.

Soaring demand for affordable nameplates has put Nissan back to selling the entry cars that once gave it a budget-brand image. And Nissan's lack of hybrid vehicles means it can't capture a growing segment of customers who want an affordable alternative to full electrics.

Correcting course, Japan's No. 3 automaker now says it will reexamine its hybrid road map for the U.S., including how it might be able to offer its e-Power hybrid system there and elsewhere.

"The high interest rate inflation is hampering affordability for the customer," CFO Stephen Ma said Thursday while announcing financial results for the fiscal third quarter. "So, we are focused on making sure we bring the right vehicles, in the right segments to customers."

Nissan's U.S. sales registered just a 5.6 percent increase to 202,000 vehicles in the October-December period. The tally trailed the overall U.S. market's 8.3 percent increase as well as a 32 percent surge at American Honda and a 15 percent gain at Toyota Motor North America.

Meanwhile, net revenue per unit in the U.S. — a key metric Nissan has been tracking under its midterm plan — slid 6 percent over the first nine months of the company's fiscal year.

"This is mainly due to a model mix change as the market moved to more affordable segments," Ma said. Rising incentives, amid tougher price competition, also took a bite, he added.

These factors contributed to almost stagnant parent-company profit growth in the latest three months. Operating profit inched ahead 6 percent to ¥141.6 billion ($1 billion) in the period.

Nissan was unable to quickly supply the swing in demand toward affordable vehicles such as the Versa and Sentra sedans. That was partly because of logistical bottlenecks at the U.S. border with Mexico, where Nissan builds those nameplates in addition to the Kicks compact crossover.

"We were not able to get our cars to market at the right time with enough volume," Ma said.

Nissan has secured more transportation bandwidth by land and sea to bring more product in the January-March quarter, with a focus on the Sentra and 2024 model year Rogue, Ma said.

Likewise, Nissan hasn't been able to capitalize on the hybrid boom that is pumping up sales and earnings at rivals Toyota and Honda. The gasoline-electric technology is gaining favor among customers who want cleaner cars but are unsure about the high prices and limited charging infrastructure of EVs.

For manufacturers, hybrids have relatively higher margins and also require lower incentives.

Nissan's e-Power series hybrid technology is popular in Japan and Europe, where it is installed in such vehicles as the hot-selling Rogue crossover. But the system has yet to land in the U.S.

Instead, American customers are being pitched two all-electric vehicles, the long-in-the-tooth Leaf hatchback and limited-supply Ariya crossover. Neither qualifies for U.S. tax credit incentives.

"Longer term, we want to make sure we are bringing more innovations to our electrified powertrains so that we can provide the right combination of value and technology," Ma said.

"We are now studying what we can do for the U.S. market," he said. "So, stay tuned. We will come back with some answer on what we can do with a hybrid in the U.S."

Nissan already has plans to introduce the e-Power setup to other global markets, he said.

On a parent-company basis, Nissan's net income tumbled 42 percent to $206.4 million in the fiscal third quarter, from $358.9 million the year before.

Revenue advanced 9.5 percent to $22.06 billion in the period, while global retail sales declined 2.7 percent to 819,000 vehicles. Deliveries in China fell 36 percent to 188,000 vehicles, while European sales advanced 13 percent to 86,000.

Looking ahead, Nissan downgraded its global sales target to 3.55 million vehicles for the current fiscal year ending March 31, on weaker-than-expected demand in virtually every major market.

The new outlook still represents a 7.4 percent increase over the previous fiscal year.

But it marked the second time this fiscal year that Nissan scaled back its ambitions. It kicked off the year aiming to move 4 million vehicles worldwide.

Still, Nissan kept is earnings outlook unchanged for the full fiscal year, citing a bump from favorable foreign exchange rates. It predicts operating profit will climb 64 percent to $4.4 billion, while net income will increase 76 percent to $2.77 billion.