Nissan's NSANY second-quarter fiscal 2009 results showed improvement from the first quarter. We are leaving our fair value unchanged. A 23% sequential revenue increase along with more cost-cutting measures helped Nissan post a small profit of JPY 25.5 million. We also are encouraged to see cost-cutting measures for the quarter nearly compensate operating income losses due to the strong yen and unfavorable volume/mix. Management raised its fiscal 2009 outlook to an operating profit of JPY 120 billion from its previous forecast of a JPY 100 billion operating loss. We think Nissan can exceed this forecast since it is based on a second-half exchange rate of JPY 85 per U.S. dollar. This assumption implies further weakening of the dollar, which may not occur--especially if the U.S. Federal Reserve raises interest rates. COO Toshiyuki Shiga gave an update on Nissan's compact and zero emission vehicle strategy. Assuming gas prices increase over time we think Nissan's strategy is a good one, although it carries risk. The company will use the new V-platform to manufacture three global compact cars (hatchback, sedan, and multipurpose). Production will start in Thailand in March followed by additional 2010 startups in China and at a new plant in Chennai, India. The long-term goal is to sell these vehicles in over 150 countries with one million units sold per year. Zero emission vehicles will focus on electric vehicles and eventually fuel cell vehicles. The electric LEAF (the model name for Nissan's electric vehicle) will launch in fall 2010 in Japan, the U.S., and Europe, and worldwide sales will start in 2012. Nissan's strategy to make the LEAF affordable is to have the consumer lease the expensive lithium-ion battery. After the battery is used, Nissan's partnership with Sumitomo Corporation will refurbish and resell the battery in various energy storage markets. Future electric vehicle plans include a light commercial vehicle and a compact Infiniti.Although the battery strategy makes electric vehicles more affordable for consumers, someone still must pay for the battery. We think Nissan will bear more of the cost burden. With electric vehicles still years away from enjoying high volumes, we are skeptical electric vehicles will be profitable anytime soon. However, should U.S. gas prices rise dramatically, Nissan's electric vehicles would likely be in high demand.
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Analyst Notes
07-29-09 | 4:42PM Nissan Reports 1Q Results
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