Nidec’s Accounting Scandal: Reassessing Governance and Long-Term Investment Viability

Nidec Corporation, a global leader in motor technology, has found itself at the center of a corporate governance crisis in 2025, triggered by an accounting scandal involving its Italian subsidiary, NIDEC FIR INTERNATIONAL S.R.L. The subsidiary’s deliberate mislabeling of Chinese-made motors as “Made in Italy” to evade U.S. tariffs—spanning from 2018 to 2023—has exposed systemic weaknesses in oversight and compliance [1]. This scandal, coupled with suspected accounting irregularities at its Chinese subsidiary, has not only triggered regulatory scrutiny but also eroded investor confidence, slashing the company’s stock price by 12% in May 2025 [2].

Governance Failures: A Systemic Breakdown

The core issue lies in Nidec’s failure to enforce robust internal controls across its global operations. The Italian subsidiary’s customs violations—estimated to incur penalties between $32 million and $224 million depending on whether the misdeclaration is deemed fraudulent—highlight a lack of board-level oversight and compliance protocols [1]. According to a report by AInvest, the company’s governance framework failed to detect or prevent these practices for over five years, raising questions about the independence and efficacy of its audit committees [2].

Compounding these issues, Nidec’s Chinese subsidiary, Nidec Techno Motor (Zhejiang) Co., Ltd., was found to have issued a 200 million yen lump-sum discount, prompting the establishment of a third-party committee to investigate potential accounting manipulation [3]. While the company claims this committee is composed of independent legal and financial experts, critics argue that the delayed submission of its 2025 securities report until September 26, 2025, and the absence of public details about the investigation’s scope undermine transparency [1].

Valuation Metrics: A Tumbling P/E and Market Capitalization

The governance crisis has directly impacted Nidec’s valuation. Its trailing price-to-earnings (P/E) ratio plummeted from 43.7 in 2023 to 10.6 in 2025, reflecting investor skepticism about the company’s ability to manage risks and deliver consistent earnings [2]. Despite a 7.23% increase in market capitalization to $24.17 billion by September 2025, this resilience appears fragile, as ongoing investigations and potential financial restatements complicate earnings forecasts [4].

Analysts note that the delayed Q1 2026 earnings report and the preliminary operating profit decline of 24.8% in Q1 2025—excluding investigation-related costs—further cloud the company’s financial outlook [4]. The risk of regulatory penalties and reputational damage could force Nidec to allocate significant resources to compliance reforms, potentially diverting capital from growth initiatives in high-margin sectors like electric vehicles and industrial automation [2].

Investor Trust: A Fragile Rebuilding Effort

Investor trust has been severely strained. Institutional investors and analysts remain divided: some view Nidec’s strategic pivot to EVs and automation as a long-term opportunity, while others emphasize the need for concrete governance reforms. The establishment of audit and compliance committees in July 2025 is a step forward, but doubts persist about their independence and the transparency of findings [2].

A report by AInvest underscores that Nidec’s credibility hinges on its ability to demonstrate accountability. For instance, the suspension of U.S. shipments of affected products and the third-party investigation are positive signals, but they must be paired with proactive disclosures about the scope of irregularities and corrective measures [3]. Without such transparency, the company risks further alienating stakeholders, particularly as ESG-focused indices increasingly scrutinize governance practices [4].

Conclusion: Weighing Risks Against Strategic Potential

Nidec’s long-term investment viability depends on its capacity to address governance flaws while capitalizing on growth opportunities. While the company’s projected 16.36% earnings growth for the coming year and its inclusion in ESG indices offer hope, these gains are contingent on resolving the current crisis [2]. Investors must weigh the risks of regulatory penalties and reputational damage against the potential for innovation in EVs and automation.

For now, Nidec’s stock remains a high-risk proposition. The market’s cautious stance—evidenced by its depressed P/E ratio—reflects a demand for stronger governance reforms and transparent communication. Until these are delivered, the company’s ability to restore investor trust and sustain valuation growth will remain in question.

Source:
[1] Nidec's Compliance Crisis: A Test of Governance and [https://www.ainvest.com/news/nidec-compliance-crisis-test-governance-buying-opportunity-2506/]
[2] Nidec's Accounting Scandal: A Catalyst for Re-evaluating [https://www.ainvest.com/news/nidec-accounting-scandal-catalyst-evaluating-long-term-investment-viability-2509/]
[3] Nidec Announces its Establishment of Third-Party Committee [https://www.businesswire.com/news/home/20250903013233/en/Nidec-Announces-its-Establishment-of-Third-Party-Committee]
[4] Nidec Announces Preliminary Report on Performance [https://www.marketscreener.com/news/nidec-announces-preliminary-report-on-performance-values-first-quarter-of-fiscal-year-2025-ce7c5cd3da8ff027]