Nidec's Share Price Decline Amid Management Accounting Concerns: Assessing Governance Risks and Long-Term Valuation Implications

Nidec Corporation, a global leader in precision motor manufacturing, has faced a perfect storm of governance and accounting scandals that have rattled investor confidence. Over the past year, the company has grappled with two major crises: suspected improper accounting practices at its Chinese subsidiary and a customs compliance scandal involving its Italian operations. These issues have not only delayed critical financial disclosures but also raised existential questions about the company’s internal controls and long-term value proposition.

Governance Risks: A Dual Crisis

The first crisis emerged in late 2024, when Nidec Techno Motor (Zhejiang) Co., Ltd., a Chinese subsidiary, was suspected of manipulating asset write-downs and other accounting practices. According to a report by Yahoo Finance, Nidec established a third-party committee of legal and accounting experts to investigate whether these practices were systemic across the group [2]. This move, while commendable in intent, underscored a lack of transparency and raised concerns about management’s oversight capabilities.

Compounding these issues, Nidec’s Italian subsidiary, NIDEC FIR INTERNATIONAL S.R.L., was found to have mislabeled the origin of oven motors exported to the U.S. between 2018 and 2023, falsely declaring them as “Made in Italy” to evade tariffs [1]. As stated by AInvest, this practice—discovered in March 2025—could result in penalties ranging from $32 million to $224 million, depending on whether the misdeclaration is deemed fraudulent or negligent [1]. The scandal has triggered a broader internal investigation, further eroding trust in the company’s governance framework.

Share Price Impact: A Market in Retreat

The cumulative effect of these crises has been stark. Nidec’s share price fell 12% in the immediate aftermath of the customs scandal disclosure in May 2025 [1]. While the stock rebounded 22% in the subsequent three months, its three-year cumulative return remains negative, down 41% [3]. This underperformance reflects investor skepticism about the company’s ability to resolve its governance issues and the potential for further financial adjustments.

The delayed Q1 2026 financial report, pushed beyond the standard 45-day deadline, has added to the uncertainty. Preliminary performance values released by Nidec explicitly disclaim any accounting for the potential impact of ongoing investigations [2]. This opacity has left investors in limbo, unsure whether prior earnings need restatement or if additional expenses will materialize.

Strategic Turnaround: A Fragile Path Forward

Amid the turmoil, Nidec has pursued a strategic turnaround, including cost-cutting measures and a pivot toward high-margin sectors like electric vehicle (EV) components. Data from AInvest highlights operational improvements in its automotive division, which could support long-term growth [2]. However, these efforts are now overshadowed by the governance crisis. For instance, the company’s stated commitment to becoming a “principled company that earns societal trust” [3] rings hollow in light of the customs scandal.

The resolution of these issues will hinge on three factors: the outcome of the third-party investigations, the magnitude of penalties imposed by regulators, and Nidec’s ability to implement robust governance reforms. Until these uncertainties are addressed, the company’s strategic initiatives will struggle to gain traction.

Long-Term Valuation Implications

For industrial investors, Nidec’s valuation hinges on its capacity to rebuild credibility. The company’s core business—precision motors for appliances and industrial machinery—remains resilient, with demand driven by automation and EV adoption. However, governance risks now weigh heavily on its risk profile. A 2025 analysis by SimplyWall St notes that Nidec’s 2.5% earnings growth over three years has failed to translate into shareholder value, a trend likely to persist without structural reforms [3].

The key question is whether Nidec can separate its long-term fundamentals from the short-term governance noise. If the company successfully navigates the investigations and strengthens its internal controls, it may regain investor confidence. Conversely, repeated missteps could lead to a prolonged discount in its valuation relative to peers.

Conclusion

Nidec’s current predicament is a cautionary tale for industrial investors. While the company’s strategic pivot to high-growth sectors is promising, the governance and accounting crises have exposed systemic vulnerabilities. The path to recovery will require not only financial transparency but also a cultural shift toward accountability. Until then, the stock remains a high-risk proposition, with its valuation tethered to the resolution of these unresolved challenges.

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 Announces its Establishment of Third-Party Committee [https://finance.yahoo.com/news/nidec-announces-establishment-third-party-084600679.html]
[3] 2.5% earnings growth over 3 years has not materialized [https://simplywall.st/stocks/jp/capital-goods/tse-6594/nidec-shares/news/25-earnings-growth-over-3-years-has-not-materialized-into-ga-2]