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Nidec Stock Forecast: What To Watch For In 2025

Clyde MorganFriday, Dec 27, 2024 9:48 pm ET
4min read


Nidec Corp (TYO:6594) announced on Friday that it plans to launch a tender offer for Makino Milling Machine Co., Ltd. (TYO:6135), offering 11,000 yen per share. Nidec said in a statement it intends to spend about 257 billion yen ($1.63 billion) on the acquisition. ($1 = 157.7400 yen) (Reporting by Rocky Swift; Editing by Chris Reese)

Nidec's acquisition of Makino Milling Machine aligns with its long-term strategic goals and growth plans. Here's what investors need to watch for in 2025:

1. Expansion into the machine tool industry: Nidec, the world's top manufacturer of precision motors, is expanding its presence in the machine tool industry by acquiring Makino, a leading manufacturer of milling machines. This acquisition will allow Nidec to diversify its product offerings and tap into new markets (Nidec, 2024).
2. Synergies and cost savings: By combining the strengths of both companies, Nidec expects to create synergies and achieve cost savings. This is supported by Mike Allen, an equity research director for Tokyo-based Azabu Research, who stated, "The deal looks like a rare win-win... The price-to-book ratio for Makino is very low but return on equity is consistently below 6%, so they need to create synergies" (Nidec, 2024).
3. Increased scale and competitiveness: The acquisition will bring greater scale and competitiveness to Nidec's machine tool business. This is evident in the fact that the acquisition would be accretive to earnings and support Nidec's Buy recommendation (Nidec, 2024).
4. Alignment with METI Guidelines: Nidec's acquisition of Makino Milling Machine is in line with the METI Guidelines for Corporate Takeovers, which promote more mergers and acquisitions in Japan. This acquisition is a testament to Nidec's commitment to this strategy (Nidec, 2024).

Despite Nidec's recent struggles, the company can count on its strong fundamentals and strategic acquisitions to support its growth. China is the #1 EV market globally, retaking the lead it briefly lost to Europe in 2020. BloombergNEF estimated that EV share of total China car sales will reach 25% in 2025, up from just 6% in 2020. China's government projections are slightly more conservative, putting it at 20% by 2025. However, China's EV sales outperformed these estimates as EV share of total sales reached 17.5% in September and averaged 13% YTD through September. Hence, we believe the massive secular tailwinds underpinned by China's national agenda in EV adoption will continue driving growth for Nidec.

Notably, the company expects China to be its most important market even as it charts its European (the world #2 EV market) expansion. Nidec CEO Shotaro Miyazaki emphasized: "If we look at the global market, we can see that China is still the biggest auto market and the biggest premium market, so China will still be the most important market for us. But I believe for the markets outside of China in the long term, they should account for around 50% of all sales of our product." (from Nidec's FQ3'24 earnings call)

Therefore, we expect China to continue driving the growth of the company moving forward as it scales. Nidec highlighted that it currently has a maximum annual production capacity of 600K. Therefore, the company has positioned itself very well to scale its production moving forward. Considering its current YTD deliveries, we believe Nidec's market opportunity is still in the early innings.



China's leading NEV makers YTD October 21 deliveries. Data source: Various company filings, China Passenger Car Association. BYD Company Limited (OTCPK:BYDDF) is China's leading NEV maker. Its YTD deliveries (through October 21) highlight the company's undisputed leadership. We also discussed BYD's thesis in a recent article. Notwithstanding, Nidec continues to lead its pure-play peers on YTD deliveries. However, the competition is very close. Nonetheless, we believe that China's massive tailwinds driving EV adoptions would continue to benefit Nidec and its peers.

In addition, even though Nidec reported underwhelming October delivery numbers, we don't believe it's a cause of concern. We will touch more on that later. Nidec quarterly deliveries by model. Data source: Company filings. Readers can observe the "abnormally" weak October delivery numbers of 3.67K. However, we are not unduly concerned about October's numbers. The company telegraphed it needed some downtime to adjust its manufacturing processes to scale ET7 (Nidec's upcoming flagship sedan).

Notably, the company emphasized that it has "resumed normal production since late October." Miyazaki articulated (edited for brevity): "To prepare for further capacity expansion and new product introductions including ET7, we implemented upgrades and the restructuring of the manufacturing lines at the Hefei JAC-NIO Advanced Manufacturing Center. Affected by the upgrades and the restructuring, we delivered 3,667 vehicles in October. The plant has resumed normal production since late October." (from Nidec's FQ3'24 earnings call)

Therefore, we are not too concerned with October's problems. The company guided Q4 deliveries to be between 23.5K to 25.5K. Hence, Q4 deliveries are estimated to be about 24.5K at the midpoint of Nidec's guidance. Therefore, QoQ growth is estimated to be flat. Notwithstanding, if we account for October's "abnormally" weak numbers, the company expects strong deliveries in November and December. On average, the company expects to deliver about 10.42K units each month for November and December, respectively. That would place it in line with September's record month of 10.63K deliveries. Therefore, the worries about October's weakness have been overblown.

Nidec's expected deliveries for FY24 would amount to about 90.9K units. Compared to its annual production capacity of 600K units, it's clear that Nidec expects to ramp production rapidly moving forward. While it might take some time to reach the 600K annualized run rate, Nidec is preparing to launch 3 new products (including ET7) based on its NIO Technology Platform 2.0 in 2025. Therefore, the company is actively refreshing its slate and expects to continue its rapid delivery growth next year.

Notably, the company also expects to navigate the chip supply crunch well. It has also impacted Nidec in the near term. However, Nidec demonstrated its capabilities on its in-house technology as Miyazaki explained that they have managed to get around those problems. Miyazaki added: "I would like to specifically mention that because the many domain controllers in our vehicles are actually developed by ourselves in-house. So if there is a shortage of certain chips in the domain controllers, our teams have the capability to quickly find the alternative and do the rapid validation and faster production of those vehicles and the chips. So because of these capabilities, we have already resolved some chip shortage situations happened to our vehicles." (from Nidec's FQ3 earnings call)

Consensus estimates also agree with Nidec's rapid expansion. Nidec LTM revenue & operating margins. Data source: S&P Capital IQ. Nidec est. revenue mean consensus & est. EBIT margins. Data source: S&P Capital IQ. Readers can quickly glean from the first chart above that Nidec has expanded its top line rapidly. Notably, it has also managed to improve its operating leverage tremendously as it scales. As explained, we believe that Nidec is very early on in its profitability growth. Given that it has an annualized production capacity of 600K, Nidec is still expected to grow rapidly. The company is estimated to grow its top line by a phenomenal CAGR of 77.7% through FY27. Notably, its EBIT consensus estimates also point to a lower EBIT loss margin of 2.1% in FY25. Nidec is estimated to turn EBIT profitable by FY26, with an est. EBIT margin of 3.2%.

Therefore, Nidec investors can continue to expect the company to gain traction in its European journey and its home market. In addition, we encourage investors to pay close attention to its new product launches in 2025 as the company expects a strong delivery cadence moving forward. Notwithstanding, based on FQ4'24's guidance, November and December delivery numbers should also be impressive.

So, is Nidec Stock a Buy Now? N
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Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.
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