Nissan's Junk Debt and EV Hurdles: A High-Risk Gamble in the Auto Race

Nissan Motor Co. (7201.T) has reached a critical crossroads. With $55 billion in debt, junk credit ratings, and a turnaround plan hinging on uncertain tariff relief and EV milestones, the automaker's survival increasingly depends on execution in a fiercely competitive landscape. While its stock trades at a historically low valuation, the risks of default, cash burn, and strategic missteps outweigh the potential rewards—unless Nissan delivers on three near-term imperatives.

Credit Downgrades: A Liquidity Cliff Looms

Nissan's credit ratings have all fallen to junk status, with Fitch, Moody's, and S&P citing weak profitability and delayed recovery timelines. Fitch lowered its rating to BB+ due to Nissan's anticipated ¥80 billion net loss for FY2025, while Moody's highlighted negative free cash flow and the risk of U.S. tariffs on its Mexican plants. The firm's $54 billion debt (as of March 2025) is manageable in the short term due to $6.7 billion in automotive cash reserves—but the outlook is grim.

Moody's warns that free cash flow will remain negative in FY2026, and $5.6 billion in debt matures by 2026. With junk ratings, refinancing costs will surge, squeezing liquidity. Without tariff exemptions, the company faces a $2 billion annual hit from U.S. levies on Mexican-made vehicles—funds it cannot afford to lose.

Turnaround Plan: Execution-Dependent and Lagging

Nissan's strategy relies on three pillars: shifting production to the U.S. to dodge tariffs, cutting costs via 9,000 job reductions and 20% capacity cuts, and doubling down on EVs. However, each faces hurdles:

1. Tariff Relief: U.S. trade policies are unpredictable, and Nissan's Mexican output (40% of global production) remains exposed. Without exemptions, the company's restructuring savings may be erased.
2. Cost Cuts: While layoffs and plant closures aim to save $1.6 billion annually, the automaker's weak performance in key markets like the U.S. and China leaves little room for error.
3. EV Momentum: Nissan pioneered the mass-market EV with the Leaf, but competitors like Tesla and BYD now dominate. Its Ariya and upcoming models must deliver scale and profitability by 2026—no small feat in a sector where Tesla's pricing power and China's subsidies loom large.

EV Race: The Clock is Ticking

The auto industry's shift to EVs is a double-edged sword for Nissan. While its legacy in electrification offers a foothold, it trails giants in battery tech and economies of scale. To survive, Nissan must:
- Launch competitive EVs at aggressive price points by 2026.
- Secure supply chain dominance (e.g., partnerships for lithium and semiconductors).
- Turn its automotive business cash-positive, reversing a 2024 free cash flow deficit of ¥242.8 billion.

Failure to meet these goals will deepen reliance on debt and leave Nissan vulnerable to competitors' cost advantages.

Investment Implications: Sell Unless Milestones Materialize

Nissan's stock trades at 0.4x book value, a 20-year low, tempting bargain hunters. However, the risks far outweigh the potential rewards:
- Credit Risk: Junk ratings and $5.6B in near-term maturities create a default risk if liquidity tightens.
- Strategic Risk: Tariff exposure and EV execution delays could cripple margins.
- Valuation Risk: Competitors like Toyota and Honda trade at 1.2x–1.5x book value, reflecting stronger balance sheets and execution.

Recommendation: Sell Nissan stock unless three conditions are met by mid-2026:
1. U.S. tariffs on Mexican production are suspended or phased out.
2. EV sales hit 1 million units annually (up from 400,000 in 2024), with operating margins exceeding 5%.
3. Cash burn is reversed, and net debt/EBITDA falls below 4x.

Until then, default risks and execution dependency make this a gamble investors should avoid.

Nissan's journey from industry pioneer to high-risk bet underscores a painful truth: in the auto sector, survival demands flawless execution in good times—and miracles in bad ones.