Nissan’s Plant Closures Signal a Pivot to EV Dominance—Is Now the Time to Buy?
8min read The automotive industry’s transition to electric vehicles (EVs) is reshaping the global auto sector, and Nissan Motor Co. (TYO: 7201) is among the first to make painful but necessary cuts to realign with this future. The company’s recent suspension of production at key plants in Japan, the UK, and the U.S.—part of a broader restructuring plan to slash global capacity by 20% by 2025—highlights a critical crossroads for traditional automakers. While these moves have drawn scrutiny over near-term job losses and earnings pressure, they also signal a strategic shift that could position Nissan to capitalize on the EV boom. For investors, the question is clear: Does this restructuring unlock undervalued upside, or does it mask deeper structural flaws?
The Strategic Shift: From Overcapacity to EV Efficiency
Nissan’s decision to idle plants in Kyushu (Japan) and Sunderland (UK), while shuttering facilities in Spain and the U.S., is a stark acknowledgment of overcapacity in legacy combustion-engine production. The 20% global capacity reduction by 2025 targets a $2 trillion EV market expected to dominate auto sales by the late 2030s. By scaling back traditional manufacturing, Nissan aims to reallocate capital to its “Nissan Next” plan, which includes pouring ¥2 trillion through 2030 into EVs and autonomous technologies.
The financial rationale is compelling: by Q4 2023, restructuring had already delivered ¥800 billion in cost savings, boosting operating margins to 5.6% from a meager 2.2% in 2020. Analysts at JPMorgan note that this discipline could push margins toward a 7% target by 2025, a level that would rival peers like Toyota. Yet skeptics question whether these gains will offset near-term risks, including delays in EV launches and supply chain bottlenecks.
Valuation: A Discounted Bet on EV Growth
Nissan’s current valuation metrics offer a tantalizing entry point. With a projected P/E of 8.5x for 2025—well below the global auto industry average of ~12x—the stock appears undervalued relative to its cost-cutting progress and EV ambitions. A dividend yield of 3.2% further underscores shareholder-friendly policies, even as the company invests in high-risk, high-reward EV projects.
Analyst sentiment is cautiously optimistic. JPMorgan’s “Overweight” rating, with a ¥2,200 price target (15% upside from current levels), hinges on execution: cost savings must outpace EV development costs, and supply chains must stabilize. Mizuho’s “Neutral” stance, however, flags risks like slowing Chinese demand and semiconductor shortages, which could delay margin expansion.
Risks: Supply Chains and the EV Race
Nissan’s path to profitability is far from guaranteed. The company faces three critical hurdles:
1. Supply Chain Volatility: Lithium and nickel prices remain volatile, while semiconductor shortages linger. A delayed EV rollout could strain cash flows.
2. Competitive Pressure: Startups like Tesla and BYD are dominating EV markets, squeezing margins for legacy automakers.
3. Labor and Political Costs: Plant closures have sparked union backlash in the UK and Japan, raising reputational and regulatory risks.
The Reward: A Streamlined, EV-Focused Giant
Despite these risks, the rewards of Nissan’s restructuring are substantial. By reducing fixed costs and pivoting to EVs—targeting 35% of sales to be electric by 2030—the company could emerge as a leaner, more agile competitor. Its alliance with Renault and Mitsubishi also provides scale advantages in battery production and software development, which are critical in an EV landscape dominated by economies of scale.
The restructuring also addresses a chronic industry issue: overcapacity in combustion-engine production. With global demand for internal combustion engine (ICE) vehicles projected to peak by 2030, automakers that act decisively to cut ICE capacity now may avoid stranded assets later.
Investment Thesis: A Buying Opportunity for the Bold
Nissan’s stock is pricing in pessimism. Its current valuation reflects concerns over near-term execution risks but ignores the long-term tailwinds of its EV pivot. For investors with a multi-year horizon, the 8.5x P/E and 7% margin target suggest a margin of safety.
The key catalysts to watch are:
- EV Launches: The success of the Ariya and future models in North America and China.
- Cost Discipline: Whether margins hit 7% by 2025 despite rising raw material costs.
- Supply Chain Resilience: Mitigation of semiconductor and battery shortages.
Final Verdict: A Strategic Buy with Disciplined Risk Management
Nissan’s plant closures are not just cost-cutting—they are a strategic realignment to dominate the EV era. While risks remain, the stock’s discounted valuation and clear path to margin improvement make it a compelling bet on Japan’s auto sector revival. Investors should consider a gradual entry, with stops below ¥1,600 to protect against near-term volatility, while targeting the ¥2,200 JPMorgan price target. For those willing to look past the pain of restructuring, Nissan could be the undervalued gem of the automotive transition.
Act now, but act carefully. The EV revolution is here, and Nissan’s moves today could pay dividends tomorrow.
