Nidec's Stock Plummets More Than 10% Due to Challenges in Chinese Operations

24 Oct, 2023

Nidec's Stock Plummets More Than 10% Due to Challenges in Chinese Operations

On Tuesday, Nidec, the electric motor manufacturer, witnessed its most significant one-day stock price plummet in almost 15 years. This decline was attributed to the company's disappointing quarterly earnings report, with a primary cause being the challenges it faced within its automotive operations in China.

The corporation, headquartered in Kyoto, observed its shares tumble by 10.4% during afternoon trading, marking the most substantial loss in a single trading session since November 2008 and erasing approximately $2.7 billion from its market capitalization.

Market analysts have highlighted Nidec's diminishing profit margins in its Chinese automotive sector as a concerning issue. This trend has raised red flags about potential weaknesses in the broader global electric vehicle market.

Mark Chadwick, an analyst on the Smartkarma research platform, commented on the situation, stating, "The e-axle market in China is shifting more rapidly than expected to lower output motors, and that is having a detrimental impact on profitability. We remain apprehensive about the prospects of the Chinese electric vehicle (EV) market and the transition towards lower-capacity motors, which is adversely affecting overall profitability.

Nidec had made substantial investments in the production of a traction motor known as the e-axle, which encompasses an electric vehicle's gear, motor, and power-control electronics. The company aimed to tap into opportunities in China through this endeavor.

During a press conference on Tuesday, company executives disclosed that this particular business segment was expected to incur a loss of 15 billion yen ($100.24 million) in the current financial year. This was a stark contrast to their previous expectations of profitability for the e-axle business in the same financial year.

Furthermore, after the market closed on Monday, Nidec reported a quarterly operating profit that was only 7.6% higher than expected, largely attributed to the weakening value of the yen currency. They also noted a decrease in the unit growth rate within the Chinese electric vehicle market in their automotive products division during the second quarter.

Notably, the company's profit projection for the current fiscal year ending in March 2024 remained unchanged at 220 billion yen ($1.47 billion), falling short of the market's average profit estimate of 224 billion yen.