Japanese electric motor manufacturer Nidec Corp has revised its full-year operating profit forecast, citing uncertainties in demand and heightened price competition in China’s electric vehicle (EV) market. The move reflects the challenges faced by parts makers in the world’s largest auto market due to increased cost pressures and a price war amid reduced subsidies for EV buyers.

Challenges in China’s EV market

Nidec’s sobering outlook is particularly relevant to its e-axle traction motor business, which combines an EV’s gear, motor, and power-control electronics. The company, heavily dependent on China, has invested significantly in developing and producing this motor. However, the intensifying price competition in China, coupled with reduced subsidies and a price war, has impacted the profitability of Nidec’s traction motor business.

The reduction in the operating profit forecast for the financial year ending March 31 by 18% to 180 billion yen (USD 1.22 billion) underscores the difficulty faced by Nidec in revitalizing its traction motor business. The challenges also indicate the impact of the changing dynamics in the Chinese EV market, where prices have significantly dropped; affecting Nidec’s anticipated profitability levels.

The news suggests that Nidec may face a prolonged recovery period for its e-axle traction motor business. Given the company’s heavy reliance on China, a major change in strategy might be necessary for survival, potentially leading to negative consequences for the company’s stock price.

Nidec’s chairman and founder, Shigenobu Nagamori, acknowledged the unprecedented challenges, stating that this is the first time in his 50 years of running a company where competitors, Nidec itself, and customers are all experiencing financial difficulties.

Costs and strategies for recovery

To address the challenges in the motor business, Nidec anticipates incurring up to 40 billion yen in one-off costs. These costs will be associated with implementing measures such as limiting unprofitable orders and localizing product development and procurement. The company aims to navigate through the tough market conditions by optimizing its operations and strategically adapting to the evolving landscape.

Leadership transition and future outlook

In March last year, Nidec identified five contenders for the position of president, with the eventual candidate expected to take over as chairman four years later. The company plans to announce the selected candidate next month, indicating a strategic leadership transition during a critical period for the company.

Financial performance in Q3

While Nidec reported a nearly doubled operating profit of 53.6 billion yen in the third quarter, up from 28.0 billion yen the previous year, it slightly missed the average forecast of 55.6 billion yen. This performance reflects the ongoing challenges in the Chinese EV market and underscores the need for Nidec to navigate a complex landscape to ensure sustained growth and profitability.