The global shortage of semiconductor chips continues to have a profound effect on automakers, which are grappling with supply chain issues as they try to meet consumer demand for vehicles. Like many automakers, Nissan has been forced to cut production of its cars. Fortunately, however, the news wasn’t all bad for the company.
Global Shortage of Semiconductor Chips Creates Automotive Supply Chain Problems
The global shortage of semiconductor chips used in cars has been going on for some time. Initially, this was the result of factory closures in China and elsewhere following the coronavirus (COVID-19) pandemic. Since China is one of the largest producers of semiconductor chips, these shutdowns have had a massive effect on automakers’ ability to produce vehicles. Even after many factories reopened, it was difficult to catch up with chip production to the extent necessary.
Also, things have only gotten worse recently due to the Russian invasion of Ukraine. Ukraine is one of the world’s largest producers of neon, needed for lasers used in the production of semiconductor chips. As Ukrainian cities such as Mariupol have been devastated by the Russian invasion, chip producers who depend on neon exports from these cities have faced even more difficulty manufacturing their products.
Nissan production plummeted
These challenges have resulted in real struggles for automakers, and Nissan has been no exception. As Reuters recently reported, the global shortage of semiconductor chips has driven the company’s output down over the past four years. In the most recent year, the company recorded an 11% decline from the previous year.
Nissan’s COO acknowledged this harsh reality when he commented, “Semiconductor shortages are a new normal, like the pandemic, and we have to live with it, because it won’t end tomorrow morning.
Living with this reality has forced automakers like Nissan to constantly update their planning and forecasts, as unexpected supply chain disruptions upend even the most thoughtful strategies.
Nissan is profitable for the first time in years
Despite all these challenges, the news is not entirely gloomy for Nissan. In fact, Automotive News reported that the company was recently profitable for the first time in three years since the arrest of its last CEO, Carlos Ghosn, in 2019.
In the fiscal year that ended in March, Nissan posted a profit of just over $2 billion, or an operating margin of 2.9%. This represents good progress towards current CEO Makoto Uchida’s goal of a sustainable operating profit margin of 5%. Uchida acknowledged the progress that has been made and more that needs to be made when he announced the earnings news: “Finally, we are at the starting line. Now is the time to deliver greater value and grow the business.
Uchida’s strategy to increase profits has focused on a combination of four tactics: reducing fixed costs, reducing production capacity, launching new products and improving revenue per vehicle. So far, Nissan has implemented this plan by reducing its global capacity by 20%, reducing its number of nameplates by 15% and reducing its fixed costs by more than $2.8 billion. The campaign will run until March 2024, when it will end.
With the results so far, it looks like Nissan’s plan is likely to move the company into a much stronger position in the global auto market. Competitors such as Toyota and Honda may have to keep an eye on Nissan as they aim to remain at the top of the Japanese auto industry.
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