Nissan In Europe: Growing Despite Headwinds - Europe is slated to be the fastest growing EV market in the world. The Leaf is the top-selling electric vehicle in Europe.
Nissan has outperformed the European auto market this year, becoming the top selling Asian OEM in the continent.
Nissan, however, will face challenges in Russia due to the weakness of the ruble, which played a key role in expanding Nissan's operating loss in Europe last year.
Nissan is doing the right thing by tapping the fast-growing EV market in Europe though the LEAF by adding a larger battery to the car to enhance its range.
Europe is slated to be the fastest growing EV market in the world, and by giving an improved product to this market, Nissan should attract more customers.
Nissan's alliance with Renault will allow it to capture growth in the European car market more effectively on the back of the Common Module Family architecture, which will reduce costs.
Europe means a lot to Nissan. By volume, the continent buys about 19% of what Nissan sells worldwide. Fiscal year 2014-15 was the fifth consecutive year growth for Nissan in Europe, with total sales of 740,640 units, an increase of 11.5% from FY 2013-14. And this year too, it looks all set to break its previous sales records.
Strong momentum in EuropeFor instance, in the first half of the year, Nissan's sales in Europe increased 4.3% to 384,726 units. As it announced its record sales in the first six months of 2015, it became the top selling Asian brand in Europe, recording a market share of 4.2%.
Nissan's emergence as the bestselling Asian brand comes on the back of outstanding performance in a number of high volume markets, including the U.K. (+34%), Spain (+18%), and Germany (+11%), where numbers were up versus its main Asian competitor Toyota. In Italy, its passenger car sales grew by more than 23% for the first half of the year.
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Source: Data from Nissan, charts by author
In fact, Nissan's registration growth in Europe in June outpaced the overall industry's growth rate in the continent. However, not everything is rosy for Nissan in the continent as we will shortly see.
The headwindsEarlier this year, Nissan announced operating income of 589.6 billion yen for fiscal year 2014, a 5.2% margin on net revenue of 11.38 trillion yen, led by demand in North America and Western Europe. Adding to the gains was the favorable yen-dollar exchange rate over the period.
But, the company had to witness an operating loss of 25.8 billion yen in FY 2014 in Europe as compared to 23.6 billion yen in the previous year. The higher loss was attributed to the Russian market, where the no-frills Datsun models boosted Nissan's unit sales, but the Ruble's almost 50% plunge in 2014 forced the company from taking orders of some vehicles at the end of last year to keep its profitability intact.
A look at the positives and negatives in the European car marketEurope's car market was up 14.6% in June despite the debt crisis in Greece. This was the biggest monthly increase for the European auto industry since December 2009. This growth is attributed to the weakening euro, new models, and steady economic growth in the continent. Europe's five biggest car markets posted double-digit growth last month after a disappointing May.
Germany was up 12.9%, the U.K. grew 12.9%, France rose 15%, Italy improved 14.4%, and Spain reported an increase of 23.5% in vehicle sales. Moreover, in the first half of this year, new passenger car registrations increased 8.2%, surpassing 7 million units. In comparison, Nissan's registrations have increased 21% so far this year, outpacing the overall industry.
However, such a steep rise in June registrations has been the subject of scrutiny by many analysts who have declared it an outlier. They have warned that self-registrations - a practice whereby dealers register vehicles to themselves - and heavy discounting "continue to distort the true level of demand in many countries." However, ACEA, the European manufacturer's association, has raised its forecast for full-year auto growth from 2% to 5%.
In fact, the European car market is growing at a faster pace than China and the U.S. this year, driven by wage increases and employment gains. However, Nissan might continue facing weakness in the Russian market, as the ruble has started weakening once again after a period of growth earlier in the year. The recent weakness is attributed to Iran's deal with the six other countries regarding oil exports, while economic sanctions against Russia are another problem that Nissan has to contend with.
What will drive Nissan in EuropeNissan, however, has chalked out a smart strategy to tap growth in the European market. The company has built a strong manufacturing presence in Europe, with factories in Sunderland, Spain, and Russia.
In order to tap the European market more effectively, Nissan is in alliance with French automaker Renault since 1999. The partnership is proving to be fruitful every year. In the year 2014-15, the Renault-Nissan Alliance posted record synergies of €3.80 billion, up from €2.87 billion in the previous year. Synergies are generated from cost reductions, cost avoidance, and revenue increases.
The Alliance has built a unique system, known as the Common Module Family (CMF) of modular vehicle architectures that is driving synergies between the two stakeholders. As a result of this architecture, both companies can share parts and design language, which helps them in saving costs. However, a key growth driver for Nissan in Europe will be the LEAF electric car.
Leaf sales in Europe were up 21% to 7,201 units through May. In fact, the Leaf is the top-selling electric vehicle in Europe. This is good news for Nissan investors, since Europe is the fastest growing EV market across the globe. This is good news for Toyota, as the market for hybrid vehicles in Europe is anticipated to grow at a rapid pace going forward and outperform the global growth rate.
It is anticipated that EV sales in Europe were 75,000 units in 2014. Looking ahead, sales of EVs in Europe are expected to increase to 775,000 units by 2020, more than 10 times as compared to last year. The following chart indicates that EV sales in Europe will remain robust growing forward:
Now, in order to tap this fast-growing EV market, Nissan is making improvements to the LEAF by increasing its range. As reported by Day Herald:
"According to Automotive News, a long-range 2016 Nissan Leaf could be launching soon. However, keep in mind that this longer-model isn't going to be a 2017 or 2018th edition.
In fact, it will be a new update to the long-running Nissan Leaf, introduced in 2010. Automotive News further details that the new battery will have a 30 kWh capacity which is an improvement over 2015's 24kWh."
Thus, by improving the LEAF's battery size by 25%, Nissan will be able to attract more customers by reducing range anxiety. This will help the company increase sales of this vehicle going forward, and allow it to tap a greater proportion of the European EV market.
ConclusionNissan has been able to outperform the European auto market by leaps and bounds in 2015. Looking ahead, this trend will continue, especially due to its Nissan LEAF electric vehicle. Moreover, the company's alliance with Renault will act as a driver for its bottom line performance. Thus, driven by its strong performance in Europe, Nissan can continue getting better in the long run as the continent contributes close to 20% of its overall volumes, as mentioned earlier. |
