Nidec Earnings: Change in EV Traction Motor Strategy Is Negative, but the Market Is Too Pessimistic

Although Nidec’s 6594 September quarter results were in line with our expectations, we lower our fair value estimate for Nidec to JPY 8,000 from JPY 9,000 due to the lower outlook for its EV traction motor business. Nidec lowered its EV traction motor shipment assumption for fiscal 2023 (ending March 2024) to 350,000 from 949,000 at the beginning of this fiscal year and withdrew its ambitious target for the traction motor business to turn profitable this fiscal year, instead guiding an operating loss of JPY 15 billion. Noting that all motor suppliers to Chinese EV manufacturers are currently making losses from the business due to intensifying price competition, Nidec announced that it will be more selective in placing orders to protect profitability for the time being and will increase R&D spending to accelerate the development of new products. This change in strategy supports our concern expressed in our previous report that Nidec may not be able to keep up with the intensifying competition in the Chinese market. Based on this, we are lowering our operating income assumptions for the traction motor business and lowering our long-term growth rate assumption.

Nidec’s stock fell about 10% on the day after the earnings results due to the disappointment over Nidec’s strategy change in the EV traction motor business, which had been expected to become the long-term growth driver. However, we believe that the market is ignoring that the EV traction motor is still only a fraction of Nidec’s sales and is too pessimistic about the growth potential of other businesses underpinned by the increasing demand for energy-efficient motors. Meanwhile, we note that it may take time for the new president, who will be appointed in April 2024, to get a full picture of the company, as Nidec has grown through many acquisitions. As a result, we are concerned that business decisions may be slower for the time being.