Client Alert Implications of Nissan control over Mitsubishi

Transcription

Client Alert
Implications of Nissan control
over Mitsubishi
15 June 2016
© 2016 LMC Automotive Limited, All Rights Reserved.
www.lmc-auto.com
Executive Summary
Introduction
Mitsubishi Motors has been implicated in a scandal in which fuel economy data reported for Kei Cars (mini vehicles 660cc or
less) in Japan has been shown to have been falsified. This impacts not only Mitsubishi vehicles but also Nissan brand vehicles
produced under a joint venture operated by Mitsubishi. Since the scandal broke, Mitsubishi has admitted to the misreporting
and has also noted that other misreporting has been taking place for up to two decades. The company’s brand had already
suffered damage from a safety cover-up scandal in Japan over a decade ago. As yet undefined costs will inevitably hit the
group in terms of fines, recalls and other reparatory charges. This has been reflected in a collapse in Mitsubishi Motors’
share price and a refusal by other shareholders to commit to a rescue.
Nissan Motor has now publicly stated its intention to acquire control of Mitsubishi potentially securing the company’s future,
but also representing what could be a bargain acquisition for the larger group.
Comment
Nissan Motor’s acquisition of Mitsubishi Motors represents a clear opportunity for both groups. Even before the emissions
scandal broke, Mitsubishi, with production of around one million units per year, was vulnerable to unpredictable events,
risks related to execution of key models and uncompetitive resourcing, relative to the world’s larger OEMs.
We had judged Mitsubishi’s existence as a carmaker as being under serious threat from this latest scandal. Nissan’s arrival as
rescuer, assuming the deal completes, should save the company from the more immediate risks. There are synergistic
opportunities for the groups while also offering potential to expand the Mitsubishi brand and model range. Management
experience of organisational change at Renault-Nissan, something which must be seen to be strong given the relative
success of the Renault-Nissan alliance, is also a positive. The pre-existing collaboration between the Japanese groups,
implying cultural compatibility, offers comfort since cultural issues are often underestimated in mergers or alliances.
Risks
The costs of the scandal are not yet known, though they will, as much as can be expected, be priced into Mitsubishi’s share
price valuation. Competition investigations by regulators will need to be completed and approved, with some risk of as yet
unknown conditions. The new parent group will of course estimate this more fully during due diligence. Execution of plans
after acquisition is also an ever-present risk in these circumstances, though the previous experience of managers within
Renault-Nissan group mitigates significantly against this threat. However, none of these risks currently stand out, in our
opinion, as being worryingly large in terms of either impact or probability.
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Introduction
Timeline
20 April
Nissan discovers fuel efficiency data manipulation by its partner, Mitsubishi, in
cars supplied to both brands by a manufacturing joint venture controlled by
Mitsubishi. Other vehicles, over a longer timescale, are also implicated.
10 May
Under threat of fines, costs of reparations and lost sales, Mitsubishi
shareholders, notably Mitsubishi Heavy Industries, avoids commitment of
financial support. Meanwhile, the share price of Mitsubishi Motors falls by
almost half, indicating concerns over future of company without support.
13 May
Nissan announces, after discussion with Mitsubishi Motors, its intention to
take a controlling (34%) stake in the company for USD 2.2 bn.
Source: LMC Automotive
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Introduction, continued
Timeline
25 May
Signing of a definitive alliance agreement. Transaction close is conditional
upon:
1. approval from authorities on anti-competition concern in all relevant countries,
2. due diligence by Nissan Motor with the expectation of no material adverse effects to
be found,
3. submission of a final report on the investigation of the fuel consumption data by the
special investigation committee.
August (est) Due diligence by Nissan completed.
October
(est)
Transaction closed.
The addition of Mitsubishi to Renault-Nissan volumes form a group that will
increase in size to compete in volume terms with the largest groups in the
world. What does this mean for the newly combined group?
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New alliance: A push to world’s number two
Global Light Vehicle Production
Renault-Nissan, ranked third now, could overtake Toyota Group to become the world’s secondlargest automaker by 2017, after the addition of Mitsubishi.
The addition of Mitsubishi will enable Renault-Nissan to distance itself from Hyundai Group
which has been closing the gap with Renault-Nissan in terms of volume.
The new alliance Renault-Nissan-Mitsubishi could become a real threat to Volkswagen Group’s
leading position. Our forecast expects production of the new alliance at merely 300,000 units
behind VW in 2023.
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Leveraging MMC expertise on Kei cars
Nissan’s Kei Cars Sourced from MMC
% Share of Japan Kei vehicle production
Kei car build: 1.72 mn units
Nissan DAYZ
Kei car build: 1.45 mn units
Nissan DAYZ Roox
Mitsubishi’s Kei car platforms are likely to be one of the key factors in the acquisition interest. Since
Nissan does not currently have Kei car platforms, the reliance of Mitsubishi in this segment is likely to
continue, notwithstanding the fuel economy data reporting scandal. Plans for a Kei-based EV, which
was said to be cancelled after the scandal, are still ongoing. This time, though, Nissan will take a
leading role in developing the model.
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Other product and platform sharing
Although there have been no firm announcements, it is likely that Mitsubishi will join RNPO,
Renault Nissan Purchasing Organisation, to maximize synergies. If this is realized, it is natural for
both OEMs to unify their major platforms and vehicles using existing Mitsubishi platforms could
gradually be switched to Renault-Nissan’s CMF platforms.
There has been some media speculation that Renault-Nissan may not wish to retain the
Mitsubishi brand. However, we think the brand is valuable in some markets, though it has
suffered significant reputational damage in Japan, and Renault-Nissan retain the brand.
Major platforms:
With the exception of Kei cars, Mitsubishi currently has two major platforms, GS/GSG and
M3/M4 platforms. We expect that the models on these platforms could be switched to RenaultNissan’s platforms, or their successor platforms, as new vehicles are planned or existing ones
replaced. Such consolidation can take many years, as we have seen in earlier mergers.
Note that, as Mitsubishi announced that it has stopped the development of the next Lancer in
February 2016, there are not a large number of models whose platforms could be switched.
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Models on GS/GSG platform
There are two possible strategies for vehicles including the Outlander, RVR/Outlander Sport,
ASX and Delica D:5 on the GS/GSG platform.
1.
All of these models could be switched to Renault-Nissan’s CMF CD platform
2.
Judging by their length, the Outlander and Delica D:5 could be switched to RenaultNissan’s P3 and CMF CD platforms, and the slightly smaller RVR/Outlander Sport
and ASX could be switched to the V and CMF B platform.
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Models on M3/M4 platform
M3/M4 platform models are the Mirage and its derivative, the Attrage. If their platform is to be
changed, it will be to the V and CMF B platforms which are mainly used on Nissan March. Both
Nissan March and Mitsubishi Mirage are vehicles participating in the Eco Car program in
Thailand.
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Other major platforms
Triton
Pajero Sport
Navara
New Nissan SUV
There is a high likelihood that Nissan and Mitsubishi will share future pickup truck platforms.
The current generation of both Nissan Navara and Mitsubishi Triton came out in 2014. The next
generation models which could possibly share a platform are scheduled for 2022-2023. Another
vehicle that is built on Mitsubishi’s pickup platform is the Pajero Sport SUV. Nissan is planning a
new SUV based on the Navara in 2017.
Following the discontinuation of the Lancer, Mitsubishi plans to discontinue the Pajero in order
to concentrate their resources to EV, PHV and smaller SUVs. With this, the LP platform is likely to
be phased out.
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Segment coverage: Global Production By Size
Total LV: 8.34 mn units
Mitsubishi lacks products in the small vehicle range particularly in the B-CUV/SUV segment
which is one of the fastest-growing segments and where Renault-Nissan is relatively strong.
There is an opportunity for badge-engineered Mitsubishi vehicles in this segment in markets
where the Mitsubishi brand holds significance.
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Mitsubishi vulnerable geographically
Global LV Production
Global MMC Production
While a strong presence in Asia will continue to be vital for success, this has become a doubleedged sword for Mitsubishi which is too heavily reliant on the region. This concentration, in
Japan in particular, while positive for growth prospects, has left Mitsubishi vulnerable. Japan
alone makes up 48% of its Asian production and 43% of global production.
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Geographically stronger with new alliance
Global LV Production - 2023F
Global LV Production - 2015
Furthermore, on current plans, Mitsubishi’s lack of geographic diversity is expected to worsen
over time.
In an alliance with Renault-Nissan, which has well-balanced global geographic coverage, not
only would Mitsubishi’s limited diversity matter far less, but there would potentially be an
opportunity by way of increased access to, and/or a stronger presence in, other markets such as
Europe, North America and South America.
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Geographic coverage mapping
Renault-Nissan has a more extensive manufacturing presence, albeit through Renault and its
associated brands, which Mitsubishi could potentially leverage for its future expansion.
Algeria
Argentina
Australia
Austria
Belarus
Belgium
Brazil
Bulgaria
Canada
Chile
China
Colombia
Czech Republic
Denmark
Ecuador
Estonia
Finland
France
Germany
Greece
Hungary
India
Indonesia
Iran
Ireland
Italy
Japan
Kazakhstan
Korea
Latvia
Lithuania
R-N
Sales
MMC
Sales
0
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
0
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
0
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
R-N
Production
X
0
0
0
0
0
0
0
0
0
X
0
0
0
0
0
0
0
0
0
0
X
X
X
0
0
X
X
X
0
0
MMC
Production
0
0
0
0
0
0
0
0
0
0
X
0
0
0
0
0
0
0
0
0
0
X
X
0
0
0
X
0
0
0
0
Luxembourg
Malaysia
Mexico
Morocco
Netherlands
New Zealand
Nigeria
Norway
Peru
Philippines
Poland
Portugal
Romania
Russia
Singapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
UK
Ukraine
Uruguay
USA
Uzbekistan
Venezuela
Vietnam
R-N
Sales
MMC
Sales
R-N
Production
MMC
Production
X
X
X
0
X
X
0
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
0
X
X
0
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
0
X
X
0
X
0
0
X
0
0
0
0
0
0
0
X
0
0
0
X
0
0
0
0
0
0
0
X
X
0
0
0
0
0
0
0
X
X
X
X
X
0
0
X
0
0
X
0
0
0
X
0
0
0
X
0
0
0
X
X
0
0
X
0
0
0
0
X
X = country where R-N has presence but MMC doesn’t, X = presence, 0 = no presence
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Risks and opportunities
Risks
Failure to receive regulatory approval on grounds of anti-competition and other
concerns.
Damages and costs associated with fuel-economy data manipulation could be higher
than anticipated including risks of incurring less obvious costs such as compensation
to owners for lower used car value which have fallen by ¥70,000 (US$ 650) on average
for mainstay models since the irregularities were reported.
Company integration risks, though this is somewhat lessened by the fact that both are
Japanese companies and they are long-time partners.
Failure to turn around Mitsubishi is a risk to Renault-Nissan group’s future
performance.
Opportunities
We believe the key benefit and rationale behind Nissan taking shares in Mitsubishi is
volume expansion, taking advantage of the low share price valuation in the immediate
aftermath of the scandal breaking.
Scale effects for Renault-Nissan could increase, with the addition of Mitsubishi
potentially pushing the alliance’s volume to around 10 mn units.
Synergistic benefits in R&D, purchasing and production costs would be obvious targets
for cost reduction and improving profitability.
Source: LMC Automotive, AAD-NET (used car prices)
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Client Alert Implications of Nissan control over Mitsubishi

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