September 7, 2018 / 12:34 AM / 19 days ago

Japan's Nidec sees electric vehicles driving profits as it plans for future

KYOTO, Japan (Reuters) - Since starting Nidec in 1973 in a tiny Kyoto shed with just three workers, Shigenobu Nagamori has built it into the world’s top maker of precision motors and became one of Japan’s most venerated business leaders.

Nidec Corp' s CEO Shigenobu Nagamori speaks at an earnings results news conference in Tokyo, Japan, July 25, 2018. REUTERS/Kim Kyung-Hoon

Nagamori guided Nidec past Nissan and Panasonic in market value and helped place its products in everything from cars to smartphones. But the 74-year-old now faces what may be his hardest task: passing the reins.

Analysts say it will be particularly tough at Nidec, where employees and investors are enthralled by Nagamori’s vision, outsized personality and brash confidence.

“I’ve made no mistakes in some 60 acquisitions, not a single one, whereas four out of five M&A deals by Japanese companies fail,” Nagamori told Reuters in an interview.

In February, he took a first step toward succession by announcing that Hiroyuki Yoshimoto, 50, credited for boosting margins at Nidec’s automotive parts unit, would take over as president. But Nagamori remained chief executive and chairman and said he doesn’t plan to resign yet.

Although Yoshimoto is highly regarded - he worked at General Electric Co (GE.N), auto parts maker Calsonic Kansei Corp and Nissan before joining Nidec in 2015 - some investors worry he can’t sustain the company’s growth momentum.

“It won’t be possible for anyone to fill Nagamori-san’s giant shoes entirely,” said Koichiro Hagiwara, an analyst at the research arm of Tokai Tokyo Securities.

At Nidec’s annual shareholders’ meeting in June, one investor took to the microphone to voice his concern.

“I come to the annual meeting because I’m really worried how much longer you can stay in management. I come to check on your complexion, that you’re not looking gaunt,” he said to Nagamori, who advised him to sit closer, earning laughs.

REVERED LEADER

Analysts say Nagamori has an uncanny ability to predict industry trends such as the rise of factory automation and shift to electric vehicles.

That has led to a string of successful acquisitions to swallow up competitors and capitalize on industry trends years in advance.

Such acquisitions included units of conglomerates Hitachi Ltd (6501.T) and Toshiba Corp (6502.T), as well as rivals who couldn’t compete on price.

Nagamori, who still personally approves every deal, said spotting good companies to buy was a difficult skill to teach.

“The most important thing cannot be put in writing or taught at Harvard Business School: intuition. Intuition can be passed on to someone to a certain degree, but not all,” Nagamori said in an interview, sporting eyeglasses with green frames - his lucky color.

Nidec’s over 100,000 employees are known for their loyalty, complying with Nagamori’s often-whimsical edicts.

One year he decided to hire new graduates based on eating competitions. Another year he judged them on how loudly they could read a prepared text.

But there was a reason behind it all, he said: in Nidec’s early days, many applicants were from “third-rate universities with bad grades,” making other qualities like willpower and stamina crucial. He has moved on to more standard practices, he said, as the company attracts more talented students.

Outside the company, he is often compared to other successful entrepreneurs such as SoftBank Group’s (9984.T) Masayoshi Son and Fast Retailing (9983.T) leader Tadashi Yanai.

Both Nagamori and Yanai served on SoftBank’s board, although Nagamori stepped down last year.

BIGGER THAN TOYOTA

Nagamori said he wants Nidec to continue expanding, perhaps taking on Toyota Motor Corp (7203.T), the biggest company on the Tokyo Stock Exchange.

He said an accelerating shift toward electric vehicles should help Nidec as automakers outsource component production.

Nidec, already the top player in electric power steering motors, last year expanded into traction motors, the most important element of an electric vehicle’s powertrain. It has also formed a joint venture with Peugeot carmaker PSA Group to produce traction motors.

The company expects such motors to account for the bulk of the estimated 6 trillion yen ($54 billion) automotive motors market in 2030.

“One day, all vehicles will be equipped with Nidec motors. Nobody believes it now, but it will happen,” Nagamori said.

Analysts said Nidec will face tough competition from megasuppliers such as Bosch, which have strong relationships with global automakers.

But Takumi Sado, analyst at Daiwa Securities, said he liked Nidec’s chances anyway.

“Nidec was a late comer to the market for electric power steering motors, but has already outgrown traditional players such as Denso (6902.T). Nidec is planning to sell its traction motors at very competitive prices. Few can compete with Nidec on costs.”

Nagamori predicts robots will be used everywhere, including autonomous factories, and that each robot will be equipped with multiple Nidec motors.

He sees the company’s sales growing to 10 trillion yen by 2030, almost seven-fold from 1.49 trillion yen last year.

“The best thing founders can do is to live as long as they can and make companies as big as possible before the retirement,” he said.

Reporting by Makiko Yamazaki; Additional reporting by Yoshiyasu Shida; Editing by Ritsuko Ando and Gerry Doyle

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