February 8, 2018 / 8:08 AM / 8 months ago

Nissan sees China as its top market by 2022

YOKOHAMA (Reuters) - Nissan Motor Co (7201.T) expects China to become its biggest market in terms of vehicle sales by 2022, Chief Executive Officer Hiroto Saikawa said on Thursday, overtaking the United States where the Japanese automaker is struggling to grow profits.

The logo of Nissan Motor Co is seen at its showroom in Tokyo, Japan February 9, 2017. REUTERS/Toru Hanai

The U.S. auto market posted record high sales in 2016 but growth has slowed since then and Nissan plans to spend the next few years improving profitability there while turning its attention to agressively expanding sales in the world’s biggest car market in China.

“We’re placing strong focus on increasing sales in China by around 1 million units (by 2022),” Saikawa told Reuters after the automaker cut its forecast for full-year operating profit due in part to weakness in the United States.

“It would be difficult to sell the same number of cars in the United States by then.”

With estimates for growth of around 3 percent this year, China’s car market is slowing after years of strong gains amid a government-backed shift towards greener vehicles, but its prospects are still rosier than the U.S. market, where sales are seen falling roughly 2 percent this year.

Earlier this week, Japan’s No. 2 automaker Nissan and its joint-venture partner in China, Dongfeng Motor Group Co (0489.HK) said they planned to boost annual sales in the country to 2.6 million vehicles by 2022 from 1.5 million last year.

Nissan expects vehicle sales in China - currently its No. 2 market generating around 27 percent of global vehicle sales - to increase 12 percent in the year to March 2018. In the U.S., which contributes 29 percent of the group’s vehicle sales, it sees sales inching up 1.2 percent.

U.S. INCENTIVES, INVENTORIES STING

As growth has slowed in the U.S. Nissan has been selling vehicles at bigger discounts than many of its rivals to shift stocks of older models, while also offering incentives on popular models like its Rogue SUV crossover.

That has stung profitability in North America and, along with other hefty costs related to vehicle inspections at home and inventory adjustments, prompted the automaker to downgrade its full-year operating profit on Thursday.

Nissan cut its operating profit forecast by 12 percent for the year ending March to 565 billion yen ($5.15 billion) from 742 billion yen last year. That would mark Nissan’s lowest profit since 2014.

For the third quarter, Nissan said operating profit halved to 82.4 billion yen, much lower than a mean estimate of 154.03 billion yen from nine analysts polled by Thomson Reuters I/B/E/S.

It took a 41.8 billion yen hit on U.S. marketing and sales expenses, which include incentives, while costs related to improper procedures for final vehicle inspections in Japan had a negative impact of 39.6 billion yen.

Operating profit in North America fell 37 percent in part because the company said it was unable to reduce its discounts as planned, due to the need to shift older models as newer ones hit the market.

It expects to sell 5.78 million vehicles in the year to March, down from a previous forecast for 5.83 million units, due to lower sales in Japan and Europe, although it expects stronger sales in China.

A change in U.S. income tax policy late last year resulted in a positive impact of 207.69 billion yen on net profit. This one-time boost would vault net profit to a record high of 705 billion yen for the year, the company said.

Reporting by Naomi Tajitsu and Maki Shiraki; Editing by Christopher Cushing and Elaine Hardcastle

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