Nissan Shares Headed Higher as Pressure for Change Mounts

Nissan Motor NSANY (T:7201) shares are popping in Tokyo on Friday, with word for the second time this week that an activist shareholder has bought into the carmaker.

The typically-staid Tokyo bourse is getting a healthy shakeup, with the owner of 7-Eleven, Seven & i Holdings SVNDY (T:3382), also defending itself against a hostile takeover from the operator of Circle K, Canada-listed Alimentation Couche-Tard ANCTF (T:ATD).

Tokyo-based Seven & i this week said it has received a $58 billion bid proposal from members of its founding Ito family. Couche-Tard last month reportedly sweetened its offer to $47 billion.

Japan stocks have also been given a new lease on life as part of the “Trump trade,” yen weakness against the U.S. dollar goosing the share price of major exporters. But Nissan is a fascinating developing story of its own.

Nissan stock jumped as much as 6.8% on Friday and is up 4.5% at the close in Tokyo, on the back of a report that the activist investor Oasis Management has taken a stake in the company. The Japanese-language magazine Diamond reported that Hong Kong-based Oasis has also bought a minority stake in the company, one that isn’t large enough it must be declared in regulatory filings.

Sound familiar? A very similar situation occurred earlier this week. Nissan shares spiked 15.4% and closed up 12.7% on Tuesday, its biggest leap in 15 years, thanks to a filing demonstrating that the activist investor Effissimo Capital Management had bought a 2.5% stake in Nissan, via a Cayman Islands fund.

Investors are clearly buying into the idea that Effissimo is going to push for shareholder-friendly change at Nissan.

Effissimo is fascinating, a hedge fund based in Singapore but founded in 2006 by Japanese investors Yoichiro Imai and Takashi Kousaka. They are both disciples of Yoshiaki Murakami, one of the earliest and best-known activist investors in Japan. While there are Japan activists within Japan, many opt to base themselves in Singapore or Hong Kong, where the rules are more permissive and they can resist pressure from Japanese officials.

Effissimo has held a stake in Nissan Shatai NSNHF (T:7222), a Nissan affiliate that oversees production, since 2007, early in the fund manager’s existence. Parent Nissan owns 50% of Shatai, while Effissimo is now the largest external shareholder, with 29.7% of shares.

Japan’s largest companies, known as “Japan Inc.,” have often been run with the interests of management, customers, bankers and employees in mind, pretty much in that order, with maximizing returns for shareholders a distant concept. One of the three arrows of “Abenomics” promised to end this cozy collusion between government, management and financiers, one that saw most major Japanese funds side with management or simply not vote on shareholder decisions.

I wrote about Effissimo extensively in 2021, explaining that shareholders at Toshiba, long plagued by an accounting scandal, approved an investigation into prior voting at the company, where Effissimo built itself into the largest investor. The investigation was proposed by Effissimo, the first time such a shareholder-proposed initiative had passed at a major Japanese company. Management fiercely opposed any investigation into, basically, its own activities.

Ultimately, Effissimo toppled top management and directors. The Toshiba investigation found that management had cozily agreed with members of the Japanese government to jointly fight its activist shareholders. The then-CEO had breakfast with Yoshihide Suga, who later became prime minister, to decide that Japan’s Ministry of Economy, Trade and Industry should “beat up” activists led by Singapore-based Effissimo, which built itself into Toshiba’s largest shareholder. Toshiba was ultimately taken private by a group of management-friendly investors in a $14 billion deal at the end of 2023.

Will such a battle now unfold at Nissan?

Nissan has had its own internal battles — you may recall the ousting in 2017 of its reform-minded chairman and CEO Carlos Ghosn, a rare foreign-born executive to take the helm of a Japanese company. Ghosn was arrested in 2018 and dismissed from the board, allegedly for underreporting compensation and using company assets for personal gain. Ghosn fled Japan for Lebanon in 2019 while on bail. Ghosn’s fellow executive Greg Kelly was given a six-month suspended sentence in 2022 on one count, but cleared of all others, in what was seen as a face-saving defeat for prosecutors.

Nissan has continued to struggle. Its shares are down 24.0% year to date despite this week’s gains, at odds with the 14.0% gain in 2024 for the broad-market Topix gauge in Tokyo.

The company’s shares slumped 10.0% last Thursday after the company said it would slash 9,000 jobs and 20% of its manufacturing output around the world. The company is attempting to cut $2.6 billion in costs this fiscal year, blaming a slump in sales in the United States and China.

Granted, it is a tough time for traditional automakers worldwide, with Toyota Motor TM (T:7203) stock up a scant 2.6% in 2024. Mega-cap rival Honda Motor HMC (T:7267) is down 9.7% year-to-date, after reporting a surprise drop in operating profit on Wednesday that it, too, blamed on slowing sales in China.

Toyota in particular has resisted the shift to all-electric vehicles, persisting with hybrids like its Prius model. Even Nissan, which debuted the world’s first all-electric mass market EV with the Leaf in 2010, struggles to fend off competition from a pack of Chinese rivals led by Warren Buffett-backed BYD BYDDY (HK:1211). Notably, BYD shares are up 26.1% so far this year.

While Nissan is losing ground to Chinese-made EVs in China, causing its sales to slump 14.3% there in the first half of the fiscal year through March, it said it misread stronger demand for hybrids in the United States. It has lowered profit forecasts twice this year, with U.S. sales down almost 3%. Combined, U.S. and Chinese sales are almost half of Nissan’s global volume.

It’s unclear if Effissimo wants to exert pressure over the Nissan Shatai subsidiary, or on the group as a whole. Analysts note that Nissan has only introduced a couple of models over the course of the last year, and in June it shuttered production at a plant in Changzhou, in China, due to aggressive price competition.

Nissan does plan to unveil a plug-in hybrid in the 2025 fiscal year, as well as a hybrid version of its Rogue model. That’s part of CEO Makoto Uchida’s stated ambition to add 27 electrified vehicles by 2030.

Nissan has also been buying back its own shares, then cancelling them, from its partner Renault RNLSY (EPA:RNO), a move that boosts shareholder value. The French carmaker, part of a three-way alliance that also includes Mitsubishi Motors MMTOY (T:7211), says it intends to lower what was a 43% holding in Nissan to 15%.

We will have to watch this space, but I anticipate Nissan coming under pressure from activists well into next year, which promises to produce higher share prices and shareholder-friendly reform. In the long run, Nissan is under intense pressure and its bid to electrify its model base can’t come quickly enough. 

At the time of publication, McMillan had no positions in any securities mentioned.