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I've been saying for years now that Nissan was the most at-risk car company in Japan and potentially globally for bankruptcy. Honestly, a lot of people thought I was crazy. "Nissan bankrupt? Why, that's ridiculous," they said. And honestly, it's all coming true now. You have the facts; here are the numbers and here's why Nissan is in a crisis and why the most likely scenario for Nissan within the next two years is, in fact, bankruptcy. This is not hyperbolic whatsoever. Here is exactly what's about to hit Nissan in 2025. It's way worse than people realize because it's a very complex scenario.
Nissan's debt is rated at junk, and that's why the company is in big trouble. Now, Nissan's CEO has just admitted to this fact. He's admitted that the company basically faked its sales numbers; they basically admitted that they enormously exaggerated how many vehicles they would sell this year. They also admitted that their actual profits will be 70% lower than expected. In fact, Nissan's profits over the last three months were not profits at all; they lost more than $1 million. They have an enormous amount of debt and will likely be incapable of paying that debt back within 12 to 18 months.
Hello, my friends! Welcome to the channel. I'm Sam Evans, and you're watching The Electric Viking. Great to have you with us. Now, let's get straight into this information because Nissan has revealed some information right within the last 24 hours that shows everything is getting really, really bad.
Now, Nissan did say last week that they would fire around 10,000 employees. They also admitted that the company was in trouble. In fact, Nissan said that the company's sales forecasts were overly ambitious and must be adjusted, and that Nissan executives are taking a pay cut of 50%. A 50% pay reduction—that's enormous! They are also selling all of their Mitsubishi shares to try and help them get out of debt, or not get out of debt, but help the company essentially keep the lights on and keep paying the bills. They're going to reduce global production by actual global output by 20%.
So remember, they've got a huge debt burden to pay back, and their sales are shrinking really, really fast. They're reducing global output by 20%, so this is a really crucial time. Now, keep in mind as well, Nissan actually lost about $61 or $62 million over the last three months, and the company has slashed its full-year revenue forecast to $83 billion. It now expects to sell 3.4 million vehicles instead of the 3.8 million it recently predicted.
But all of this doesn't really give you a full picture because Nissan's sales, while they're shrinking—and it's true that they are at a rapid pace—have a record bond maturity wall. What that means is generating cash will be a huge problem. Nissan's debt is rated at junk; they're the only major automaker in the world with their debt rated at junk. The automaker and its group firms have about $1.6 billion of debt due next year, a slight decrease from this year, but that figure will jump in 2026 to $5.6 billion, right at the point when the Chinese auto market will likely be at 90% plus electric. I mean, this year they're already at 56%, and it's rapidly transforming.
Nissan traditionally gets around 40% of its profits from China. If it's not making those profits, as you can see, it's no longer making profits, then how exactly will it pay off a debt bill four times higher than this year's debt in 2026 when it's selling less cars—at least 20% less cars—because it's reducing production by 20%?
Well, here's the thing: the deluge of bond repayments, says Automotive News, will come as the company's debt default insurance climbs to peaks last reached in March 2023, and yield premiums on yen and dollar bonds have risen to the highest levels ever. This year, Nissan's shares have swung wildly in recent days, tumbling after it slashed profit forecasts and well over 9,000 jobs, but jumping after one of the most influential activist investors in Japan took a stake in the company, essentially bailing them out or saving the stock from just collapsing in credit markets.
Speculation that the automaker may be cut to junk grade completely by more ratings firms has damaged investor sentiment. The election of Donald Trump as president also boosts the danger of the U.S. increasing tariffs for exporters. Under current conditions, Nissan may become a fallen angel, and when markets are aware of such a downgrade risk, investors may require special spreads pricing in such risks, said Kentaro Hirai, Chief Credit Analyst at SNBC Nikko Securities Inc.
Debt rating cuts might force Nissan out of investment-grade bond indexes, taking away funds from investors who only put their money in debt that's included in those indices. In other words, this is going to have a lot less access to cash, right? If they've got to pay nearly $6 billion of debt in 2026 and their sales and profits have shrunk immensely, and they have a lot less access to credit, well, it only ends one way, doesn't it?
Nissan has sufficient liquidity at the moment, with $8.3 billion in cash on a net basis in its automobile business as of the end of September, says a company spokesperson. I don't know if that's actually true, though. It has committed credit facilities with major international banks to fund both automobile and sales finance businesses, with more than 1.9 trillion yen available at the end of September. But their interest rates are the highest of any major automaker because of the fact that there is so much risk perceived on the company now after that debt was downgraded to junk.
These banks said, "Yeah, all right, listen, we'll give you a loan, but because there's more risk involved with you, the interest rates will be higher." Then it becomes harder for you to pay back that money; therefore, you'll borrow less. The company has many sources of funds, it says, to repay debt over the next five years, but those sources might shrink pretty quickly.
Now, Nissan has a Baa3 rating from Moody's and a BBB minus from Fitch Ratings, both the lowest investment grade. It doesn't get any worse when it comes to investment grade, while S&P ranks it BB Plus, which is the highest junk score. Bloomberg data shows that all of those ratings have a stable outlook. However, as you know, the automotive industry is rapidly changing and transforming. Last year, or the year before, I believe the Nissan Sylphy was the bestselling car in China; this year, it's barely even relevant.
One concern is that the company's automotive division fell into a deficit in the April to September period in terms of cash flow that can be freely used for investments or to boost shareholder returns, so it's already making a loss. The deficit of more than 440 billion yen in the six-month period was due to a decline in earnings and an increased investment burden, and the company will still need to develop its next-generation technology, such as electric vehicles and autonomous driving, in the coming years.
It's also going to have to write off this 20% reduction, right? That's going to be a significant loss on its books. That means it'll be closing several factories, probably in China and potentially in the United States as well. Nissan also has by far the highest borrowings relative to its earnings among Japanese automakers. I'll repeat that: Nissan has by far the highest borrowings relative to its earnings among Japanese automakers.
Its debt-to-earnings ratio before interest, taxes, depreciation, and amortization (EBITDA) was eight last quarter, according to Bloomberg compiled data. That compares with 4.9 for Toyota, 4.7 for Honda, and an average of 3.3 for companies in the Nikkei 225 Stock Exchange. So if the average in the Nikkei is 3.3 and Nissan's was eight last quarter and is about to hit probably 10 over the next few months, you can see how things are going—they're going bad pretty quickly.
The cost to ensure against debt nonpayment by Nissan rose by 178 basis points earlier this month, the highest since March of 2023. Only three other major Japanese companies have riskier debt in CDS terms, and those companies you've never heard of. Bond prices show similar moves, says Automotive News, with Nissan's 4.8% $230 notes seeing their spreads jumping to as high as 234 basis points, marking a 50 basis point resurgence from their lows this year. Yield premiums on 0.7% 2027 yen bonds issued by a finance unit jumped to around 80 basis points from this year's low of 51.
Basically, what this means is that private equity markets are going, "Hang on a minute, things are not going well, and we can see the future is written." I mean, honestly, guys, what's happening is this: the European Union is banning internal combustion in 2035. Right? Basically, the world, whether you like it or not, if you hate electric cars, is going to EVs. Nobody wants Nissan's electric cars; it doesn't make many of them, and it makes a loss on every one of them that it sells. The company is not in a position to save itself, no matter what it does at this point in time.
Really, the only way out here is if some Chinese conglomerate, BYD or Geely, went and actually bought the company. I see no other alternative. Adding to the worry is that in the United States, one of the major markets for Nissan, the automaker is facing headwinds as Trump has said he wants to crack down on automakers building cars in Mexico by imposing tariffs higher than 200% on vehicles imported from Mexico.
Now, I don't believe that's likely, but I do believe the Trump administration will impose tariffs on cars coming from Mexico, which means the profits Nissan is making on their cars, which they primarily build in Mexico and sell in the United States, are about to be slashed. The country is a key manufacturing base and market for Nissan, and Trump has threatened to boost tariffs on other countries as well.
We need to be a little cautious about our outlook for the automotive industry as a whole, and companies that have had poor performances may be more prone to the impact, said Yuto Misumi, associate director at S&P in Tokyo. In other words, if you're invested in Nissan, now is the time to sell.