Nissan Motor’s financial troubles deepened recently as its credit rating was downgraded to junk status—a significant setback for the automaker’s turnaround efforts. The downgrade comes just days after Nissan and Honda cancelled their planned merger, further complicating the company’s recovery prospects.

The Downgrade and Financial Struggles

Nissan’s Senior Unsecured Rating was lowered from BBB, the lowest investment-grade rating, to BB. The downgrade reflects the company’s weak profitability, driven by slowing demand for its ageing vehicle lineup. While this decline initially affected Nissan’s performance in China, similar challenges have now emerged in the U.S. market. Additionally, concerns remain over the risks associated with Nissan’s ambitious restructuring plan, which includes substantial job and production cuts.

In November, Nissan announced a restructuring strategy aimed at cutting 9,000 jobs and reducing global production by 20%. Despite these measures, the company’s recovery remains uncertain, especially amid ongoing turbulence in the global automotive industry.

Weak Profitability and Sluggish Recovery

The downgrade also underscores persistent concerns over Nissan’s profitability, which has been under pressure for several years. Analysts predict continued financial struggles with limited near-term improvements. The company’s profit margins remain well below industry benchmarks, raising concerns about its ability to invest in future technologies, particularly electric vehicles.

The broader automotive sector faces significant challenges, including supply chain disruptions, economic headwinds, and rising interest rates—all of which are expected to dampen demand and profitability. Nissan’s financial outlook remains uncertain in this difficult environment.

The Breakdown of the Nissan-Honda Merger

Nissan’s troubles were further compounded by the collapse of its merger talks with Honda. The proposed partnership had been seen as a potential lifeline, offering Nissan an opportunity to stabilise its operations and strengthen its market position. However, with the deal now off the table, Nissan must navigate its challenges alone. Industry experts suggest that the company may need to explore alternative partnerships to bolster its financial health and technological advancements.

Pressures in Key Markets

Beyond its financial struggles, Nissan faces mounting pressures in key global markets. In China—one of its largest markets—sales dropped by 24% in 2023, with little improvement expected in 2024. Given that China accounts for nearly a quarter of Nissan’s total sales, this decline is a major concern. Additionally, in the U.S., Nissan faces potential tariff risks related to its manufacturing operations in Mexico, which could further strain its financial position if trade policies tighten.

Despite these challenges, Nissan maintains substantial liquidity, with over ¥2 trillion in cash and unused credit lines as of December 2024. However, whether this financial cushion will be enough to sustain the company’s ongoing restructuring efforts remains uncertain.

The Road Ahead

With its debt rating now downgraded to junk status and its restructuring plan facing considerable obstacles, Nissan’s future remains unclear. The company continues to grapple with weak profitability, declining sales, and the fallout from its failed merger talks with Honda. While Nissan is actively implementing turnaround strategies, the full impact of these efforts may take years to materialise. Only time will tell whether the automaker can successfully steer itself back toward financial stability and regain investor confidence.