By Daniel Leussink and Maki Shiraki
TOKYO (Reuters) – One of the biggest casualties of Donald Trump’s potential tariffs on Mexico and Canada is likely to be the Japanese automaker that can least afford the pain: Nissan.
While it’s unclear whether the U.S. President will follow through with his promised 25% levies after agreeing to a 30-day pause on Monday, the blowback would be profound for Japan’s No.3 carmaker, which is struggling to turn itself around and is in talks to merge with Honda.
The U.S. is the top market by vehicle sales for Nissan and bigger rivals Toyota and Honda. All three Japanese automakers make some of their most popular U.S. models in either Canada or Mexico. As such, the impact of the tariffs would be significant for all three, analysts and industry experts say.
But Toyota and Honda are better prepared to ride out the tariffs – both in terms of their finances and their ability to hike prices, and pass on some of the tariff costs to consumers.
“The problem is Nissan, which is basically barely making money in the automotive business,” said James Hong, head of mobility research at Macquarie. Many of the models it builds in Mexico for export to the U.S. are more compact cars like the Sentra and Kicks, which are targeted at cost-conscious consumers who can’t easily absorb higher prices.
“The longer the tariff stays, I think it can be quite a big threat for Nissan. And eventually, if the merger actually goes through, then it can be a burden to Honda as well.”
Nissan did not immediately respond to a request for comment. The company said on Jan. 22 it could not speculate on potential policy changes and their impact, but that it remained focused on delivering quality vehicles and would adapt as needed.
Hong estimates that Nissan would face a complete wipe-out in operating profit unless it took action in response to the tariffs – such as re-routing Mexican-made cars to other markets such as Brazil, raising prices or lowering production.
Nissan sources about 27% of its U.S. sales from Mexico, compared to almost 13% at Honda and 8% at Toyota, according to S&P Global Mobility.
Germany’s Volkswagen, which like Nissan has a long history in Mexico, has some of the biggest exposure, with 43% of its U.S. sales sourced from Mexico, S&P Global Mobility estimates.
FRESH BURDEN
For Japan’s automakers, Trump’s move would turn what has long been a stronghold for the industry – a low-cost production base near the U.S. – into a fresh burden.
Nissan has been producing cars in Mexico since 1966, when it opened its first manufacturing plant outside Japan. Toyota, Honda and Mazda eventually followed. Nissan didn’t open a plant in the U.S. until 1983 with its facility in Smyrna, Tennessee.
“In the case of reasonably priced cars, if the full tariff gets added to the price, consumers are not going to want to buy. So for example 10% gets added to the price of the car and the rest is shouldered by the company,” said an executive at one Japanese automaker that was not Nissan.
Since production could not be easily stopped in Mexico, another option would be to sell the cars made there to markets in Latin America or elsewhere, the executive added, declining to be identified because of the sensitivity of the issue.
The problem for Japanese automakers has not been lost on South Korean rival Hyundai, which does not have any plants in Mexico or Canada.
Even if Trump introduced tariffs on all markets outside the U.S., the South Korean automaker doesn’t expect to be hit as hard as Japanese rivals, Hyundai’s CFO said during a recent conference call.
The threat of tariffs also casts a shadow over Nissan’s planned tie up with Honda.
“This complicates an already difficult-to-execute merger,” said Christopher Richter, senior Japan autos analyst at brokerage CLSA.
Nissan and Honda are due to announce more details about their proposed deal by the middle of this month.
The two are aiming to tie up by 2026, in what would mark a historic pivot for Japan’s auto industry and underline the threat Chinese EV makers now pose to legacy carmakers.
The tie-up also comes as Nissan has been battered by slumping sales in the U.S. and China. In November, it announced a plan to cut 9,000 jobs and 20% of its global production capacity.
Honda CEO Toshihiro Mibe has said that Nissan’s turnaround was a prerequisite for the merger – and that Honda was not rescuing Nissan.
Nissan’s junior partner, Mitsubishi Motors, is considering not joining the merger, sources have said, marking another complicating factor for the plan.
Given the disruption facing the auto industry globally, the tariffs couldn’t come at a more inopportune time for most automakers.
“Mr. Trump doesn’t seem to get that you can’t change automotive production overnight,” said CLSA’s Richter.
“In the meantime, they’re going to try and charge the consumer as much as they can to offset that and eat as little of the tariff as possible.”
(Reporting by Daniel Leussink and Maki Shiraki. Additional reporting by Hyun Joo Jin in Seoul. Writing by David Dolan. Editing by Mark Potter)
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