MarketLine Blog

Nissan $9.5bn China investment: Scale of spending required to stay relevant in world’s largest car market

Whilst Nissan is not regarded as being a member of the top-tier car manufacturers – the likes of Volkswagen Group and Mercedes Benz are much larger – that has not stopped the company from pumping $9.5bn into car manufacturing in China. Such investments are now essential, particularly for the less popular global brands.

The move represents significant ambition from the Japanese car maker: Toyota, recently the second largest player in the Chinese market, is declining in China and an opportunity exists for Nissan to climb up the hierarchy. Large investments are required to be a leading player in the Chinese market. From that perspective the recently announced decision not only makes good business sense but is essential to ensure Nissan is not left behind during what is a period of fundamental change within the automotive industry.

Born out of the ‘Triple One’ strategy, substantial investment into electric vehicles and a no-frills economy brand could elevate the long-term fortunes of the company. Governments around the world are seeking to encourage the sale of electric vehicles and reduce pollutants from the roads. The Chinese government is especially aggressive in this regard. Companies not able or willing to abide by stringent rules will have the business environment made very difficult to operate in. During what is a period of major change substantial investments are required by the Nissan board to keep the company relevant to leading car markets.

Failure to invest on the scale announced would likely have the impact of inciting a long-term decline in the brand as a force in Chinese car sales. Motivations underpinning the development of stricter environmental regulations on what car manufacturers must sell are not going to fade, meaning car companies must keep up a rapid pace of product development, and that demands big investments of the nature Nissan has announced.

Big money is required to keep pace with rivals. Volkswagen plans to invest approximately $11bn in electric vehicle technology in China by 2025 – other leading car companies are making similar investments. Even the German giant has publically admitted to having to work ‘at full speed’ to produce the volume of vehicles needed. When the pace of change is so rapid that a massive global player is being stretched to meet the demands placed upon the company, it is a clear sign that to play in the Chinese market foreign companies must plough in vast sums of money. From that perspective, the investment is a sound business decision.

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