Nissan: A Prelude to Tesla's Demise

Chasing volume growth, skimping on new model development, and overbuilding capacity is what blew Nissan's earnings up last year. Tesla's similarities with Nissan are remarkable.

• Nissan Motor is currently in financial distress for the second time in 26 years and is in search of an “anchor investor” after merger talks with Honda fell apart in February. This is all due to its weak model lineup, which led to $4.4 billion of losses and $1.6 billion in cash burn last year.

• Tesla is following in Nissan’s path, but prospects look worse: Aside from the Cybercab—a robotaxi that may not be street-legal based on its design—Tesla has nothing in its new product pipeline for the foreseeable future. While Tesla plans to launch two cheaper, stripped-down versions of its Model Y and Model 3, this may not only lead to lower margins but also cannibalize the original versions, which are more profitable.

• Discounts lead to lease write-downs: The use of heavy discounts in the past has destroyed the resale value of Nissan’s cars, and frequent write-downs on its leased vehicle fleet, including last year. Tesla should soon see similar problems in light of its used-car prices being 58% below their July 2022 peak.

• Capacity utilization of 57% led to huge losses and cash burn last year: Nissan saw a $4.4 billion net loss in FY2024 as capacity utilization dropped to 57% from 63% in the previous year. Tesla’s capacity utilization in the 1H of 2025 was only 55%, yet its operating loss of $0.2 billion (ex-credits) was minimal, and free cash flow was positive. Given the removal of ZEV credits in the US from Q3 due to Trump’s recent budget bill killing the program, cash burn is increasingly likely.

• Nissan sees its $11 billion of net cash running out by March 2026: With no significant new models until late 2026, internal documents viewed by Bloomberg showed that Nissan expects its automotive net cash of $11 billion to go to zero by March 2026. Nissan recently issued $5 billion in debt (mostly junk bonds) and asked suppliers to accept late payments. While Tesla has $37 billion of cash and equivalents, this could unwind very quickly given Tesla’s high leverage to just 2 models and huge vertical integration. Both of these factors enhanced profitability when prices and volumes were rising through 2022, but should lead to bigger downside now that both prices and volumes are falling.

• Nissan’s former CEO went to jail and now lives in exile: On a less serious note, another similarity between Tesla and Nissan is their CEOs both getting into trouble with the law. While Nissan’s ex-CEO, Carlos Ghosn, went to jail in Japan on charges of understating his income over 5 years through 2015 (this was never proven), he hired an ex-US special forces member to lead his escape from Japan to Lebanon. Musk was charged—but not fired—for securities fraud in 2018.

Nissan Should Be a Case Study For Tesla

Nissan is heading towards insolvency for the second time in 26 years, but there’s no one like Renault coming to bail it out this time. The alarm was sounded last November, after Nissan had two consecutive quarters of huge cash burn and a 12% drop in automotive net cash. At that time, a senior Nissan official told the Financial Times, “We have 12 or 14 months to survive” (link here).

There was hope in late December, though, as Nissan and Honda announced they were entering merger talks. However, less than 2 months later, in February, Nissan walked away as Honda said they’d only be interested in merging if Nissan agreed to become a Honda subsidiary. It was a foolish decision by Nissan, as internal documents viewed by Bloomberg showed that Nissan now expects its automotive net cash of $10.2 billion to run out by March 2026 (article here).

The CEO who chose pride over survival by walking away from Honda stepped down in March, and Nissan is now issuing $5 billion in debt ($1 billion in convertible bonds and $4 billion in junk bonds) and has asked suppliers to take late payments. Nissan’s new CEO, Ivan Espinosa, is restructuring the carmaker by shrinking it: Seven of its 15 factories will be closed, which will reduce global capacity by 30% to 2.5 million vehicles (slightly smaller than Tesla).

Musk is leading Tesla down a path that is remarkably similar to Nissan’s. These are the key signs:

1. Focusing on volume growth rather than profitability: While Tesla’s deliveries last year were 35% higher than when it reached peak earnings in 2022, EPS last year was down 41% since then, and Tesla’s operating margin was only 3.8%, ex-credits, versus 2022’s peak of 15.2%.

2. Expanding capacity to excessive levels to reach higher sales: Amid spiraling deliveries, Tesla’s 1H 2025 capacity utilization was only 55%.

3. Using discounts to keep factories running, but destroying brand value in the process: Tesla’s average car prices have been slashed by 26% since their Q3 2022 peak, while its used-car prices have plunged by 58%; lease write-downs may be unavoidable.

4. Skimping on new models to save on R&D and winding up with a stale lineup that needs discounts even more: Tesla’s R&D/sales including AI investments, was only 4.2% over the past 3 years versus the industry average of 5.5%.

Many of the factors above were also behind the bankruptcies of GM and Chrysler in 2009, but there’s one major difference that sets Tesla apart: No other distressed carmaker had a celebrity CEO who drove customers away because of his active involvement in politics.

Unless Tesla can generate profits from its robotaxi ambitions soon—increasingly doubtful after the bad rollout in Austin since June 22nd—Tesla has no new models to keep its excess capacity afloat. Figure 1 shows the relationship between capacity utilization and profitability at Nissan and Tesla.

While accounting standards differ between the two, Tesla is already showing signs of being in the same boat as Nissan (see Figure 14 below), as it saw record-low capacity utilization of 55% in the first half of this year. Tesla’s $10 billion Austin factory ran at a mere 35% of capacity in the 1H of 2025, while its $5 billion German plant ran at only 52% of capacity. Both have never operated at over 55% capacity since they started production in Q2 2022.

Both plants are nearly 100% devoted to the Model Y, which is a 5-year-old compact SUV and is rapidly becoming “old tech”, especially in China, where more advanced EVs are being launched at a blistering pace.

Figure 1: Capacity Utilization & Profitability at Nissan and Tesla

Source: Company data & Bloomberg.

This report is about how Nissan blew itself up twice in 26 years, but it also shows how Tesla is following Nissan down the exact same path, given how many of the same mistakes Musk has made. The breakdown is as follows:

Part 1: Why Nissan Was Rescued By Renault in 1999

Part 2: How Things Went Awry at Nissan: Chasing Volume Growth

Part 3: How Nissan Imploded Again in 2024

Part 4: Tesla is on Nissan’s Trajectory and Could Be Worse

Epilogue: Potential Landmines in Tesla’s Financials