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CNBC Transcript: Makoto Uchida, CEO, Nissan

Below is the transcript of an exclusive CNBC interview with Makoto Uchida, CEO, Nissan. If you choose to use anything, please attribute to CNBC and Julianna Tatelbaum.

Julianna Tatelbaum (JT): Thank you so much, sir, for joining us for the CNBC conversation. So, let's kick off with your new strategy that you announced in March. How would you describe the new direction for Nissan?

Makoto Uchida (MU): Well, first of all, thank you for the question and for us we really need to transform ourselves. That's one of the announcements we made on the last week called "Nissan Next". So, what is a goal output that we expect is we want to have sustainable profit and that we must honestly address on the area of underperformance and pullback from the area that the previous overexpansion that has been done in Nissan. So, this means we need to optimize our production at an appropriate level and also the operation while enhancing operational efficiency. And it also means that we are going to prioritize ourselves which market that we further can be able to grow. And this is a building around the product and market and technologies where the Nissan can be truly successful and taking our market focus as one the examples, we are prioritizing further sustainable growth mainly in Japan, China and the US and because these markets are where Nissan has a strong presence on which we can build and have competitive advantage in segments such as SUV pickup in new technology and AVs where the leaf is the word highest volume zero emission car and autonomous drive, namely the proPILOT.

JT: And part of your new strategy is around a restructuring of the alliance and the new strategy, focusing now on this leader follower model, which effectively means Nissan will retreat from Europe and Renault from Asia and course so a little bit more than that. How do you ensure that the alliance will develop and grow under this new model?

MU: Well, let me put it this way. When I took over the CEO position in December, I've always been saying that the alliance should be a competitive tool for each company, which means that the alliance synergy should make a contribution to each company in terms of the revenue and in terms of the profit. And we look back at what is still a good way of working in the alliance and whether that we can further leading accounts [inaudible]. And we came to the conclusion together with Mr. Senard, who is the chairman of the alliance and my partner in Renault Clotilde [Delbos]. And Mitzubishi's Masukosan and myself, well, we started to further enhance the name, especially on the engineering competence that each company has and also the model that each company can lead. And for Nissan, if I take one example, like in Europe, we want to maintain or sustain ourselves in Europe as a brand. Then how to sustain it is what Nissan has to decide. So, we will make our strategy first and we will think about our product lineup, how that could be satisfied. First, who is our customer? Then we are the area that I can get benefit from the support from the alliance, especially from the Renault in Europe. So, this is how we are working and also in ASEAN we will do the same with Mitsubishi. And of course, the Nissan has a good expertise and potential further to grow in U.S. and Japan and China, where we can also support our partner Renault and the Mitsubishi. So, this is how we are forming. And again, our goal is how each company can make out a steady growth in their respective that vision and that where the alliance is going to contribute.

JT: What if it doesn't go exactly as you hope it does, as some analysts have called this a "last roll of the dice" when it comes to your collaboration with your alliance partners. So, what if this collaboration doesn't go smoothly? Where does that leave Nissan?

MU: Of course, when we go along definitely there'll be a lot of a challenges. But again, I want to emphasize the point that the alliance should be a competitiveness asset for each company and how we can use those assets to make each company grow is a key point. So, we have a very close communication. We called the Alliance operational board every month where we put everything on the table very transparently, because let me remind that the alliance mind set is that we should have transparency on everything with each other and how we can make sure to respect and how we can trust each other. If we cannot trust those, then how we can bring those that each business for the benefit of each company. So therefore, I'm very confident that on the way that we have further to grow definitely there's a lot of the healthy discussion that we may foresee [challenges] but at the end we'll be able to overcome and that could be beneficial for each company, which we have been doing that for the past 20 years. So, the alliance is not like a stagnant phase today. Rather, we are reinforcing and enhancing more how alliance can contribute to each company, so that is something I really can express here and that I really would like to further explain to the market how we can make sure those assets to be utilized.

JT: And when it comes to your specific plans at Nissan outside of the alliance, part of this transformation that you've unfolded here involves a pretty significant capacity reduction as well as plant closures. Would be great IF you can give us a little bit more detail on how you think about your cost base in Europe specifically and also the specific decision to close your Barcelona plant and keep open your Sunderland as your production base.

MU: Okay. First of all, I would like to touch a little bit about the situation where Nissan needs to transform ourselves. So, when we talk about transformation, we need to look back at what went wrong in the past strategy and how we can restore ourselves on a steady growth path. So, this is the most important. But in order to do so, by knowing that we had quite a push of the volume as our first priority of the strategy before we want to look back, what would be the level that we can do or perform in the future, especially under this COVID situation every automotive industry has been disrupted and also this has a lot of influence. So therefore, we are looking at first of all, to say FY20 our TIB could go down, year on year at the range of 15 to 20 percent and then how each pocket can recover on the TIB is something that we already simulated. Then one of the areas that we believe is how we can control the cost. Cost means the fixed cost and the valuable cost. When it comes to the fixed cost, we need to kind of make ourselves to be a right size at the area that makes the equation profitable for the company. And one of the areas that we help pursue is that how we can have the right size our production capacity with the efficiency of the operation. And as I made the announcement last week, we have started the decision already on the Indonesia plant closure. We intend to close on Barcelona. That's where we are starting to right-size. So, these are the areas that we are focusing where that the cost we can control first. Then how does those can bridge to the steady growth where that new vehicle is coming that the strategy we are taking is to have more with a quality of the sales while revenue enhancement per vehicle on the core model and that should these to the growth for each region, the market that we exist and how we can make sure our presence to be there. So, this is as our - I would say - priority and the focusing area that we have announced last week and that definitely this is not yet a mid-term plan, rather, we call that "Nissan Next". So that means for the next two years, under the difficult situation, what we have to prioritize is how we can make sure we are on the path of growth.

JT: Well, when you talk about right sizing, what kind of numbers are we talking about here when it comes to the number of potential job cuts, production line cuts?

MU: Yeah, so as you have heard our presentation, we are making ourselves to - let's say we have existing capacity of seven point two million units of production. Then that would go down to the six million, which would represent about a 20 percent reduction. But this would have flexibility, further, because we are counting that on the three shift and then when it comes to two shift, that means five point four at the next three years down the road. Then that has a flexibility of up to six million where that if we could further perform with our new vehicles and the opportunity growth of the volume, that should be able to cover in terms of the production.

JT: Let's talk a little bit about how COVID19 has affected your business. Can you talk us through the way you've adapted both in terms of short term measures you've taken, as well as medium term measures that you're currently taking to try to position your business to be able to weather this storm effectively?

MU: Yeah. Again, I would say that COVID19 has clearly disrupted our industry and automotive group has very much been influenced by this crisis. But first, our priorities are definitely the human and health care. So how we can make sure our employees and our wider global networks, suppliers, partners could be safe. This is my first priority and is where the company is focusing on. But in the meanwhile, how we can make sure to go through this crisis is the kind of the daily operation that we are measuring in terms of our cash position and to make sure that while cash the cash in by the revenue, is limited under this crisis, how we can control the cash out. And this kind of management has been done weekly, including myself and we as Nissan are trying to go through this difficult pass. Definitely the working style has changed because this is more on the remote access from the home. One the area that they would like to highlight is at this time, the Covid that what you see on the TV is a reality that you're feeling. So this is something that we have to bear in our mind that we probably would have to further anticipate this situation and how we can live with that is going to be one of the area that we as a company has to face and how we can live together under this difficult circumstances in the right manner will be one of the key. And that this is I would say on one side is a lesson to learn and that we should be able to progress ourself to more efficient ways under the circumstances.

JT: Let's look a little bit beyond Nissan now at how the pandemic could affect the broader auto industry and potentially change consumer behavior around autos. Do you think this could lead to potentially to more buying of cars as people now are more acutely aware of the risks of using public transportation? How is the pandemic poised to affect the broader auto industry?

MU: At this moment, I very difficult to say what will be because we are still in the middle of this situation, but definitely digital sales would be more enhanced, and people have their own individual mobility priority might come faster than what we expect. So, this could be another area that Nissan can further make our service to good for the customer. So, I think the industry itself would, as you may be aware, that the evolution of the industry is coming very fast in terms of the case of mobility service, that's what we are seeing in the past. But this COVID situation may even accelerate that the speed of those needs would come in the future much faster than we would expect. This is my personal feeling. And this is something that we need to anticipate. And what value our company and you can give to the customer is going to be most important for us.

JT: That's really interesting. So, your view, your outlook on the auto industry and the recovery that we could see has actually improved somewhat on the back of what we've seen develop with the pandemic?

MU: Well, I would say the both way that we need to anticipate past the COVID situation and how we can flexibly to adapt ourselves towards that would be most key. I would not say that will be improved. I would say that we need to have a flexibility on the circumstances that we are going to face continuously, probably. Then how we can live with that is going to be a most important.

JT: Now, governments globally have been trying to encourage the transition to electric vehicles. We've seen it in the European Commission's recent proposal around it's a recovery fund. We've also seen it here in the U.K., in London with the ultra-low emission zones. How do you make sure that you're ready as a company and prepared for the increase in demand and technology needed for this new class of vehicles?

MU: Yeah, I would say that this is going to be quite challenging from the automotive industry point of view, because more and more I think that regulations will be more challenging for each company. So definitely. The way of our business may change, the way of our sourcing may change. For instance, how are we going to further develop our business scheme with our partners and suppliers? So, this would be a need to further adapt towards the journey that we will probably have to face. Because definitely if we were to meet the regulation there would be some certain costs. But would that be possible for the customer to pay? I would say no. Then how can we make sure that we can give the competitive value or service to the customer? And in order to do that, we need to probably to change the way of working with our partner when it comes to the supplier to adapt. So, this is a turning point that we really need to focus how we can make sure we adapt ourselves to that.

JT: Now, another big topic when we talk about the future of the auto industry is mobility. I'm curious your thoughts on the decision of some of the U.S. players to focus more on mobility and automobiles as a service as opposed to a product.

MU: Yes, definitely when you talk about mobility service in the future, this is area that we also are looking for it and that we do have partnerships that have already started working on this like Waymo and some other companies in each respected region. So, again, what will be the speed in which the mobility service would come? And definitely, automotive companies like Nissan cannot think this as our own business scheme. We need to think of the support on the partner in the future. And that's the area that we are also focusing. And as such, how we can further provide our strength for the Nissan, which means we have a lot of experience coming from the EV, which is represented by the Leaf again, and that we have autonomous drive technology that Nissan has already demonstrated to the customer. So, our mission is how we can link those two to provide to the service to the customer in the future when it comes to the mobility service. So, this is area that we are also looking at and very challenging that we need to think on the future.

JT: So, should we expect Nissan to get more involved, more partnerships with tech players specifically?

MU: Again, this is very open for me. Definitely, when that comes to be our benefit in the future. Definitely. We would like to further those things, but we need to make sure to too first grow our strengths in our core competence. Then, further, how we can link our technology or strengths towards to this mobility services area that we are still tackling, to be very honest.

JT: I'd love to dive into your different regional focuses now - you've highlighted how moving forward Nissan is going to really hone in on China, North America and Japan and Europe will be left more to your alliance partner, Renault. So, kicking off of China, in your last role, you led Nissan's China business where you expanded Nissan's presence greatly in the region. Where do you see the China business heading in the future?

MU: Well, China I would say this way for my experience. I would say five years ago, when we bring the global product from, let's say in Japan or US to China, we could expect the natural growth of the sales. But now that Chinese customer is changing, I would say that before it was more on the first time buyer but now shift to the second time buyer, and if you ask a Chinese customer today who is driving, say, a compact car, like a A or a B segment, well, with the car of the future, they will go to a C or a D, much higher. So, the speed of the customer need is moving much faster than we expect. So, we need to focus in China. We call in the company to "design to market": How we can make sure our product to be designed to market for the customer, and the "time to market" and the time to market is very important in China, in terms of the speed. So, this is an area that that we have further to focus because today we have a very strong foundation with our partner in China. And the point is how we can make sure we can flexibly adapt to the speed of the China to further to provide our value to the customer. So, China is a very interesting region, but the speed is a key. Then we must make sure do we cope with that. We have to make sure that we are not going to be late to this.

JT: And we know that the Chinese government has been instrumental in steering the auto industry when it comes to things like subsidies for certain vehicles. What's your expectation for how a stimulus may evolve in China with regards to the auto sector?

MU: Well, I'm not in a position to comment about the trade war between the governments, but differently China would move probably quicker when it comes to the mobility service. For instance, if you talk about connectivity, when I was in China, the customer's expectation of the feature and the connectivity was much, much faster than what we expect. So, I think that is one of the challenge or beauty of China. And we really need to be cautious and we need to be ready to to adapt towards that. And I'm sure that the there's still potential growth in China when it comes to the mobility. Then there's a lot of the potential that we can foresee. So I'm very excited to see what will be the next area that we need to focus on in China, where we have a very strong fundament foundation today and how we can make sure to those to be a goal.

JT: And the U.S. - another part of your plan is to prioritize the US as part of your core markets. How are you going about rebuilding the quality of your business in the United States? What are you going to do differently now than you've done in the recent past?

MU: Yeah. So, if we talk about the U.S., definitely we need to look back. What went wrong in our operation? We were a little bit very much focused on the volume, which was not the right way at the end because it has affected the brand itself. So the way we are shifting is we call that the quarter of the sales enhancement, and we shifted quite quickly so therefore, in the third quarter, when I talk about the financial Nissan announcement, we were not out the expected speed in terms of the our profitability. What was wrong was in the direction of our strategy? Now we had a lot of the debate and one of the weak areas I think was our engagement with our partners and leadership. So, starting from the last February when we started to have this new consensus that this value has satisfied our partner and we have more close relations with dealer engagement, we started picking up our growth of revenue per unit. So this is a first the demonstration we foresee then we have to make sure how the new for instance, like we have a new low replacement, the extra is coming in US and how we can make sure that the value of Nissan can be secure in the future. So, I would say still a bit early to say when the US can be really on the recovery, on our operation, knowing that the COVID situation is also a little bit uncertain. But definitely, we are on the right direction. And I am very much looking forward to making sure we can restore our brand image in the US and as well as a partnership with our dealer. Of course, the partnership when I say it is with suppliers as well and to have the right path, on track, in the US.

JT: Right. Let's come on to Japan. I'm curious about your new strategy here. It's effectively rediscovering your home market. Nissan historically had been really driven by global expansion. And some critics would say that it was at the expense of your home market, that you neglected the Japanese market to some extent. Just how much opportunity is there in Japan now and what's the timeframe for ramping up this business?

MU: So, Japan is our home market and we need to definitely rebuild. And it is true that we need to admit that our new car introduction Japan in the past 18 months was quite known. We already have a new lineup coming. And as we expand every year that we have a new product coming at at the right speed and right product, I'm very sure that the home market can rebuild in terms of how our presence. I would also like to reinforce my statement that Nissan always demonstrated our new technology in Japan. Starting with the leaf, starting with our autonomous proPILOT. So, we really need success in Japan market. Or, what does it mean by Nissan in Japan [inaudible] and that would be definitely to be spread to the other regions. So, we are very much focused on Japan and I'm quite confident that we can get our strong presence back in Japan because Japan is a home market and we have to make sure that to be further demonstrated.

JT: How do you want to be known in Japan relative to your competitors, Toyota, for example? What do you want me son to be known for in the future?

MU: Well, Nissan - we always had innovation. And I think in terms of the innovation Nissan still has a lot of strengths in this country. I believe that people would feel excited about the Nissan product and that this is something that we have to keep on delivering to the customer. And that is our mission we have to do in Japan to make sure that we provide something exciting that the customer feels for the customer, for the human being. So, this is area that I am looking, and I really would like to drive the company in Japan in that direction to make sure that Nissan will be well acknowledged in Japan as a Japanese company on the Japanese product.

JT: Now, there have been several high-profile corporate scandals in Japan over the last decade. A couple of, you know, airbag maker Takata Toshiba, your company with Carlos Ghosn saga that unfolded last year. This has raised questions about corporate governance in Japan. In your view, is there a systemic issue in Japanese corporate culture?

MU: Well, if I say no, because the if you look at the Nissan, this was kind of unique, I think we had admitted in the past. Therefore, we went to this governance of corporate governance. This is today. We have a very good governance in place. Monthly, I'm in this board and they make sure that our board of directors at the governance are monitoring our corporate execution. So, I think this is moving in the right direction and I don't feel any issue that we will foresee. And I think it is moving to the right direction for the corporate governance in Japan, for Nissan Company itself.

JT: In Nissan itself, how do you think employees, customers and your suppliers are feeling now that Carlos Ghosn has departed the company and he was really a titan and not only of Nissan, but the global car industry?

MU: Yes. I would rather talk about what I have to do in Nissan for the future. So I would say when I became CEO, I said that the I intend to build the corporate culture where we listen to the customers, dealers and suppliers and the whole wide range of the stakeholders in and outside of the organization, this is a culture where different opinions are welcome. And to restore the culture through the company we have a lot of the meaning as we call the Nissan-ness or the Nissan way that we already implemented, which guide our approach to work. I will lead making sure this entire organization embrace these changes. And I really would like to say I want to make sure our employee feels proud to be walking for Nissan. This is what I really have to make sure. So, whilst we have this internal confidence, I'm sure the external market or stakeholder would start to understand that Nissan is really changing. And this is my commitment I have to do as a CEO.

JT: Where do you think the public and investors are in terms of confidence and trust in Nissan after the events of last year surrounding Carlos Ghosn?

MU: Yeah, I would say in the past two years that we had not been able to demonstrate what we have said. So, it is very crucial for me when I introduce Nissan next, I have to make sure what I have said are committed and it will be demonstrated. So, after the next six months, what we say is visible and that is the only way to restore the trust from the stakeholder. And that is something that that we make sure this time that we are showing that something that is challengeable and to make sure that to be materialized. So, this is the only way for me to make sure that the Nissan can be credible to the stakeholder.

JT: Fair enough. Let's talk a little bit about a couple of the major macro issues surrounding the world at the moment, the US-China trade war. There's a lot of expectation that this could lead to lasting changes in supply chains around the world. The auto industry, of course, very global in its nature when it comes to supply chains. What kind of changes do you anticipate for the sector?

MU: Yeah. Well, again, obviously, I cannot comment on this trade dispute between the governments. Rather, we have to adapt our work within whatever the trading agreement and the tariff scheme are in place. So, while at Nissan we are thinking how we can properly localize our the parts we make where we build that makes the costs more competitive and more efficient. At the same time, we need to also to have what could be alternative source. So, this is area. Again, I would say the automotive industry is changing, moving very fast, and therefore we have to make sure the way of the working is our partners, with the supplier, has to be adapted to that. So, this is our priority today, how we can make sure to work with our partner in terms of the supply chain. But the way of the working to anticipate the change of the industry or technology that we should not be sitting on the old way. We should be flexible to adapt that makes our business partner to grow further together with us. So, this is what I can say today. Sorry, not in the detail yet, but when the times comes that I think we'll be able to explain furthermore the way of the working with a partners and suppliers.

JT: Right. Now one of your main plants is in the United Kingdom, Sunderland, and we discussed how you do plan to keep this as your production base here in Europe. What would a hard Brexit do to your business? And I'm thinking about tariffs and potentially higher procurement costs.

MU: Yeah, definitely that. We need to cautiously monitor how the government was going to make a deal in terms of Brexit, when it comes to the tariff agreement, because this would have a lot of influence in our operation. But again, I would like you to focus and emphasize that we would like to keep up our brand in Europe and how we can keep the brand knowing that the anticipation in the future is something that we are building today. So, this is what I can say today.

JT: And I'd love to just learn a little bit more about you. You personally, I understand that you grew up outside of Japan, which is really interesting, given Nissan is such a global business and with the alliance it's so crucial to be able to work with different cultures. How has that helped you in your role as CEO and why did you decide to take this job?

MU: Well, first, you're right. I grew up in Egypt for five years and then Malaysia for next five years. When I first joined the previous company in the Philippines five years, I'd been to the other countries as well. Namely, in Korea and China. So, one of my personal strengths is that I have a good adaptability or flexibility, knowing different cultures. And that is helping today at Nissan where we need to respect the diversity, where we need to respect a partner when it comes to Renault, a different culture or even in Japan Nissan and Mitsubishi are not in the same culture. So how we can make sure that we can ensure trust among us for the common goal was one of the most important things. I would believe so. And that's where I had a lot of experience in the past, which is helping today when I work in the company or with a partner.

JT: And why did you decide to take this job at the helm?

MU: Well, again, Nissan, I always said, and I'd say that several times in my speech that Nissan has a great talent and more, I would say, capability to deliver. Today's output or performance is not what I know as Nissan. So, I really would like to bring back Nissan on the I would say that true to Nissan performance to be demonstrated. And that's the reason why I feel very responsible of my job and I'm committed to do so and that this is what I would like to pursue as a CEO of the Nissan. And that's one of the reasons why I took this job.


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