Japan’s automaker Nissan Motor (NSANY Quick QuoteNSANY - Free Report) has inked a $661 million battery supply deal with South Korea’s SK On. The agreement ensures Nissan’s access to roughly 100 GWh of U.S.-made electric vehicle (EV) batteries between 2028 and 2033, enough to power around 1 million midsize electric models. This deal supports Nissan’s goal of ramping up EV production in North America. The batteries will be deployed in NSANY’s upcoming EVs manufactured at the Canton, MS facility, which is undergoing a $500 million upgrade for EV manufacturing.

The agreement marks SK On’s first battery supply deal with a Japanese automaker. The Korean battery giant already has two operational battery plants in the United States, partnering with Ford (F Quick QuoteF - Free Report) and Hyundai, and has four more under development. Once fully operational, SK On's U.S. production capacity is expected to exceed 180 GWh annually, reinforcing its role as a major player in the EV supply chain.

Nissan is planning to launch 30 new models over the next three years, with 16 being electrified (both hybrid and full EVs). High-performance, high-nickel batteries from SK On are expected to enhance the range and efficiency of Nissan’s next-generation electric vehicles. The company’s upcoming EV lineup includes a pair of Nissan and Infiniti sedans alongside three crossovers and SUVs, including a Rogue-like EV positioned between the LEAF and its gasoline-powered SUV offerings.

Additionally, Nissan recently showcased its advancements in autonomous driving, successfully testing a driverless vehicle in Japan’s Yokohama district. However, while these strategic moves show promise, they come at a time when Nissan faces serious financial and operational challenges. Let’s delve deeper into the company’s fundamentals to assess if it’s worth buying NSANY stock now.

Nissan’s Financial Struggles and Weak Outlook

Nissan’s latest financial results paint a concerning picture. For the first nine months ending Dec. 31, 2024, the company’s operating profit plunged 87% to 64 billion yen, with its operating margin shrinking to a mere 0.7% (down 4.5 percentage points on a yearly basis). Net income during the period tanked from 325 billion yen to just 5.1 billion yen year over year. These poor results prompted Nissan to cut its full-year operating profit forecast by 20% to 120 billion yen, marking the third downward revision.

The company is struggling in key markets, such as the United States and China, facing declining sales and stiff competition from larger rival Toyota (TM Quick QuoteTM - Free Report) and emerging EV makers. A major issue has been Nissan’s inability to attract buyers with compelling hybrid models, forcing it to offer aggressive discounts and incentives. This has further eroded its already thin profit margins, making it harder for the automaker to sustain long-term growth.

Adding to its woes, Nissan is burdened with a huge debt pile, and all three major credit rating agencies have downgraded its debt status to junk. This financial strain limits the company’s flexibility to invest in new technologies and products, raising concerns about its ability to execute its turnaround strategy effectively.

Nissan’s struggles are not limited to financial woes. Its leadership is also under pressure. CEO Makoto Uchida is facing calls to step down due to the company’s weak performance and inability to restore profitability. This leadership uncertainty adds another layer of instability to Nissan’s future. In an attempt to strengthen its position, Nissan explored a potential merger with Honda (HMC Quick QuoteHMC - Free Report) . However, the negotiations ultimately collapsed due to disagreements over the terms of the deal.

All Hopes on NSANY’s Cost-Cutting and Turnaround Efforts

Recognizing its challenges, Nissan has launched an aggressive cost-cutting plan under its "The Arc" strategy, which aims to streamline operations and improve efficiency. The company plans to slash costs by approximately 400 billion yen ($2.6 billion) by fiscal 2026. These cuts will involve closing factories, reducing labor costs and restructuring production lines to create a leaner and more resilient business.

It is also reducing its corporate officer positions by 20% to improve management efficiency. Uchida remains committed to the turnaround, emphasizing Nissan’s focus on cutting its break-even sales point from 3.1 million units annually to 2.5 million units while aiming for a stable 4% operating margin.

While these efforts show Nissan’s determination to reverse its financial struggles, the success of these plans remains uncertain. If the company fails to regain its competitive edge in the EV and hybrid markets, its restructuring efforts may not be enough to drive sustainable profitability.

Buy, Sell or Hold Nissan Shares?

Year to date, Nissan has underperformed its industry and close peers TM and HMC.

YTD Price Performance

Image Source: Zacks Investment Research

The consensus mark for its bottom-line estimates is also southbound.

Image Source: Zacks Investment Research

Nissan’s battery supply deal with SK On is a positive step for its long-term EV ambitions, ensuring a stable supply of high-performance batteries for its North American operations. But the company’s current financial struggles, declining sales and competitive disadvantages in the hybrid and EV markets play a major spoilsport.

While Nissan’s cost-cutting measures and turnaround strategy could improve its profitability over time, the company remains in a vulnerable position with high debt and weak margins.

For investors, NSANY stock is not a buy at this stage. It’s best to wait for more clarity on whether its restructuring efforts yield tangible results in the coming years.

NSANY currently has a Zacks Rank #3 (Hold) and a VGM Score of D. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.