Editor's Notes:

• Everything related to electricity is hot (e.g. GEV doubled this year)... so we surveyed the upstream electrical equipment sector a few days ago. Then we found everything is expensive, except Nidec.

• Nidec's 12x P/E is super cheap relative to its positioning - making motors and systems for EV, AI datacenters and robots. But investors are staying away from it, due to (1) recent exclusion from Nikkei index, (2) uncertainties around how inflated its financial numbers have been, given ongoing investigations, (3) deeper question on the root cause behind the accounting issues / internal control problems - culture, and specifically founder's KPI-driven management style.

• I've started building a position in Nidec, based on the following views:

  • A big part of the business is real and sound - Q1 / Q2 FY2025 numbers should be more solid, and if they are closer to reality, the historical revenue was probably inflated ~10-20% (assuming the growth momentum around 10-15% is real).

  • The business won't disappear, and the stock likely won't get delisted - this is still a $15B company, with leadership in various key industrial component areas. They don't have any liquidity issues, and having 1 year to address governance reform to satisfy auditors and TSE should be manageable.

  • The stock is highly undervalued, because of (1) substantial recent forced technical selling due to index / governance / delisting by institutional investors, (2) remaining investors, without a clear picture on the scale of the past issues, likely assume the worst when pricing this stock.

  • Downside risks around: (1) more bad news, (2) management / founder refusing to correct course. Clear catalysts to expect: investigation report, auditor confirmation, removal of delisting risk by Tokyo Stock Exchange.

• Below is the spotlight profile. Judge for yourself.

Nidec Corporation (6594.T), a leading Japanese electrical equipment and power systems giant, faced a severe accounting scandal from September 2025 that significantly impacted its stock price, credit rating, and reputation. This crisis overshadowed its ambitious growth strategies and key advancements in electric vehicles (EVs), industrial automation, and data center technologies throughout 2024 and 2025, creating a complex and uncertain outlook for the company despite its strong market positions.

What does Nidec Corporation do?

Nidec Corporation operates in the Specialty Industrial Machinery sector, focusing on the development, manufacturing, and sale of motors, electronics, and optical components across diverse applications. Its competitive advantages include proprietary technology, economies of scale, high customer switching costs, and a global presence.

Nidec's Revenue Mix (H1 FY2025, ended September 30, 2025)

What are Nidec Corporation's strategic priorities and key growth drivers?

Nidec Corporation is currently focused on capitalizing on secular growth trends in EV and AI, improving overall profitability through structural reforms, and implementing stringent cost reduction initiatives while navigating significant governance challenges.

• Key Driver 1: EV Traction Motor Adoption: Accelerating global EV adoption drives demand for Nidec's E-Axle systems; the EV traction motor business has recently achieved profitability, especially in China.

• Key Driver 2: AI Data Center Demand: Rapid growth in AI data centers fuels demand for liquid cooling systems and near-line HDD motors (boosting Precision Small Motors) and generators/BESS (supporting Home Appliance, Commercial, and Industrial).

• Key Driver 3: Structural Reforms & Cost Reduction: The "Conversion 2027" plan targets significant reductions in variable (¥100 billion) and fixed costs (¥50 billion) to enhance operational efficiency and profitability amidst intense competition.

What is Nidec Corporation's recent financial performance?

Nidec Corporation has shown improving revenue and operating margins in recent years, though its profitability has been significantly impacted by a recent financial restatement. The company maintains healthy liquidity.

Annual Financial Trends (Last 3 Fiscal Years, ended March 31)

Recent Quarterly Momentum

Balance Sheet: Cash & Short-Term Investments stood at ¥344,455 million as of Q2 FY2025, demonstrating healthy liquidity and an increasing cash balance compared to previous periods.

Valuation Context:

• NTM_PE: Current 12.6x (3Y Range: 10.1x - 28.6x)

• NTM_EV_Ebitda: Current 6.7x (3Y Range: 5.6x - 15.6x)

What are the key debates and risks for Nidec Corporation?

The primary controversy surrounding Nidec Corporation centers on widespread accounting irregularities, potential management involvement, and financial restatements. This has led to severe erosion of investor confidence, regulatory scrutiny, and a crisis in corporate governance.

Top Risks for Nidec Corporation

• Accounting & Regulatory Risk: Ongoing internal and third-party investigations into improper accounting practices, potential for further material financial restatements, and legal consequences. The Tokyo Stock Exchange (TSE) designated Nidec as a "security on special alert" with a risk of delisting if internal controls are not remediated within one year.

• Financial Instability & Investor Confidence: Withdrawal of full-year guidance, cancellation of interim dividends and share buybacks, and a credit rating downgrade by Moody's (Baa1 from A3) signify significant financial uncertainty and a lack of reliable outlook.

• Profitability of In-Vehicle Segment: Despite EV tailwinds, the In-Vehicle segment recorded a substantial operating loss of ¥82,849 million in H1 FY2025, largely due to contract loss provisions and impairment charges related to the EV traction motor and automotive inverter businesses.

The Dominant Narrative (The "Consensus")

The primary story driving Nidec Corporation right now is a "Management Credibility Crisis and Deepening Accounting Scandal." The company is facing widespread allegations of improper accounting, internal investigations into management involvement, significant financial restatements leading to substantial losses, and severe consequences including regulatory "special alert" status with potential delisting, credit rating downgrades, index exclusions, and the cancellation of dividends and share buybacks.

• Cite specific sources:

  • Price action: Multiple significant drops (e.g., -19.26% on Oct 28, -15.5% on Dec 4, -8.72% on Nov 17) directly attributed to the unfolding accounting crisis and its repercussions.

  • Earnings (Financials/Regulatory): Explicit mentions of "inappropriate accounting treatments," "management involvement," "auditor disclaimer of conclusion," restatement of Q1 results from a profit to a loss, massive contract loss provisions, impairment losses, and liabilities due to the scandal. The full-year earnings forecast is "undecided."

  • Events (PR Crisis): Directly states a "PR Crisis" due to "suspected improper accounting cases linked to its founder," with management apologizing for financial revisions and regulatory warnings.

The Key Debate (Bulls vs. Bears)

Bulls Say:

• The market has already heavily discounted the stock due to the accounting issues, suggesting that much of the negative news may be priced in, potentially leading to technical rebounds or short covering (as seen in some positive price movements following massive declines).

• Nidec has underlying strength in strategic growth areas: expanding demand for AI server water-cooling modules and improving profitability in EV traction motors.

• The company is actively pursuing aggressive restructuring, including significant fixed and variable cost reductions (JPY 50B and JPY 100B respectively) and a commitment to divest unprofitable businesses ("no sacred cows"), which could lead to improved profitability in the future.

• Management has secured a substantial credit line (¥600 billion), providing liquidity and stability amidst the crisis.

Bears Say:

• The accounting scandal is severe, pervasive, and involves potential high-level management misconduct, leading to fundamental questions about the integrity of Nidec's financial reporting and corporate governance

• The ongoing regulatory scrutiny, including the Tokyo Stock Exchange's "Special Alert" designation and potential delisting, poses an existential threat to the company's market access and investor confidence

• The financial fallout is substantial, with restated Q1 results showing a significant loss, massive provisions, and withdrawn full-year guidance, indicating deep financial instability and uncertainty about future profitability

• The cancellation of dividends and share buybacks directly impacts shareholder returns and signals severe financial distress

• Index exclusions (Nikkei 225, TOPIX) will lead to continued forced selling by passive funds, putting further downward pressure on the stock

Key Battleground: The outcome and resolution of the Third-Party Committee's accounting investigation, particularly the findings on the scope of misstatements, direct management involvement, and the company's ability to implement and demonstrate drastically improved internal controls to avoid delisting and restore auditor confidence.

Sentiment Disconnect (Alpha Opportunity)

There is a bearish disconnect. The "Soft Data" (social media and forums) shows virtually no specific discussion or sentiment regarding Nidec Corporation, classifying external sentiment as "neutral due to low visibility." In stark contrast, the "Hard Data" (Price action, Earnings, Management tone) reveals a company in deep crisis due to a severe accounting scandal, facing regulatory threats and significant financial repercussions. The market's sharp decline reflects institutional concern, but the lack of public discourse suggests that the full gravity of the situation, and the duration of the associated risks, may not yet be broadly understood or amplified by retail investors.

Chronological Narrative of Key Events

Strategic Growth and Market Expansion (Early 2024 - Mid-2025)

The period saw Nidec making aggressive moves to solidify its global leadership in diverse, high-growth markets.

• March 2024: Nidec secured a significant $438 million contract with Hyundai Motor Company to supply 260,000 units of liquid-cooled radial flux permanent magnet motors for next-generation EVs, with delivery by June 2026.

• September-October 2024: The company announced major production line expansions in China, India, and Vietnam, specifically targeting the rapidly growing EV and consumer appliance markets.

• Early 2025: Nidec prepared to launch its E-Axle Gen3 motor, touted for 20% higher power output for compact and performance EVs.

• March 2025: Nidec expanded operations at its Arkansas plant to support U.S. clean energy goals and strengthen the domestic supply of motor components.

• April 24, 2025: The company announced a strategic shift to focus on EV traction motors (e-axles) and undertook restructuring to enhance global competitiveness, noting a strong turnaround in profitability as a key driver.

• May 2025: Nidec withdrew an unsolicited $1.8 billion tender offer for Makino Milling Machine Co. after Makino resisted the bid, highlighting a unique M&A scenario in Japan.

• July 2025: Nidec collaborated with Noveon to secure American-made Ecoflux magnets, a strategic move to strengthen its micro motor component supply chain in North America amid geopolitical uncertainties.

• August 2025: Nidec Aerospace, a joint venture with Honeywell, scaled production of aviation-grade electric propulsion motors. Concurrently, Nidec further expanded its electric motor manufacturing capacity in the Asia-Pacific region to meet increasing EV demand.

• November 17, 2025: Nidec launched the E-Axle Nidec MI300, securing a substantial $1.8 billion in new business and establishing its leadership in the high-performance EV segment.

• November 19, 2025: The company announced a strategic shift towards AI data-center applications, focusing on supplying precision motors and cooling systems for this high-growth sector.

• November 21, 2025: Nidec initiated structural reforms aimed at reducing variable costs by ¥100 billion and fixed costs by ¥50 billion, with the goal of significantly improving operating margins and net profitability by fiscal year 2027.

• November 25, 2025: Nidec acquired Houma Armature Works to expand its North American service capabilities, particularly in aftermarket support and energy services.

• December 2, 2025: Nidec partnered with Stellantis for global traction motor manufacturing, and Nidec Aerospace scaled production of electric propulsion motors for aviation.

• December 9, 2025: A significant supply agreement with a Chinese EV giant was announced, coupled with a $180 million investment in joint ventures in Shanghai for localized production of high voltage AC induction motors.

• December 12, 2025: Nidec collaborated with Longsheng Technology to enhance their harmonic reducer business.

• December 15, 2025: Nidec’s strong market position was reaffirmed in the broader electric motor market, where it holds thenearly 45% market share alongside Bosch and Hitachi, and as a key player in the growing Cycloidal Gearing market.

Accounting Scandal and Operational Headwinds (September - December 2025)

Beginning in September 2025, Nidec faced a severe crisis stemming from accounting irregularities, which significantly impacted its stock price, reputation, and financial outlook.

• September 3, 2025: Nidec disclosed the establishment of a third-party committee to investigate suspicions of improper accounting practices. Initial internal findings suggested potential management involvement. This news caused Nidec's American Depositary Receipt (ADR) price to drop 16.5% on September 4.

• September 26, 2025: The crisis deepened with further revelations of inappropriate accounting practices, including undervaluation for customs purposes. Nidec's auditor, citing ongoing investigations, issued a rare disclaimer of opinion on the financial statements. This led to an additional 6.6% decline in Nidec's ADR price.

• October 23, 2025: In response to the escalating investigation, Nidec made critical financial announcements: the withdrawal of its full-year forecast, the cancellation of its interim and surplus dividends, and the discontinuation of its share buyback program. These actions triggered a substantial 25.4% drop in Nidec's stock price.

• October 27, 2025: The Tokyo Stock Exchange (TSE) issued a severe "Special Security alert" for Nidec, emphasizing the urgent need for improvements in its internal management system and citing deficiencies in information, communication, accounting, and financial closing processes. This resulted in another 20.3% decline in Nidec's stock price.

• October 28, 2025: Macquarie downgraded Nidec from "strong-buy" to "hold." The company was subsequently removed from both the Nikkei 225 Stock Average and the Topix index, leading to forced selling by index-tracking funds and a further ~19% plummet in its stock price. PwC Japan, Nidec’s auditor, confirmed it withheld an opinion on FY2025 financials due to insufficient audit evidence. Moody's also downgraded Nidec's long-term credit rating to Baa1 from A3 and placed it on negative watch.

• October 29, 2025: Nidec's shares continued to struggle, falling 4.5% even as the broader Nikkei index rallied, underscoring strong company-specific negative sentiment. The company also reported that a spike in rare-earth magnet prices was increasing production costs and negatively impacting profit margins.

• November 4, 2025: The Japan Exchange Group CEO publicly urged Nidec to improve internal controls to avoid delisting. Crucially, Nidec secured an unsecured ¥600 billion ($3.9 billion) credit line from MUFG Bank and Sumitomo Mitsui Banking Corp., a move that provided some liquidity relief and led to a temporary 3.5-5% rise in its stock.

• November 5, 2025: Nidec established a "Nidec Corporate Reform Committee" to specifically address internal control issues and prevent future irregularities.

• November 9 - December 12, 2025: Multiple prominent law firms initiated investigations into potential securities claims and class action lawsuits against Nidec, alleging misleading business information and improper accounting practices and seeking to recover investor losses.

• November 14, 2025: Nidec reported its H1 FY2025 results, revealing a drastic 82.5% decrease in operating profit to 21,107 million yen (despite a modest 0.7% revenue increase). This was primarily attributed to contract loss provisions and impairment losses in the automotive segment, directly linked to the accounting probe. The full-year forecast remained "undecided." PwC Japan confirmed its disclaimer of conclusion on Q1 and H1 FY2026 financial statements.

• November 18, 2025: The company’s Q1 earnings report showed an EPS miss ($0.06 vs $0.07 consensus), despite a minor revenue beat. This resulted in the stock "gapping down" significantly, falling from $3.40 to $2.09, reflecting sustained investor apprehension.

• November 21, 2025: Nidec's credit rating was further downgraded to Baa3 from Baa1 amid the ongoing accounting probe, and its shares fell for a seventh consecutive day.

• December 11, 2025: Nidec faced a product development setback when Eve's eVTOL prototype flight was delayed because a Nidec motor "was not fully developed" and had to be replaced by a competitor's product.

Key Market Dynamics & Nidec's Position

Nidec continues to be a significant player in numerous growing markets, positioning itself across multiple high-tech industrial sectors.

• EV & Automotive:

  • Global EV Powertrain Market: Projected to reach $159.8 billion by 2035 (CAGR 23.1%), with Nidec holding 6-10% market share in lightweight, high-efficiency electric motors.

  • EV Traction Motor Market: Expected to grow to $66.93 billion by 2029 (CAGR 39.3%), with Nidec innovating in EV e-axles and holding 9-11% share in the broader traction motors market.

• Industrial Automation & Robotics:

  • Electric Motor Market (Overall): Projected to reach $303.0 billion by 2035 (CAGR 5.8%), where Nidec is a major player. Nidec also controls nearly 45% of the Electric Motor market alongside Bosch and Hitachi.

  • Cycloidal Gearing Market: Projected to grow to $2.06 billion by 2031 (CAGR 2.7%), with Nidec as a key player.

  • Electric DC Motors Market: Expected to reach $72.4 billion by 2034 (CAGR 11.67%).

  • Robotic Smart Motors Market: Projected to reach $7.4 billion by 2034 (CAGR 4.8%).

  • Robot Servo Motors Market: Expected to expand to $2.39 billion by 2031 (CAGR 9.7%).

  • Brushless DC Motor Market: Nidec leads with a 12.5% market share.

  • Servo Motors and Drives Market: Expected to grow to $21.76 billion by 2029 (CAGR 6.1%), with Nidec being a major player. North America segment CAGR 4.2%.

  • Press Machine Market: Projected to reach $26.3 billion by 2035 (CAGR 5.7%), with Nidec Minster Corp. impacted by the shift to servo technology.

  • CNC Gear Chamfering Machines Market: Expected to grow to $726 million by 2031 (CAGR 4.0%), with Nidec as a key manufacturer (top five hold 65%).

  • Clean Transfer Robot Market and Atmospheric Wafer Transfer Robots Market: Nidec is a key player, driven by semiconductor and FPD manufacturing automation.

  • Temporary Wafer Bonding and Debonding System Market: Nidec Machine Tool enhances its competitive standing.

• Data Centers & Energy Solutions:

  • Direct-To-Chip Liquid Cold Plate Market: Projected to grow dramatically to $3.419 billion by 2031 (CAGR 43.1%), with Nidec a leading producer.

  • Global Data Center Liquid Cooling Market: Expected to surge to $10.70 billion by 2030 (CAGR 51.93%).

  • Coolant Distribution Unit (CDU) Market: Projected to grow to $3.54 billion by 2031 (CAGR 16.7%).

  • Bionic Fan Market: Expected to reach $234.7 million by 2033 (CAGR 7.4%).

  • Large Scale Medium Voltage Drives Market: Nidec is a key player in this evolving market, with nearly $1.3 billion in new revenue opportunities between 2025 and 2035.

• Other Diversified Markets:

  • Smart Ferry Electrification Market: Expected to reach $2.45 billion by 2029 (CAGR 14.6%).

  • Aircraft Electric Motor Market: Projected to reach $12.3 billion by 2029 (CAGR 7.1%).

  • Railway Traction Motors Market: Expected to reach $15.29 billion by 2032 (CAGR 4.36%).

  • Switched Reluctance Motors (SRMs) Market: Projected to grow at a CAGR of 3.41%. Nidec is a global leader.

  • Military Actuators Market: Projected to reach $2.61 billion by 2029 (CAGR 10.2%).

  • Environmental Monitoring Market: Projected to reach $23.15 billion by 2029 (CAGR 5.5%).

  • Inverter Market: Expected to grow to $42.63 billion by 2031 (CAGR 12.7%).

  • Wireless Charging Module For Vehicle Mobile Phone Market: Projected to grow to $6.19 billion by 2031 (CAGR 23.3%).

Founder Legacy / Deeper Cultural Problem

Nidec founder Shigenobu Nagamori was known as part of Japan's "big three" (with SoftBank's Son & Fast Retailing's Yanai) for his bold vision, relentless drive, and extremely high Key Performance Indicator (KPI) focus, demanding aggressive profit targets and cost-cutting, often publicly criticizing underperformance.

Disclaimer: This content is generated using AI, synthesizing public data (filings, reports, news) and social media (Reddit, X). It may contain errors, inaccuracies, or hallucinations. Nothing herein constitutes financial advice. This newsletter is for informational purposes only; please consult a qualified professional and conduct your own due diligence before making any investment decisions.