Nidec, Japan's Electric Giant, Exposed For Large-Scale Fraud

According to Nikkei, Nidec, the world’s largest manufacturer of precision motors, issued a statement on May 13 saying that the company had discovered multiple instances of suspected misconduct involving product quality falsification. The issue affects quality control for motors and other products, including unauthorized changes to product materials, manufacturing processes, and design specifications. The company said it plans to establish a special investigation committee composed of external experts to investigate the matter.

However, the company added: “At present, no issues have been found that would immediately affect product functionality or safety.” Nidec said it has begun proactively contacting customers to explain the situation and communicate with them, and will also conduct a comprehensive quality review. It plans to officially finalize and announce its response plan and related follow-up arrangements for this quality violation incident on May 13.

Image source: Nidec

Affected by the news, Nidec’s shares fell as much as 18% during trading in Tokyo. The once highly regarded Japanese manufacturing company has recently been mired in multiple difficulties, including a financial fraud scandal and the departure of its spiritual founder.

Nikkei reported on May 12 that Nidec was suspected of more than 1,000 quality compliance violations, with related issues surfacing in multiple business divisions, including home appliance motors and automotive components. This controversy originally stemmed from a scandal triggered by a series of accounting errors at Nidec, but it has now spread to the compliance of its production systems.

Citigroup analyst Takayuki Naito stated, "If the allegations of product quality fraud are true, Nidec may face dual pressures of rising costs and declining revenue. As the date for Nidec's annual shareholder meeting and the submission of its securities report in June approaches, if more investigation issues are uncovered, the company's stock price is likely to remain under pressure."

Masahiro Wakasugi, a senior industry analyst at Bloomberg Industry Research, pointed out in a report that Nidec faces the risks of further market share loss and delays in the recovery of profitability. He stated that if subsequent investigation results are unfavorable to Nidec, it could lead to a one-time loss, adding greater pressure to the company that is already seeking recovery.

Currently, the motor giant has been removed from the Nikkei 225 and the TOPIX index, and the Tokyo Stock Exchange has further warned that if the company fails to improve its internal governance, it may initiate delisting procedures against it.

Since last year, Nidec has been mired in operational turmoil after multiple accounting irregularities were exposed at several of its subsidiaries in Italy, Switzerland, and China, as well as in its core automotive motor inverter business. According to findings disclosed by a third-party investigation firm, Nidec’s violations also included: inflating the value of raw materials and inventory for years, misstating customs declaration amounts, recording government subsidies as operating revenue, and capitalizing labor costs as fixed assets to defer expenses.

Bloomberg News said that the quality issues exposed this time, along with the accounting fraud scandals that surfaced earlier, stem from the aggressive corporate culture shaped by founder Shigenobu Nagamori, who is now 81 years old. The company has long imposed pressure through ambitious and even unrealistic performance targets, and the high-pressure environment forced employees to rely on superficially impressive financial figures to satisfy the founder and senior executives, while continuously concealing deeper problems, ultimately leading to the large-scale scandal seen today.

Due to ongoing scandal impacts, the company expects to recognize an asset impairment of 250 billion yen (approximately 1.6 billion USD). Shigenobu Nagamori has been forced to resign from his leadership position, but he remains the largest individual shareholder of the company. It is reported that Nagamori will step down as CEO in 2024, leave the board in December 2024, and resign from his honorary chairman position in February of this year.

In March this year, activist investment firm Oasis Management disclosed that it held a 6.74% stake in Nidec and called on the company to implement comprehensive governance reforms.

Nidec Corporation was founded in 1973, starting as a small workshop in a simple hut and gradually growing into a global leader spanning the automotive and electronics sectors. In an interview with Bloomberg News in 2022, Shigenobu Nagamori candidly expressed the inner turmoil he felt watching the company he founded fall into difficulty. He stated, “I built this company from scratch, and Nidec has long been a part of me. If the company ultimately declines, it would be a severe blow to me both physically and mentally.” Nagamori has openly said that if he believes investors' views are incorrect, he would rather ignore them. Currently, the company’s stock price is only about one-third of what it was five years ago, and with the vacuum left by the chairman's departure, Nidec is facing a severe test.