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Nissan (NSANY) to Make Battery in UK, Commits to Sunderland Plant

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Nissan Motor Co. (NSANY - Free Report) recently announced that the company will build electric vehicle (EV) batteries in the U.K. in order to comply with the terms of the Brexit deal. It will continue investing in its Sunderland plant — the largest car factory in the U.K.

Currently, batteries for the premium 62kWh version of the Leaf electric hatchback are produced in the United States and imported to the U.K., while lower-capacity 40kWh units are manufactured locally at Sunderland by Envision Group. The company has now decided to localize the manufacture of the 62kWh battery in Sunderland, such that all of its products qualify for tariff-free export to the EU.

Transiting all battery production to the U.K. will mean Nissan can avoid incurring tariffs on the 70% of Leaf models built for export under the terms of the new trade deal, which states that at least 55% of a vehicle's material value must come from the U.K. or EU to avoid penalties.

Nissan’s Sunderland factory was forced to temporarily halt one of the two production lines recently due to supply-chain bottlenecks. The company clarified that this was on account of the coronavirus pandemic-induced crisis and had nothing do with the Brexit deal.

In fact, Nissan is highly optimistic about the Brexit deal. Being one of the largest automakers in the U.K., the company wants to grab this opportunity to revolutionize auto-making in the country.

Backdrop of the Situation

The U.K. left the EU on 31 Jan, 2020. There was a transition period to allow negotiations on the future relations. Without a trade deal, one would have expected another dramatic collapse in the U.K. auto industry.
Nissan had, in fact, stated that it would be unable to commit to the Sunderland factory in the event of a no-deal Brexit, with the possibility of heavy tariffs making exports financially unfeasible.
Nonetheless, following intense negotiations, an agreement on the future EU-U.K. relations was concluded by end of December 2020. The new trade deal between the U.K. and the EU came in as a huge sigh of relief for the auto sector. It confirmed that cars and car parts could continue to move between the two regions, without tariffs or quotas being imposed, subject to certain conditions.

The latest Brexit trade deal has made Nissan to pledge to the future of Sunderland for the long term under the current business conditions that have been agreed to. The new trade deal gives Nissan a competitive advantage in the U.K. and outside.

There is no certainty as to whether or not the decision will create more jobs at the factory, where 6000 people are directly employed in the production of the Leaf, Qashqai and Juke models.

Sunderland was made the pioneer of Nissan's European operations last year as part of the company's plan to take advantage of the alliance it has with Renault and Mitsubishi.

Reportedly, Nissan could also bring new models to Sunderland. The Japanese automaker had previously scrapped plans to build the X-Trail in the U.K. in 2019, due to the plunging demand for diesel and pre-Brexit uncertainty. Now that the company seems content with the terms of the latest trade deal, and plans to expand its U.K. production, it is most likely to reverse the decision on the X-Trail.

Britain’s Reaction to Nissan’s Decision

The U.K. is overwhelmed with Nissan’s decision to expand production in the nation. The decision signifies a genuine belief in Britain and a huge vote of confidence in its economy, thanks to the certainty that the trade deal with the EU has bestowed upon the auto sector.

For the dedicated and highly-efficient workforce in Sunderland, it means the city will be epicenter to Nissan’s latest models for the upcoming years. This will also enable Nissan to capture the increasing benefits that will come from the surging EV production as part of the trending green industrial revolution in the nation.

News of Sunderland's secured future comes as the Stellantis manufacturing group raises questions on its ability to keep producing cars at the Vauxhall factory in Ellesmere Port, as a result of the U.K.'s decision to ban the sale of new internal combustion engine cars by 2030. A decision on the future of the Cheshire factory is anticipated in the coming weeks.

Currently, Nissan, peers of which include Toyota Motor (TM - Free Report) , Daimler AG (DDAIF - Free Report) and CNH Industrial (CNHI - Free Report) , carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of the company have declined 0.9% in the past year, against the industry’s rise of 48.4%.


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