Nidec shares plunge 22% after suspected accounting scandal at China unit

Shares of Japanese motor maker Nidec Corp. tumbled steeply on Thursday after the company disclosed possible accounting misconduct at one of its Chinese subsidiaries, sparking concerns over governance and financial transparency.

The stock fell as much as 22% in early trading before narrowing losses to close down 19% at 2,531 yen ($17.09), marking the steepest one-day decline in its history.

The selloff contrasted with broader gains in Tokyo, where technology shares tracked overnight strength on Wall Street.

Improper accounting under investigation

Nidec said late Wednesday that it would set up a third-party committee after internal probes pointed to “suspected improper accounting” at its Nidec Techno Motor unit in China.

A payment of about 200 million yen ($1.4 million) at a Chinese subsidiary in September 2024 triggered the investigation.

Documents reviewed during the internal probe suggested that “the company and its group companies could have engaged in improper accounting with the involvement or knowledge of its or their management,” Nidec said in a statement.

“The investigations found multiple documents suggesting that, in addition to Techno, the Company (Nidec) and its group companies could have engaged in improper accounting with the involvement or knowledge of its or their management,” it said.

The company declined to provide further details but pledged to cooperate fully with the independent inquiry.

A spokesperson added that another announcement may follow as the probe progresses.

Governance worries resurface: upside to shares unlikely

The revelations reignited long-standing concerns about governance at the Kyoto-based manufacturer, which has been dominated for decades by its 81-year-old founder and chairman, Shigenobu Nagamori.

“Looking at today’s stock price reaction, I think concerns about Nidec’s management and internal controls are surfacing again,” said Ryousuke Kiyota, senior analyst at Tokai Tokyo Intelligence Laboratory.

Analysts said the scale of the potential accounting problems remains unclear, making it difficult for investors to assess the financial impact.

“If there were indeed improper accounting practices, the size of the impact is opaque, which would be a negative surprise,” wrote Citigroup analyst Takayuki Naito in a note.

“The shares are likely to find upside hard work until the results of the third-party committee’s investigation are released.”

Previous accounting scrutiny

This is not the first time Nidec has faced questions over its financial reporting.

In May 2024, the company revised down two years of operating profit by about $67 million after concluding that sales at a subsidiary were recorded in an inflated manner.

Just three months ago, Nidec postponed its annual report due to potential errors in country-of-origin declarations for motors at an Italian subsidiary, which may have resulted in unpaid import duties.

Back in 2016, short-seller Muddy Waters accused the company of aggressive accounting practices and failing to meet sales targets, though Nidec dismissed those claims at the time.

Critical role in EV transition

Despite its current troubles, Nidec has positioned itself as a key player in the global shift to electric vehicles, investing heavily in the production of EV drive units.

The company remains an important supplier of automotive components and precision motors used in a range of applications.

Still, the latest revelations cast a shadow over its reputation at a time when investors are increasingly scrutinizing governance standards at Japan’s largest manufacturers.

As the third-party committee begins its work, analysts say the results of the investigation will be pivotal in determining whether the company can restore investor confidence.

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