Honda and Nissan Plan to Merge

Japanese automakers Honda and Nissan are in discussions to deepen their partnership, potentially leading to a merger, according to sources. This move comes as Japan’s once-dominant auto industry faces increasing competition from electric vehicle (EV) leaders like Tesla and Chinese manufacturers.

If Honda and Nissan were to merge, the resulting entity would create a $54 billion company with an annual production of 7.4 million vehicles, making it the world’s third-largest auto group by vehicle sales, trailing only Toyota and Volkswagen. This potential merger would be a landmark event, signaling a major realignment in the global auto industry.

The two companies had already established a strategic partnership in March to collaborate on EV development. However, Nissan’s recent financial struggles have added urgency to these talks. Last month, Nissan announced a $2.6 billion cost-saving plan, which includes cutting 9,000 jobs and reducing its global production capacity by 20%. This drastic measure came in response to slumping sales in China and the United States, resulting in an 85% drop in second-quarter profits.

“This deal appears to be more about bailing out Nissan, but Honda itself is not resting on its laurels,” said Sanshiro Fukao, executive fellow at Itochu Research Institute. “Honda’s cash flow is set to deteriorate next year, and its EVs haven’t been performing well.”

The market has reacted sharply to these developments. Shares of Nissan soared nearly 24% in Tokyo trading, while Honda’s shares fell by 3%. Mitsubishi Motors, in which Nissan holds a 24% stake, saw its shares rise by almost 20%. French automaker Renault, Nissan’s largest shareholder, also saw a 5.9% increase in its shares.

“It is hard to imagine Honda would do this without some sort of subsidy or guarantee from the Japanese government,” the head of a large investment fund told Financial Times.

The discussions between Honda and Nissan, first reported by the Nikkei newspaper, are focused on finding ways to enhance collaboration. This could include setting up a holding company and even exploring a full merger. Both companies are also considering further cooperation with Mitsubishi Motors.

A potential merger would create a formidable domestic competitor to Toyota, enhancing their ability to compete against rapidly advancing Chinese EV manufacturers like BYD.

ALSO READ: Honda CEO on EV Adoption ‘Can’t Force Customers to Change Their Mind on EVs’

The automotive industry is undergoing a significant transformation, with EV makers gaining ground, especially in China. Tesla and BYD have intensified the competition, pressuring traditional automakers to innovate and cut costs. This competitive landscape has driven Honda and Nissan to consider a merger as a strategic move to survive and thrive in the EV era.

“In the mid- to long-term, this is good for the Japanese car industry as it creates a second axis against Toyota,” said Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory. “Constructive rivalry with Toyota is positive for the rather stagnating Japanese car industry when it must compete with Chinese automakers, Tesla, and others.”

ALSO READ: Nissan Stops Investing in New Gas and Diesel Engines as It Commits to All-Electric Future

Any potential merger would face significant scrutiny in the United States, where President-elect Donald Trump has threatened to impose a 25% tariff on vehicles imported from Canada and Mexico. This could lead to political negotiations and potential concessions from Honda and Nissan.

Furthermore, integrating the different corporate cultures of Honda and Nissan would be a challenge. Honda, known for its technology-centric approach and strengths in powertrains, may face internal resistance to merging with Nissan, which has been struggling recently.

ALSO READ: China Dominates 76% Of the Global EV Market Despite Rising Tariffs, Tesla, And Others in The Race

“Honda has a unique, technology-centric culture with strengths in powertrains, so there should be some internal resistance to the merger with Nissan, a competitor with a different culture that is now faltering,” said Tang Jin, a senior researcher at Mizuho Bank.

The talks between Honda and Nissan reflect the growing pressure on traditional automakers to consolidate and compete in the evolving automotive landscape. While no formal agreement has been reached yet, the ongoing discussions indicate a strategic shift in response to the rapid advancements in the EV market.

“As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths,” the carmakers said in a joint statement. “If there are any updates, we will inform our stakeholders at the appropriate time.”