TOKYO — Honda and Nissan have recently announced their intentions to explore a merger that could position them as the third-largest automobile manufacturer globally by sales, amid significant shifts within the automotive industry as it moves away from fossil fuels.
On Monday, both companies confirmed they had established a memorandum of understanding to initiate discussions surrounding the integration of their businesses, with Mitsubishi Motors Corp., a smaller member of the Nissan alliance, also agreeing to join the dialogue.
Japanese automakers have found themselves trailing behind their global competitors in the electric vehicle (EV) sector, as they strive to scale back expenses and catch up with industry newcomers like Tesla and China’s BYD, which have been rapidly gaining market share.
Toshihiro Mibe, Honda’s president, revealed that the two automakers plan to unify their operations under a joint holding entity, with Honda overseeing the new management while maintaining the individual identities and brands of both companies. They aim to solidify a formal merger agreement by June and expect to finalize the merger and list the holding company on the Tokyo Stock Exchange by August 2026, according to Mibe.
While a financial valuation of the merger was not disclosed, Mibe acknowledged that the talks are in their initial stages, stating that “many aspects require further analysis and discussion.” He also admitted that there is a chance the merger may not come to fruition.
The potential merger could create a powerhouse worth over $50 billion, taking into account the market capitalizations of all three companies. The combined strength of Honda, Nissan, and Mitsubishi would enhance their ability to compete against industry giants like Toyota Motor Corp. and Volkswagen AG. Notably, Toyota has formed technological partnerships with Mazda Motor Corp. and Subaru Corp.
Emerging reports earlier this month indicated that Foxconn, the Taiwanese iPhone manufacturer, was in negotiations to buy shares in Nissan from its French alliance partner Renault SA, although Nissan’s CEO, Makoto Uchida, stated that Foxconn had not approached Nissan directly. He further acknowledged the challenging circumstances currently facing Nissan.
Even if the merger proceeds, Toyota is expected to remain the dominant player in Japan, having sold 11.5 million vehicles in 2023. In contrast, the combined output of Honda, Nissan, and Mitsubishi would be approximately 8 million vehicles, with Honda alone producing 4 million, Nissan at 3.4 million, and Mitsubishi exceeding 1 million units.
Mibe emphasized the necessity for both companies to enact bolder changes than focusing solely on targeted collaborations, stating they must adapt to the evolving landscape of mobility.
Previously, Nissan, Honda, and Mitsubishi agreed to collaborate on components for electric vehicles, such as batteries, and to collectively invest in the development of autonomous driving software to better align with the ongoing electrification trends.
Following a scandal involving former chairman Carlos Ghosn, who was arrested in late 2018 on fraud charges he denies, Nissan has faced considerable challenges. Ghosn ultimately fled to Lebanon while out on bail.
During a video conference with reporters, Ghosn criticized the proposed merger as a “desperate move.”
Experts suggest that if the merger goes through, Honda could benefit from Nissan’s lineup of large SUVs, which have attributes like high towing capacity and off-road capabilities. Furthermore, Nissan’s extensive experience with battery and EV technology may assist Honda in enhancing its electric and hybrid vehicle development, according to industry analysts.
Despite the merger’s potential benefits, Nissan has recently announced a workforce reduction of around 9,000 jobs, equating to about 6% of its global staff, and is cutting global production capacity by 20% following a quarterly loss of 9.3 billion yen ($61 million). In response to these financial struggles, the company has undergone a management reshuffle, with Uchida accepting a significant pay cut while acknowledging the need for operational efficiency amidst rising costs and changing market demands.
Uchida expressed optimism regarding the merger, stating that successful integration would enable them to provide greater value to a broader customer base.
Nissan’s credit outlook was recently downgraded to “negative” by Fitch Ratings, attributing this to deteriorating profitability, particularly in the North American market. Nonetheless, the company retains a robust financial structure and solid cash reserves totaling 1.44 trillion yen ($9.4 billion).
Nissan’s shares reached a new low, leading to speculation about their value. After the merger news broke, its stock prices surged by over 20%, and they experienced a 1.6% increase on Monday. Similarly, Honda shares climbed by 3.8%, despite the company’s reported net profits declining nearly 20% in the first half of the fiscal year due to disappointing sales in China.
The potential merger signifies a broader trend of consolidation within the automotive industry.
During a regular briefing, Cabinet Secretary Yoshimasa Hayashi refrained from commenting on the specifics of the automotive firms’ plans but emphasized the need for Japanese companies to adapt and remain competitive in a rapidly evolving market. He noted the increasing competition surrounding batteries and software technologies.
As the automotive landscape changes, there’s an expectation that necessary measures will be implemented to ensure survival amid intense global competition.