BANGKOK — Japanese automotive giants Honda and Nissan are exploring a potential merger aimed at establishing the world’s third-largest automaker based on sales figures as the industry evolves amid shifts toward electric and alternative fuel vehicles.
On Monday, both companies announced they had entered into a memorandum of understanding, and Mitsubishi Motors, another member of Nissan’s alliance, has also agreed to take part in the discussions regarding the integration of their operations. Honda is set to take the lead on the management side initially while ensuring that both companies maintain their distinct principles and branding.
The move comes at a time when the automotive sector is facing significant disruptions. The rise of Chinese manufacturers is proving to be a challenge for established players, as the likes of BYD, Great Wall, and Nio are beginning to capture significant market share from both American and Japanese brands, particularly in China. Japanese automakers, lagging behind their counterparts in the electric vehicle arena, are now making efforts to reduce expenses and catch up in this rapidly changing landscape.
In August, Nissan, Honda, and Mitsubishi revealed plans to collaborate on shared components for electric vehicles, including batteries, and also to jointly research software for autonomous driving systems. This initiative represents a response to the ongoing electrification of the industry, with a more formal agreement between Honda and Nissan first announced in March. A merger could create a combined entity valued at around $55 billion based on the collective market valuation of the three companies.
The collaboration would offer the smaller Japanese automakers the scale necessary to compete more effectively with industry leaders like Toyota Motor Corp. and Germany’s Volkswagen AG. Toyota has also established technology partnerships with companies like Mazda Motor Corp. and Subaru Corp.
What advantages would Honda gain from Nissan? Nissan brings a range of large, truck-based vehicles, such as the Armada and Infiniti QX80, which Honda currently does not manufacture. These models are known for their substantial towing capacity and off-road capabilities, which could broaden Honda’s product offerings. Additionally, Nissan has extensive experience in developing batteries and electric vehicles, along with gas-electric hybrid powertrains, which could be advantageous for Honda’s EV development initiatives.
Despite underwhelming sales for its electric models like the Leaf and Ariya in the U.S., Nissan has continued evolving its technology and has new products in the pipeline that may present exciting opportunities for Honda moving forward.
As for timing, Nissan recently announced a workforce reduction of 9,000 jobs—approximately 6% of its global personnel—and is slashing its production capacity by 20% following a quarterly loss of 9.3 billion yen ($61 million). The company’s chief executive, Makoto Uchida, has taken a significant pay cut in light of these fiscal challenges and emphasized the necessity for Nissan to enhance efficiency and adapt better to changing market dynamics.
Nissan’s credit outlook was recently downgraded to “negative” due to decreased profitability attributed to price reductions in the North American market. However, it maintains a solid financial base, with cash reserves totaling 1.44 trillion yen ($9.4 billion). Its share prices have dropped to a level perceived as appealing to potential investors, raising urgency in the talks with Honda. Additionally, there’s speculation surrounding Foxconn, the iPhone maker, considering acquiring Nissan as part of its expansion into the EV sector.
The automotive industry has been navigating challenges since the scandal involving former chairman Carlos Ghosn, who fled to Lebanon after being arrested on various charges, which have impacted Nissan’s reputation over the years. Meanwhile, Honda has also reported a nearly 20% decline in profits during the first half of the fiscal year, primarily due to poor sales performance in China.
In contrast, Toyota produced 11.5 million vehicles in 2023, while Honda manufactured around 4 million and Nissan 3.4 million, with Mitsubishi Motors accounting for just over 1 million. Even if a merger occurs, Toyota would still hold the title as Japan’s largest automaker.
All major global automakers are preparing for possible volatility if new tariffs are imposed on imported goods by the incoming U.S. administration. Nissan has begun modifying its supply chain by incorporating assembly facilities in Mexico. Additionally, analysts highlight a shift towards affordability, as many consumers are finding it increasingly challenging to justify nearly $50,000 for a new vehicle, prompting automakers to rethink their pricing strategies, which could further compress profits industry-wide.
