Japanese automakers Honda and Nissan have said they will move toward a merger to form the world’s third-largest automaker by sales, as the industry undergoes dramatic changes in moving away from fossil fuels.
The two companies said they signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors had also agreed to take part in talks to integrate their businesses.
Honda President Toshihiro Mibe said Honda and Nissan would seek to combine their operations under a common holding company. Honda will initially be led by new management while maintaining the principles and brands of each company. The aim is to have a formal merger agreement in place by June and complete the deal and list the holding company on the Tokyo Stock Exchange by August 2026, he said.
No dollar value was given and formal discussions had just begun, Mibe said.
There are “points that need to be examined and discussed,” he said. “To be honest, the chances of this not being implemented are non-zero.”
Japanese automakers are lagging behind Tesla and its Chinese competitors
Japanese automakers have lagged behind their major EV rivals – namely Tesla and China’s BYD – and are trying to cut costs and make up for lost time.
China’s automotive sector has seen an increase in exports in recent years, across an industry group claim that it had overtaken Japan as the world’s largest car exporter in 2023. In China’s domestic car market, the world’s largest, hybrid and electric vehicles accounted for more than half of car sales this year.
The Japanese government has been sounding the alarm about the existential threat to its auto industry from China since at least 2019 allegedly called on Honda and Nissan to meet and discuss possible consolidation. Based on the market capitalization of all three automakers, a merger could result in a behemoth worth more than $50 billion.
Together, Honda, Nissan and Mitsubishi would grow in size to compete with Toyota Motor Corp. and the German Volkswagen AG to compete. Toyota has technology partnerships with Japan’s Mazda Motor Corp. and Subaru Corp.
Planned merger a “desperate move”
News of a possible merger surfaced earlier this month. According to unconfirmed reports, the talks of closer collaboration were partly due to Taiwanese iPhone maker Foxconn’s efforts to tie up with Nissan by purchasing shares from the Japanese company’s other alliance partner, France’s Renault SA.
Nissan boss Makoto Uchida said Foxconn had not contacted his company directly. He also acknowledged that Nissan’s situation was “serious.”
Canada is joining the US in imposing 100 percent tariffs on all electric vehicles from China to combat the country’s “unfair advantage” in the global market. About That producer Lauren Bird examines why North America is closing off a huge source of cheap electric vehicles and why experts say consumers will pay the price. CORRECTION: At 1:47 in this video, we state that the cheapest Tesla on sale in the United States on August 28, 2024 is a Model Y for approximately $45,000. In fact, the cheapest Tesla you can buy in the US without the federal tax credit is the Model 3 Rear-Wheel Drive for $38,990.
Even after a merger, Toyota, which launched 11.5 million vehicles in 2023, would remain the leading Japanese automaker. If they joined, the three smaller companies would produce around eight million vehicles. In 2023, Honda produced four million and Nissan produced 3.4 million. Mitsubishi Motors made just over a million.
Nissan, Honda and Mitsubishi announced in August that they would share electric vehicle components such as batteries and jointly research autonomous driving software to better adapt to the dramatic changes associated with electrification, following a preliminary announcement in March Agreement had been reached between Nissan and Honda.
Nissan has been struggling after a scandal that began with the arrest of its former chief executive Carlos Ghosn in late 2018 on charges of fraud and misuse of company assets, allegations he denies. He was eventually released on bail and fled to Lebanon.
Speaking via video link to reporters in Tokyo on Monday, Ghosn derided the planned merger as a “desperate move.”
Nissan has years of experience building batteries and electric vehicles
From Nissan, Honda could get large truck-based, body-on-frame SUVs like the Armada and Infiniti QX80, which Honda doesn’t have, with large towing capacity and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told The Associated Press.
Nissan also has years of experience building batteries and electric vehicles as well as gas-electric hybrid powertrains that could help Honda develop its own electric vehicles and the next generation of hybrids, he said.
But the company said in November it would cut 9,000 jobs, or about 6 percent of its global workforce, and reduce its global production capacity by 20 percent after reporting a quarterly loss of 9.3 billion yen (about 85 million Canadian dollars).
The company recently reshuffled its management and Makoto Uchida, its chief executive, took a 50 percent pay cut to take responsibility for the financial problems. He said Nissan needs to become more efficient and more responsive to market tastes, rising costs and other global changes.
“We expect that as this integration comes to fruition, we will be able to provide even greater value to a broader customer base,” Uchida said.
Fitch Ratings recently downgraded Nissan’s credit outlook to negative, citing worsening profitability partly due to price cuts in the North American market. However, it noted that it has a strong financial structure and solid cash reserves, which amounted to 1.44 trillion yen (13 billion Canadian dollars).
Nissan’s stock price has also fallen so far that it is considered a bargain.
The merger reflects the industry-wide trend toward consolidation
On Monday, Nissan shares traded in Tokyo rose 1.6 percent. They rose more than 20 percent after news of the potential merger broke last week.
Honda’s shares rose 3.8 percent. Honda’s net profit fell nearly 20 percent year-on-year in the first half of its April-March fiscal year as sales fell in China.
The merger reflects an industry-wide trend toward consolidation.
At a routine briefing on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on details of automakers’ plans but said Japanese companies must remain competitive in the rapidly changing market.
“As the business environment surrounding the automotive industry is changing dramatically and competitiveness in storage batteries and software is becoming increasingly important, we expect that the necessary measures will be taken to compete internationally,” said Hayashi.
