itstargetnews
By David Dolan
TOKYO (Reuters) – Honda (HMC) and Nissan (NSANY) expect big profits from their potential merger to create the world’s third-largest auto group, but intense competition from China raises questions about whether they can make it work in time.
Japanese carmakers said on Monday they had agreed to start formal talks on a merger. While the outcome is uncertain and will depend in part on Nissan progressing its turnaround, they aim to finalize the deal by August 2026.
Nissan’s junior partner Mitsubishi Motors will decide next month whether it plans to participate.
The automakers are targeting synergies of more than 1 trillion yen ($6.4 billion) by leveraging a common platform, shared research and development (R&D) and joint procurement.
Its operating profit target of more than 3 trillion yen represents a 54% increase on its combined results last year.
But the full effect of the synergies is not likely to be felt until after 2030, Honda CEO Toshihiro Mibe said at a joint news conference on Monday. Companies must build capabilities to take on Chinese rivals by then, he said, or face being “outgunned”.
Analysts wonder if they have that much time.
The biggest immediate hurdle for both may be their model lineups. Neither is particularly strong in electric vehicles. Nissan, although an early pioneer with the Leaf, later stumbled. A new EV, the Ariya, was supposed to challenge Tesla’s Model Y, but was hampered by production issues.
Honda has focused more on hybrids and, unlike Nissan, offers the models in the United States, where demand for the cars has increased.
“The two companies do not have compelling electric vehicle offerings, and the combined entity would still face the challenge of a new EV model and technology R&D,” said Vincent Sun, senior analyst at Morningstar .
A standardized vehicle platform would produce cost synergies, but this too would take time to develop.
“It may take longer than expected” to fix the business, Sun said.
In China, the shift to electrified cars has seen consumer interest focus on software-driven features and the digital in-car experience, areas where Chinese manufacturers excel.
BYD and other domestic brands have zoomed past legacy automakers, launching electric and hybrid vehicles loaded with innovative software. Both Honda and Nissan have lost ground in China, the world’s largest car market.
Honda posted a 15% drop in quarterly profit last month and has been cutting its workforce in China. Nissan has already announced plans to cut 9,000 jobs worldwide and cut manufacturing capacity by 20% due to falling sales in both China and the United States.
