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Japanese automakers Honda and Nissan have announced plans to work on a merger that would form the world’s third-largest automaker by sales, as the industry undergoes dramatic changes in its transition away from fossil fuels.
The two companies said they signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors has also agreed to join talks to integrate their businesses.
Automakers in Japan are lagging behind their big rivals in electric vehicles and trying to cut costs and make up for lost time as newcomers like China’s BYD and US market leader Tesla gobble up market share.
Honda president Toshihiro Mibe said Honda and Nissan will continue to consolidate their operations under a joint holding company. Honda will initially lead the new management, maintaining the principles and brands of each company.
They aim to have an official merger agreement by June and to complete the deal and list the holding company on the Tokyo Stock Exchange by August 2026, he said.
No dollar value was given and official talks are just beginning, according to Mibe. There are “points that need to be studied and discussed,” he said. “Frankly, the possibility of it not being implemented is not zero.”
The Japanese government has been sounding the alarm about China’s existential threat to its auto industry since at least 2019, when allegedly invited Honda and Nissan to meet to discuss a potential consolidation.
China’s automotive sector has seen an increase in exports in recent years, with one industry group claiming to overtake Japan as the world’s largest car exporter in 2023.
The merger of Honda, Nissan and Mitsubishi could result in a behemoth worth more than US$50 billion based on the market capitalization of all three automakers.
Together, the companies would gain the scale to compete with Toyota and Germany’s Volkswagen. Toyota has technology partnerships with Japan’s Mazda and Subaru.
Planned merger ‘desperate move’
News of a possible merger emerged earlier this month, with unconfirmed reports that Taiwanese iPhone maker Foxconn was looking to tie up with Nissan by buying a stake in the Japanese company’s other alliance partner, France’s Renault.
Nissan CEO Makoto Uchida said Foxconn had no direct access to his company. He also admitted that Nissan’s situation is “difficult”.
Canada is following the US in imposing 100 percent tariffs on all electric vehicles coming from China to fight the “unfair advantage” it has in the global market. On it, producer Lauren Bird explores why North America is closing the door on a major source of low-cost electric vehicles, and why experts say consumers will pay the price. CORRECTION: At 1:47 in this video, we note that the cheapest Tesla on the market as of August 28, 2024 in the US is the Model Y for about $45,000. In fact, the cheapest Tesla you can buy in the US without a federal tax credit is a rear-wheel drive Model 3 for $38,990.
Even after the merger, Toyota, which produced 11.5 million vehicles in 2023, would remain Japan’s leading automaker. If they join forces, the three smaller companies would produce around eight million vehicles. In 2023, Honda earned four million, and Nissan 3.4 million. Mitsubishi Motors earned just over a million.
Nissan, Honda and Mitsubishi previously agreed to share components for electric vehicles, such as batteries, and jointly research autonomous driving software to better adapt to electrification.
Nissan has struggled since a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misappropriation of company assets, charges he denies. He was eventually released on bail and fled to Lebanon.
Speaking to reporters in Tokyo via video link on Monday, Ghosn derided the planned merger as a “desperate move”.
Nissan has years of experience in making batteries, electric vehicles
From Nissan, Honda could get large truck-based, body-on-frame SUVs like the Armada and Infiniti QX80 that Honda doesn’t have, with large towing capacities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told Associated Press.
Nissan also has years of experience building batteries and electric vehicles and gas-electric hybrid powertrains that could help Honda develop its own electric vehicles and next-generation hybrids, he said.
But the company said in November it was cutting 9,000 jobs, or about six percent of its global workforce, and reducing its global production capacity by 20 percent after reporting a quarterly loss of 9.3 billion yen (about Cdn85 million).
It recently reshuffled its board, and Uchida, its chief executive, took a 50 percent pay cut, admitting responsibility for the financial woes, saying Nissan needed to become more efficient and better respond to market tastes, rising costs and other global changes.
“We anticipate that if this integration comes to fruition, we will be able to deliver even greater value to a broader customer base,” Uchida said.
Fitch Ratings recently downgraded Nissan’s credit outlook to “negative,” citing deteriorating profitability, partly due to price cuts in the North American market. But it is said to have a strong financial structure and solid cash reserves of ¥1.44 trillion (Cdn 13 billion).
The merger reflects an industry-wide trend of consolidation
Nissan’s share price has also fallen to the point where it is considered cheap. Its Tokyo-traded shares rose 1.6 percent on Monday. They jumped more than 20 percent after news of a possible merger broke last week.
Honda shares jumped 3.8 percent. Honda’s net profit fell nearly 20 percent in the first half of the April-March fiscal year from a year earlier, as sales in China fell.
The merger reflects an industry-wide trend of consolidation.
At a routine briefing on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of the automaker’s plans, but said Japanese companies must remain competitive in a rapidly changing market.
“As the business environment surrounding the automotive industry changes greatly, and competition in batteries and software becomes more important, we expect the measures necessary to survive international competition will be taken,” Hayashi said.
