Honda and Nissan seek merger agreement

The Japanese car giant Honda and its struggling compatriot Nissan have decided to start up merger talks that would create the world’s third-largest automaker by 2026. Their goal is to join forces to negotiate the strategic shift to electric vehicles, dominated by American Tesla and Chinese groups, led by BYD. Like Germany’s Volkswagen, the two Japanese groups have seen their sales collapse in China, the world’s largest market on which they are heavily dependent. According to the memorandum signed today, Honda and Nissan, the second and third largest Japanese automakers after Toyota, they want to reach “a definitive agreement” by June 2025. The aim is to unite under a “single holding company”, which they intend to list on the stock exchange in August 2026, maintaining their current brands.

This union would allow share the high costs and risks of developing electric modelssoftware and batteries, ensuring supply chains and gaining competitiveness thanks to economies of scale. Mitsubishi Motors, of which Nissan is the largest shareholder, will decide by “the end of January” whether it wants to join this alliance, in which each could assemble its own vehicles at the partners’ factories. Together, the three manufacturers would form the world’s third-largest automotive group, with around eight million vehicles sold last year, after Toyota and Volkswagen.

For Nissan this is a providential merger

Heavily indebted, it suffered an unexpected loss in the last quarter and its operating margin almost completely collapsed. In its two key markets, sales have plummeted: in the United States, due to the failure to market plug-in hybrids in the face of strong demand, and in China, due to the dominance of local brands in the electric car segment . At the beginning of November, Nissan has announced it will cut 9,000 jobs worldwide and the reduction of production capacity. Demonstrating its vulnerability, Taiwanese electronics assembly giant Foxconn (Hon Hai) recently approached it to acquire a majority stake, according to the Japanese press, precipitating the start of negotiations with Honda.

Undermined by internal “power struggles”, Nissan “marginalized itself” and finds himself “in panic mode, pleading with his longtime enemy” Honda, joked the former head of the company Carlos Ghosn, from Lebanon where he fled in 2019 while he was being tried in Japan for financial crimes. Honda, for its part, would benefit from an enlarged entity to actually launch 100% electric cars, after the failure of a joint project with the American General Motors. Japanese groups have long focused on hybrids (which combine internal combustion engines and electric motors), neglecting the global boom in fully electric vehicles.

Post-merger scenarios

China is set to overtake Japan as the world’s top vehicle exporter in 2023. Alarmed, Nissan and Honda unveiled a “strategic partnership” in electric vehicle software and equipment in March. Mitsubishi joined this initiative in August. “If the goal of fusion is to prepare for the future, to develop components for future electric cars that we barely produce today, then it makes sense,” but ‘an operational merger will not solve Nissan’s pressing problems‘a source close to the matter told AFP. Toshihiro Mibe, head of Honda, confirmed to the press that “this is not about saving Nissan” and that Nissan’s plan to cut costs and increase sales is a prerequisite.

Nissan CEO Makoto Uchida acknowledged that his group has “problems” to overcome, but is banking on “synergies” with Honda, whose “agility” he praises. Faced with changes in the automotive industry, where information technology and technology are taking over, “sWe will only be able to progress if we have the courage to change ourselves“he said. Faced with an unequal situation, with Honda valued on the stock exchange four times more than Nissan for the same sales volumes, Honda will be able to select the main executives of the future holding company. “Honda has no experience of alliances or mergers, it won’t work” and ‘from an industrial point of view, there is duplication everywhere’, given that the two manufacturers market similar models ‘with the same strengths and weaknesses’, Ghosn stressed.

There is therefore the risk of a painful restructuring. A merger would generate profits after 2030, Mibe simply assured. The agreement would further obscure the historic alliance between Nissan and Renault, forged by Carlos Ghosn: the French company is gradually reducing its stake in the Japanese group after years of stormy relations, but still controls around 35%, guaranteeing itself a decisive voice, and should seek to preserve the joint projects it maintains with Nissan.