Honda Motor and Nissan Motor are exploring a merger to create one of the world's largest automotive groups, aiming to better position themselves for the costly technological transition currently reshaping the industry.
On Monday, Honda and Nissan signed a memorandum of understanding to formally initiate discussions aimed at deepening their partnership, which began earlier this year. Over the next six months, the companies will explore the possibility of combining their operations under a holding company, with a target completion date for the merger set for August 2026.
As Japan's second- and third-largest automakers, Honda and Nissan would join a growing number of legacy auto manufacturers, including General Motors and Volkswagen, that are strengthening ties to share the financial burden associated with developing next-generation vehicles. This merger is particularly viewed as a crucial move for Nissan, which has been reducing jobs and production due to declining sales.
In contrast to the gasoline-powered vehicles that have dominated the industry for decades, the current market is increasingly focused on electric vehicles equipped with batteries, electric motors, and advanced software that enable features like autonomous driving.
To effectively navigate this transition, Honda and Nissan believe they can enhance their research and development capabilities and attract new investments as a unified entity, according to Honda's chief executive, Toshihiro Mibe, during a briefing in Tokyo.
“Current business models are being upended. It is not going to take 10 to 20 years for that to happen; it will come much faster,” Mibe stated. “We need to have the right artillery in order to be competitive on that battlefield, so we’re starting today,” he added.
Automakers across Japan, the United States, and Europe have invested billions into electric vehicle development in recent years, although these efforts have yet to yield significant profits. These investments are primarily funded by sales of higher-margin gasoline and hybrid models, which also require ongoing investment.
With slowing electric vehicle sales growth and potential changes to U.S. tax incentives for electric vehicles, automakers are under pressure to sustain investments in both gasoline and battery-powered vehicles over the long term, according to Takaki Nakanishi, head of the automotive consulting firm Nakanishi Research Institute in Tokyo.
“To sustain these dual investments, automakers need scale and the operational efficiencies that come with it,” Nakanishi remarked. “If Nissan and Honda are not able to achieve this, they will not survive,” he cautioned.
Nissan currently sells over three million vehicles annually, while Honda sells nearly four million. A merger would position them as the world's third-largest automaker group, trailing only Toyota and Volkswagen. Together, Honda and Nissan employ approximately 325,000 people.
The companies indicated that integrating their operations would allow for standardization in vehicle design and increased production efficiency, ultimately reducing development costs and freeing up resources for software innovation.
However, a significant concern remains whether even large, merged entities like Honda and Nissan can compete with newer rivals such as Tesla and China's BYD, which have established substantial leads in electric vehicle technology and capabilities.
Historically, automotive mergers have often failed to meet expectations, with notable examples including the DaimlerChrysler split after nine years. The recent merger of Fiat Chrysler and the French PSA Group to form Stellantis has also faced challenges, including the resignation of its chief executive under pressure.
Last year, Nissan and its long-time partner Renault began steps to unwind their alliance, while Honda and General Motors recently abandoned plans to develop a line of lower-priced electric vehicles shortly after announcing the collaboration.
The new parent company resulting from a Honda-Nissan merger would be listed on the Tokyo Stock Exchange, with Honda nominating a majority of the new company's directors. Mitsubishi Motors, a smaller Japanese automaker and long-time partner of Nissan, has also expressed interest in potentially joining the new group.
Under current market valuations, the combined entity would be worth over $50 billion. This merger is part of a broader trend of consolidation within the Japanese automotive industry, which has seen $10 billion in mergers and acquisitions this year, a 163 percent increase from the previous year.
Despite the potential benefits of increased scale, Japanese automakers must demonstrate that their partnership can accelerate the development of new vehicles. If they fail to create new value through collaboration, experts warn that the merger may merely represent a consolidation of struggling companies.
In China, the world's largest car market, it may already be too late for Honda, Nissan, and many Western automakers to regain lost ground against cost-competitive and technologically advanced local competitors. For the fiscal year ending March 31, Nissan has projected a 13 percent decline in sales in China, while Honda expects an even steeper drop.
Nissan's challenges in China have contributed to a 90 percent decline in its operating profit to $214 million during the first half of the current fiscal year. Recently, Nissan announced plans for significant cuts to its global operations and has attracted interest from various groups, including activist investors.
In contrast, Honda's financial position remains relatively stable, reporting a $1.8 billion profit in the recent July-September quarter, although this figure represents a 15 percent decline from the previous year due to rising research-and-development costs and weak sales in China.
Industry experts suggest that Nissan's current struggles could soon affect Honda, highlighting the urgency for Honda to merge with Nissan to share a common destiny and address the impending crisis collaboratively.