Honda and Nissan talking about possible merger (update)

According to Japan’s Nikkei business newspaper, Honda Motor Co. and Nissan Motor Co. are preparing to start negotiations on a possible merger, which could ultimately be expanded to include Mitsubishi Motors Co. The talks have been encouraged because the Taiwanese electronics giant Foxconn has also shown some interest in becoming Nissan’s main shareholder.

Such a deal would create an automotive rival to Toyota Motor Corp., effectively consolidating the Japanese auto industry into two camps. It would also give Honda and Nissan more resources to compete globally with larger peers. The move would follow the two companies’ decision to work together on electric vehicle batteries and software earlier this year.

Nikkei, without citing sources, said that the two major Japanese carmakers plan to sign a memorandum of understanding (MoU) to discuss shared equity stakes in a new holding company under which the combined company would operate. The merger would help the manufacturers compete against rivals in electric vehicles, such as Tesla Inc. and the major Chinese automakers.

Nissan has stepped up restructuring efforts to cope with stalled revenue growth and lower profits. It faces pressure from an activist shareholder and a daunting debt load that has led to speculation in credit markets about its investment-grade rating.

The reported merger talks come after the Financial Times said last month that Nissan was looking for an anchor investor to replace part of Renault’s equity holding and that it hadn’t ruled out having Honda buy some of its shares.

Stronger together

Global automakers are struggling to secure funds to cover increasingly high costs for EV development due to expensive batteries and the massive resources required for software development, such as autonomous driving functions.

Honda traditionally preferred to develop cars in-house but has been ramping up collaboration with companies such as Sony Group Corp. and General Motors Co. in recent years.

Nissan agreed to review its decades-old capital alliance with Renault SA last year in a deal that lowered the French automaker’s influence over the Japanese company and has been exploring ways to increase its competitiveness.

Honda has been shifting gears to boost hybrid gas-electric vehicles even as it spends more on all-electric production capacity. The Japanese carmaker plans to cut costs for new hybrid systems by over 30% compared with current versions by using more common parts while developing a new hybrid engine that will be 10% more fuel efficient. The new systems will be installed in vehicles starting in 2026.

Honda plans to double its global hybrid sales from 2023 to 1.3 million vehicles in 2030, focusing on North America with its next-generation gasoline-electric models. To strengthen its hybrid lineup, the automaker will launch a gasoline-electric version of the Prelude in 2025, reintroducing the coupe model to the market for the first time in more than 20 years.

Hybrid models are, for example, very popular in Japan’s homeland, where pure electric vehicles represent only around 2% of global sales, while hybrid vehicles already make up 40% of sales. There are multiple reasons for this, but the relative lack of interest, until now, in Japanese car makers for EVs and the poor charging infrastructure in Japan are undoubtedly playing a role.

Honda will also continue launching hybrid models in China, but the target of 1.3 million excludes sales in the world’s largest auto market, where automakers will prioritize EVs. Still, Honda is sticking to its 2040 goal to make all new models battery-electric or fuel-cell by that time, expecting demand for zero-emission vehicles to pick up in the latter half of the 2020s.

Problems in China

Honda and Nissan are facing slumping sales in China, where local brands with more affordable EVs are grabbing market share from Japanese automakers.

Last month, Honda cut its net profit outlook for the current business year through March to 950 billion yen (€5.9 billion), representing a 14.2% decline from the previous year due to weaker-than-expected auto sales in China. Also in November, Nissan unveiled a plan to cut 9,000 jobs and reduce global output capacity by 20%, saying its business in the United States and China continued to struggle.

In 2023, Honda and Nissan sold 3.98 million and 3.37 million vehicles worldwide, respectively. The Toyota group sold 11.23 million cars that year, maintaining the top position for the fourth consecutive year, followed by Volkswagen with 9.24 million. In the first six months of this year, Honda, Nissan, and Mitsubishi sold about 4 million vehicles globally, while the Toyota group sold 5.2 million.

Following media reports on the potential merger talks, the Tokyo Stock Exchange briefly halted trading of Nissan shares ahead of the Wednesday morning session but resumed after the companies issued the statement.

Foxconn

Speaking about China, the Taiwanese electronics giant Foxconn has also approached Nissan to try to acquire an essential share in the company. Bloomberg confirmed this after rumors appeared in Japanese media.

The move has stirred up the negotiations between Honda and Nissan. It is not clear if Nissan has agreed to talk seriously with Foxconn about the offer because Nissan refuses to give any comment at the moment. According to the business newspaper Nikkei, the fear of being partly taken over by a Chinese giant that has already shown interest several times in the automotive industry has urged the two Japanese carmakers to accelerate the negotiations.

For the moment, Renault is still the biggest shareholder in Nissan (with 36% of shares, already down 7% from the previous 43%). The French group hasn’t given any official comment yet, but inside sources told Bloomberg that Renault could favor a Nissan-Honda merger. Of course, the group wants to ensure that its own interests aren’t affected here. A merger would also shed more light on the recently reorganized Alliance partnership between Nissan, Mitsubishi, and Renault.