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Japanese automakers Honda and Nissan have announced plans to work toward a merger, forming 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 had signed a memorandum of understanding on Monday and that Mitsubishi Motors, a smaller member of the Nissan alliance, had also agreed to join talks to integrate their businesses.
Honda President Toshihiro Mibe said Honda and Nissan will seek to unify their operations under a joint holding company. Honda will initially lead the new direction, preserving the principles and brands of each company. The goal is to have a formal 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 provided and formal talks are just beginning, Mibe said.
There are “points that need to be studied and discussed,” he said. “Frankly, the possibility of this not being implemented is not zero.”
Japanese automakers lag behind Tesla and Chinese rivals
Automakers in Japan have fallen behind their big EV rivals (namely Tesla and China’s BYD) and are trying to cut costs and make up for lost time.
China’s automotive sector has seen an increase in exports in recent years, with an industrial cluster claiming which had overtaken Japan as the world’s top auto exporter by 2023. In China’s domestic auto market, the world’s largest, hybrids and electric vehicles accounted for more than half of auto sales this year.
The Japanese government has been sounding the alarm about China’s existential threat to its auto industry since at least 2019, when reportedly He urged Honda and Nissan to meet and discuss possible consolidation. A merger could result in a giant worth more than $50 billion based on the market capitalization of the three automakers.
Together, Honda, Nissan and Mitsubishi would gain scale to compete with Toyota Motor Corp. and Germany’s Volkswagen AG. Toyota has technology partnerships with Mazda Motor Corp. and Subaru Corp. of Japan.
Planned merger is a ‘desperate move’
News of a possible merger emerged earlier this month, with unconfirmed reports saying that talks of closer collaboration were driven in part by Taiwanese iPhone maker Foxconn’s aspirations to partner with Nissan by purchasing shares of the Japanese company’s other alliance partner, Renault SA of France. .
Nissan CEO Makoto Uchida said Foxconn had not had any direct contact with his company. He also acknowledged that Nissan’s situation was “serious.”
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Even after a merger, Toyota, which launched 11.5 million vehicles in 2023, would remain the top Japanese automaker. If they join together, the three smaller companies would make about eight million vehicles. In 2023, Honda earned four million and Nissan produced 3.4 million. Mitsubishi Motors earned just over a million.
Nissan, Honda and Mitsubishi announced in August that they would share electric vehicle components, such as batteries, and jointly research software for autonomous driving to better adapt to dramatic changes focused on electrification, following a preliminary agreement between Nissan and Honda established in March .
Nissan has struggled following 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, allegations 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 measure.”
Nissan has years of experience manufacturing batteries and electric vehicles.
From Nissan, Honda could get large, truck-based body-on-frame SUVs, like the Armada and Infiniti QX80, which Honda doesn’t have, with big towing capacities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told The Associated Press.
Nissan also has years of experience making batteries and electric vehicles, and gas-electric hybrid powertrains that could help Honda develop its own electric vehicles and the next generation of hybrids, he said.
But the company said in November that 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 ( around 85 million Canadian dollars).
It recently reorganized its management and Makoto Uchida, its chief executive, took a 50 percent pay cut to take responsibility for financial problems, saying Nissan needed to become more efficient and better respond to market tastes, rising costs and others. 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 worsening profitability, in part due to price cuts in the North American market. But it noted that it has a sound financial structure and strong cash reserves that amounted to 1.44 trillion yen ($13 billion Canadian).
Nissan’s share price has also fallen to the point where it is considered something of a bargain.
Merger reflects industry-wide trend toward consolidation
On Monday, Tokyo-listed Nissan shares gained 1.6 percent. They jumped more than 20 percent after news of the possible merger broke last week.
Honda shares rose 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 suffered in China.
The merger reflects a trend toward consolidation across the industry.
At a routine briefing on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of automakers’ plans, but said Japanese companies need to remain competitive in a rapidly changing market. .
“As the business environment surrounding the automotive industry changes greatly, and competitiveness in battery storage and software becomes increasingly important, we hope that the necessary measures will be taken to survive international competition,” he said Hayashi.
