Japanese Automakers Seek Strategic Partnership Amid Growing Pressure from Chinese EV Makers.
Honda Motor Co. and Nissan Motor Co. are reportedly in early discussions about a potential merger, a move that could reshape Japan’s auto industry and help both companies compete more effectively in the rapidly evolving electric vehicle (EV) market.
The discussions, first reported by Japan’s Nikkei newspaper, come as automakers worldwide face increasing pressure to transition from internal combustion engines to electric-powered vehicles. Sources say the two companies are still in the early stages of talks, with no guarantees that a formal merger will be reached.
If successful, a merger between Honda and Nissan would combine the expertise and production capacity of Japan’s second- and third-largest automakers, creating one of the world’s largest auto manufacturing groups. The combined entity would be better positioned to challenge leading EV makers, particularly in China, where competition from companies like BYD and Nio has intensified.
In response to the reports, both Honda and Nissan issued identical statements, saying:
“As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths. If there are any updates, we will inform our stakeholders at an appropriate time.”
The companies did not deny reports of the merger discussions but clarified that it was “not something that has been announced by either company.” However, Japanese broadcaster TBS suggested that the companies might officially confirm the discussions as early as next week.
Both companies have been under growing pressure to keep up with the industry-wide shift toward electrification. While Honda and Nissan have been known for their independence, the growing cost of EV production and the rise of powerful Chinese automakers have made collaboration increasingly necessary.
The auto industry is at a critical turning point as manufacturers transition away from gasoline-powered vehicles to battery electric vehicles (BEVs). This shift is particularly pronounced in China, which accounts for nearly 70% of global EV sales and has overtaken Japan as the world’s largest car exporter.
Honda and Nissan, like many legacy automakers, have struggled to keep pace with newer EV-first companies like BYD and Tesla. Both brands have seen their market share in China decline. In fact, Nissan’s sales in China are expected to fall by 13% this fiscal year, while Honda faces an even steeper drop in the same market.
In 2023, Honda and Nissan sold a combined 7.4 million vehicles globally. But their influence in the EV space has been limited, especially compared to fast-growing Chinese companies that offer more affordable, feature-rich EVs. Jesper Koll, an analyst at Monex Group, questioned the potential effectiveness of a merger, noting:
“Is this really just rearranging the deck chairs on the Titanic in the sense that neither Honda nor Nissan really have any products or technologies that global consumers want?”
By merging, Honda and Nissan would be able to pool their resources, share research and development costs, and consolidate EV battery production. Such a move could increase efficiency and reduce the financial burden on each company as they compete in a capital-intensive EV market.
While the idea of a merger might have seemed unlikely in the past, Honda and Nissan have already deepened their ties in recent months.
- March 2024: The two companies announced a strategic partnership to jointly develop electric vehicles.
- August 2024: Honda, Nissan, and Mitsubishi Motors agreed to collaborate on battery production and EV technology.
The potential merger could further strengthen these ties. According to the Nikkei, Mitsubishi may also be brought into the partnership since Nissan is Mitsubishi’s largest shareholder. A larger tri-company alliance would mirror existing global partnerships like the Stellantis merger (which brought together Fiat Chrysler and Peugeot) or the Renault-Nissan-Mitsubishi alliance, which Nissan may need to unwind if it moves forward with Honda.
While the strategic logic behind the merger is clear, it faces potential hurdles.
- Political and Regulatory Scrutiny: Any merger between two of Japan’s largest automakers would face intense scrutiny from the Japanese government, as it could lead to significant job cuts and a potential restructuring of domestic supply chains.
- Renault-Nissan Alliance: Nissan is still tied to its 20-year alliance with Renault, a French automaker that recently reduced its ownership stake in Nissan. If Nissan pursues a merger with Honda, it may have to further distance itself from Renault, raising questions about the future of that partnership.
- Corporate Culture: Honda and Nissan have historically pursued different strategic visions. Honda has prided itself on developing core components like engines in-house, while Nissan has had a history of global partnerships. Aligning these two corporate philosophies may be difficult.
- Global Competition: Even with a merger, Honda and Nissan would still face fierce competition from Chinese EV makers like BYD, which has already surpassed Tesla in revenue, as well as traditional automakers like Volkswagen and Hyundai, which are ramping up their EV production.
News of the potential merger sent shockwaves through the Tokyo stock market:
- Nissan’s shares soared by 23% as investors saw the potential for cost-saving synergies and enhanced competitiveness.
- Mitsubishi’s stock rose 20%, as the company could be included in the potential merger, further bolstering its position in the industry.
- Honda’s shares, however, fell by 3%, reflecting concerns that the more independent automaker might lose control of its strategy under a merger.
The financial markets’ mixed reaction highlights the uncertainties surrounding the merger’s long-term impact on the companies’ profitability.
The Honda-Nissan merger talks come as automakers across the globe seek consolidation and strategic partnerships to weather the costs of electrification.
- Volkswagen and Rivian: Volkswagen recently announced a partnership with US-based EV startup Rivian.
- General Motors and Hyundai: In September, General Motors revealed a strategic alliance with South Korean automaker Hyundai on combustion, electric, and hydrogen-powered vehicles.
- Ford and Tesla: Ford partnered with Tesla to adopt Tesla’s North American Charging Standard (NACS) for its EVs, showcasing the importance of cross-company collaboration in the EV era.
By merging, Honda and Nissan would aim to become a stronger “national champion” for Japan, capable of competing on the global EV stage.
According to reports, Nissan and Honda are expected to sign a memorandum of understanding (MoU) as early as next week, formalizing their intention to explore merger options. Such an agreement would not guarantee a deal but would signal a clearer path toward integration.
While mergers in the automotive sector are often difficult, the success of Stellantis (which merged Fiat Chrysler and PSA) and other industry tie-ups offers a roadmap for how Honda and Nissan could combine forces.
If successful, a Honda-Nissan-Mitsubishi alliance would become the world’s third-largest automaker by production volume, following Toyota and Volkswagen.
As the electric vehicle race heats up, automakers are realizing that “going it alone” is no longer a viable option. Honda and Nissan’s potential merger could be a defining moment for the Japanese auto industry — a sector that has historically resisted large-scale consolidation.
With input from BBC, CNN, and the New York Times.
