Honda and Nissan reportedly in merger talks to weather EV storm

Honda and Nissan reportedly in merger talks to weather EV stormOn December 18th, the Nikkei reported that Japanese auto giants Honda and Nissan are in merger negotiations to address the intensifying global competition in the electric vehicle (EV) market. This news has sparked widespread attention across the global automotive industry, marking another significant strategic shift by traditional automakers to navigate the EV revolution

Honda and Nissan reportedly in merger talks to weather EV storm

On December 18th, the Nikkei reported that Japanese auto giants Honda and Nissan are in merger negotiations to address the intensifying global competition in the electric vehicle (EV) market. This news has sparked widespread attention across the global automotive industry, marking another significant strategic shift by traditional automakers to navigate the EV revolution.

The rise of EV manufacturers like Tesla, coupled with the strong push from Chinese EV brands, has put immense pressure on global legacy automakers. Weakening demand in European and US markets has further exacerbated the situation, creating unprecedented survival challenges. Honda and Nissan are no exception. While both companies denied reaching a merger agreement in separate statements, they acknowledged exploring various possibilities for future collaboration to leverage each other's strengths.

Both companies stated they are closely monitoring market dynamics and will inform stakeholders of any new developments in due course. However, this ambiguous response hasn't quelled speculation; instead, it has heightened market anticipation of a potential merger.

Renault, the major shareholder of Nissan, stated it had no knowledge of the merger rumors and declined to comment, hinting at the complexity and potential challenges of such a merger.

The price war initiated by Tesla and BYD over the past year has further burdened companies already losing money in their EV businesses. Honda and Nissan are compelled to find ways to cut costs and accelerate new vehicle development, with a merger seen as a critical strategy.

Honda currently has a market capitalization of approximately 5.95 trillion (about $38.8 billion), while Nissan's is around 1.17 trillion (about $7.6 billion). A successful merger would represent the automotive industry's largest deal since Stellantis's formation from the Fiat Chrysler and PSA merger in 2021 ($52 billion), making its scale and impact considerable.

Edmunds analyst Jessica Caldwell noted that survival and success are becoming increasingly difficult for smaller automakers in the fiercely competitive EV market, especially with the strong entry and aggressive competition from Chinese automakers. She views the potential merger not just as a survival tactic but a necessary move to secure future growth.

Honda's US-listed stock rose 0.9% in Tuesday afternoon trading, reflecting the positive market sentiment towards the potential merger. Honda and Nissan, Japan's second and third-largest automakers after Toyota, have seen declining market share in China. November's EV sales in China exceeded 1.27 million units, representing approximately 70% of global sales, highlighting the explosive growth of the Chinese EV market and the immense challenges facing traditional automakers.

In 2023, Honda and Nissan's combined global vehicle sales reached 7.4 million units, but they still face significant challenges from EV manufacturers, particularly in China, where domestic brands like BYD have rapidly risen to dominance.

Globally, many traditional automakers are adjusting their electrification strategies. General Motors (GM) and Ford have slowed their EV investments. Despite government incentives, high borrowing costs and lagging charging infrastructure hinder EV adoption.

The European auto industry is facing a crisis, with weak demand, high costs, slower-than-expected EV adoption, and intense competition from Chinese automakers, threatening thousands of jobs. Volkswagen even threatened to shut down German plants and plans cost-cutting measures including layoffs and pay cuts. Last week, Volkswagen announced the closure of its Audi plant in Brussels next year.

Volkswagen is under immense pressure in the European market due to falling demand and rising costs, leading to increasingly tense negotiations with unions to cut costs.

The global auto industry is also preparing for the possibility of US President-elect Donald Trump reversing EV incentives. Auto executives say any merger deal would face intense scrutiny from US regulators. Trump previously threatened strong measures against imported cars, including a 25% tariff on vehicles from Canada and Mexico. Analysts suggest Honda and Nissan may need to make concessions to secure US government approval.

In March, Honda and Nissan agreed to collaborate on EV development. In August, they further deepened their cooperation, agreeing to jointly develop batteries and electric powertrains. The Nikkei reports that Honda and Nissan are expected to soon sign a memorandum of understanding to establish a new merged entity. The report also suggests the inclusion of Mitsubishi Motors in the merger plan. Nissan is currently Mitsubishi's largest shareholder, holding a 24% stake. Mitsubishi Motors has yet to respond to the merger rumours.

Nissan has experienced persistently weak demand in China and the US in recent years, forcing the company to implement various cost-cutting measures. Last month, Nissan announced a significant year-on-year decline in net profit for its half-year results, exceeding 90%.

The potential Honda-Nissan merger represents a major strategic adjustment within the global auto industry's response to the EV wave. This move reflects not only the immense pressure on traditional automakers but also foreshadows profound changes in the future automotive landscape. The success of the merger, and the final design of the merged entity, remain to be seen. However, its certain that this merger would have a far-reaching impact on the global automotive market.