Honda and Nissan have begun talks to join, which is a historic turn

On Monday, Honda (7267.T) and Nissan (7201.T) announced that they have initiated discussions regarding a potential merger. This historic development for Japan’s auto industry underscores the threat that Chinese electric vehicle manufacturers now pose to some of the world’s most renowned automobile manufacturers.

The integration would establish the world’s third-largest auto group in terms of vehicle sales, following Volkswagen (VOWG_p.DE) and Toyota (7203.T). Additionally, it would provide the two companies with the opportunity to share resources and achieve scale in the face of intense competition from Tesla (TSLA.O) and more agile Chinese competitors, such as BYD.

The merger of the two renowned Japanese brands, Honda and Nissan, which are Japan’s second and third largest automakers, would represent the most significant transformation of the global auto industry since the merger of Fiat Chrysler Automobiles and PSA in 2021 to form Stellantis (STLAM.MI). This $52 billion transaction would initiate a new chapter in the industry.

Mitsubishi Motors (7211.T), a smaller company in which Nissan is the largest shareholder, was also contemplating a merger, according to the companies. A simultaneous press conference was conducted in Tokyo by the chief executives of all three companies.

Honda CEO Toshihiro Mibe stated at the press conference that the automobile industry has been significantly altered by the emergence of Chinese manufacturers and new players.

“We have to build up capabilities to fight with them by 2030, otherwise we’ll be beaten,” according to him.

They stated that the prospective merger would provide the two companies with a combined operating profit of over 3 trillion yen and sales of 30 trillion yen ($191 billion).

It was their intention to conclude negotiations in June 2025 and establish a holding company by August 2026. Subsequently, both companies’ shares would be delisted.

Nissan is valued at approximately $10 billion, while Honda has a market capitalization exceeding $40 billion.

The preponderance of the holding company’s board will be appointed by Honda, according to the statement.
The Japanese group’s global sales would exceed 8 million vehicles if it were to merge with Mitsubishi Motors. Hyundai (005380.KS) and Kia (000270.KS) are the current No. 3 and No. 4 groups, respectively.

According to a report by Reuters last week, Honda and Nissan have been investigating potential strategies to fortify their partnership, such as a merger.

In March, the two organizations announced that they were contemplating a partnership to collaborate on software development and electrification. In August, they mutually consented to collaborate on research and expanded their partnership to include Mitsubishi Motors.

Nissan announced last month that it would reduce its global production capacity by 20% and eliminate 9,000 positions in response to a decline in sales in the critical markets of the United States and China. Honda’s earnings were also below expectations as a result of a decline in sales in China.

Four of the world’s top 17 manufacturers are Chinese, according to global car sales data through September.

Four of the world’s top 17 manufacturers are Chinese, according to global car sales data through September.

Honda and Nissan, along with other foreign car manufacturers, have experienced a decline in their market share in China, the world’s largest market, due to the entry of BYD (002594.SZ) and other local brands that specialize in the production of electric and hybrid vehicles that are equipped with cutting-edge software.

In a separate online press conference with the Foreign Correspondents Club of Japan on Monday, former Nissan chairman Carlos Ghosn expressed his skepticism regarding the viability of the Honda-Nissan alliance, asserting that the two automakers were not complementary.

Ghosn has fled to Lebanon after escaping bail and is currently being sought as a fugitive in Japan. Nissan was plunged into a crisis following his 2018 indictment for financial misconduct.
Renault, Nissan’s largest shareholder and a French automaker (RENA.PA), is believed to be amenable to a potential partnership and is willing to investigate all potential consequences, according to sources.

Sources have informed Reuters that Foxconn (2317.TW), a Taiwanese company, approached Nissan about a proposal in order to expand its nascent EV contract manufacturing business. However, Nissan rejected the offer.
Bloomberg News reported on Friday that Foxconn decided to suspend the approach after sending a delegation to meet with Renault in France.

Following the news reports regarding the proposed merger, Honda’s shares increased by 3.8%, Nissan’s shares increased by 1.6%, and Mitsubishi Motors’ shares increased by 5.3%. The benchmark Nikkei (.N225) closed up 1.2%.

$1 is equivalent to 156.7000 yen.