Decoding Honda-Nissan Merger: Impact on Global Industry

• Honda and Nissan plan to merge, potentially creating the world’s third-largest automaker.
• The merger aims to help the companies compete in the shift towards electric vehicles (EVs).
• The proposed merger could result in a company worth about $55 billion.
• The merger could potentially mark a new era in the automotive industry, setting the stage for a more competitive and innovative future.

In a significant development that could reshape the global automotive industry, Japanese automakers Honda and Nissan have announced plans to merge. This move could potentially create the world’s third-largest automaker by sales. The announcement comes as the industry grapples with a dramatic shift away from fossil fuels towards electric vehicles (EVs). The companies revealed that they had signed a memorandum of understanding on Monday, with Mitsubishi Motors, a smaller member of the Nissan alliance, also agreeing to join the discussions on integrating their businesses.

Honda is set to initially lead the new management, maintaining the principles and brands of each company. The rise of Chinese automakers has been a source of concern for the industry, particularly as manufacturers struggle to transition from fossil fuel-driven vehicles to EVs. Inexpensive EVs from China‘s BYD, Great Wall, and Nio have been eroding the market shares of U.S. and Japanese car companies in China and other markets.

Japanese automakers have been lagging behind their larger rivals in the EV sector and are now striving to cut costs and make up for lost time. In August, Nissan, Honda, and Mitsubishi announced that they would share components for electric vehicles, such as batteries, and jointly research software for autonomous driving to better adapt to the dramatic changes in the auto industry centered around electrification.

Facing the Future Together

The proposed merger could result in a behemoth worth about $55 billion, based on the market capitalization of all three automakers. This alliance would help the smaller Japanese automakers compete with Japan‘s market leader Toyota Motor Corp and Germany ’s Volkswagen AG. Toyota itself has technology partnerships with Japan’s Mazda Motor Corp and Subaru Corp.

Nissan brings to the table its experience in building batteries and electric vehicles, as well as gas-electric hybrid powertrains. This could aid Honda in developing its own EVs and the next generation of hybrids. Nissan’s electric Leaf and Ariya, while not selling well in the U.S., are solid vehicles. The company has been actively developing this technology and has new products in the pipeline that could provide a good platform for Honda’s next generation of vehicles.

However, Nissan has been grappling with financial challenges. Last month, the company announced that it was cutting 9,000 jobs, or about 6% of its global workforce, and reducing global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($61 million).

Market Reactions and Future Prospects

Its credit outlook was recently downgraded to “negative” by Fitch Ratings, citing worsening profitability, partly due to price cuts in the North American market. Despite these challenges, it was noted that Nissan has a strong financial structure and solid cash reserves amounting to 1.44 trillion yen ($9.4 billion).

Honda, on the other hand, reported a nearly 20% slip in profits in the first half of the April-March fiscal year from a year earlier, as sales suffered in China. Despite these challenges, the merger talks have had a positive impact on the stock market. Honda’s shares surged more than 12.2% after the announcement of the merger talks and a planned share buyback worth up to 1.1 trillion yen ($7 billion). Nissan’s shares also rose by 6%.

The merger talks come at a time when the global automotive industry is facing potential shocks if President-elect Donald Trump follows through on threats to raise or impose tariffs on imports of foreign products, even from allies like Japan and neighboring countries like Canada and Mexico. Nissan is among the major car companies that have adjusted their supply chains to include vehicles assembled in Mexico.

The proposed merger, if successful, would be a significant event in the history of the automotive industry. It would not only reshape the landscape of the industry but also potentially set a precedent for other automakers facing similar challenges. However, the companies have stated that there are points that need to be studied and discussed, and the possibility of the merger not being implemented is not zero. The aim is reportedly 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. This merger could potentially mark a new era in the automotive industry, setting the stage for a more competitive and innovative future.