Japanese automakers Honda and Nissan are in talks to merge by 2026. While the move, once completed, will see a rare moment unfolding in the Asian country’s automobile industry, with two of its big players creating the world’s third-largest auto group by vehicle sales after Toyota and Volkswagen, the incident further underlines the threat Chinese electric vehicle makers now pose to the world’s long-dominant legacy car makers.
It would also give the two companies scale and a chance to share resources in the face of intense competition from Tesla and Chinese rivals like BYD. The Honda-Nissan merger talks have brought back the event in 2021, where Fiat, Chrysler Automobiles and PSA merged to create Stellantis in a USD 52-billion deal.
Smaller Mitsubishi Motors, in which Nissan is a top shareholder, was also considering joining and would make a decision by the end of January 2025, the companies said. The two companies would aim for combined sales of 30 trillion yen (USD 191 billion) and operating profit of more than three trillion yen through the potential merger.
The ventures now aim to wrap up talks around June 2025 before setting up a holding company by August 2026, when shares of both companies would be delisted. Honda, which has a market capitalisation of more than USD 40 billion, roughly four times that of Nissan, will appoint the majority of the company’s board. Combining with Mitsubishi Motors would take the Japanese group’s global sales to over eight million cars. The current number three is South Korea’s Hyundai and Kia.
Honda and Nissan have been exploring ways to bolster their partnership, including a merger. In March 2024, both the ventures were considering cooperation on electrification and software development. They widened the collaboration with Mitsubishi Motors in August. In November, Nissan announced a plan to cut 9,000 jobs and 20% of its global production capacity after sales plunged in the key China and United States markets.
Honda also reported worse-than-expected earnings due to a China sales slump, although solid two-wheeler and hybrid car businesses helped it secure a relatively stable financial base. Honda and Nissan both have lost ground in the world’s biggest market China, as the latter’s automakers are now producing electric and hybrid cars with cutting-edge features like innovative software, while keeping the price tags low.
French automaker Renault, Nissan’s largest shareholder, said it would “discuss with Nissan and consider all possible options,” while Reuters claimed that Renault was open in principle to the tie-up. Taiwan’s Foxconn, seeking to expand its nascent electric vehicle contract manufacturing business, approached Nissan about a bid but the Japanese company rejected it.
China Threat Looms Large
As per the merger plan, Honda will reportedly consider supplying hybrid vehicles to Nissan as part of the plan. The two automakers forged a strategic partnership in March 2024 to cooperate in electric vehicle development, but Nissan has faced financial and strategic troubles in recent months. The merger talks also come at a time, when the global automobile industry is anticipating the potential fallouts that President-elect Donald Trump’s protectionist trade policies may bring from 2025 onwards.
Toyota Motor, which has been the world’s largest carmaker for the last four years running, has been producing hybrids while rivals rushed into manufacturing electric vehicles. While the incoming Trump administration has plans of cutting support for EVs and blocking cars and components from China, analysts see Toyota being least affected by the news. However, Nissan is struggling, burning through cash and with billions of dollars of debt due in a little over a year.
Nissan’s alliance with Renault didn’t bring the desired result for both ventures. In 1999, The French automaker saved its Japanese counterpart from bankruptcy. However, the relationship between the two companies became strained over time due to rivalries and suspicion. In 2023, Renault and Nissan agreed to a “rebalanced” alliance to improve their relationship. Renault reduced its stake in Nissan from 43.4% to 15%, making the two companies more equal partners. Nissan also took a stake in Renault’s new electric vehicle venture, Ampere.
Foxconn wanted to take control of Nissan, maybe because Jun Seki, the current Chief Strategy Officer of the Taiwanese tech venture’s EV arm, once held a leadership position in the Japanese automaker. However, Foxconn has little experience in the car business. Also, it has a strained history with Japan’s industrial circle, ever since the Sharp Corp (taken over by the tech conglomerate) episode, where the latter reported massive losses since 2022 and is exiting TV panel production, with its share price down 96% from its peak.
Now the Nissan-Honda deal will create two poles in Japan’s auto industry, with Toyota being one of them. However, it needs to be seen whether the merger will be a face-saving one, where Nissan gets equal weight to the much larger Honda, or both the stakeholders get weightage as per their industrial positions. As of now, it’s an alliance of unequals, that has all the potential to result in a power struggle among the participants.
However, the alliance has a massive task in its hands: a surge in Chinese EV brands, notably BYD, who have been winning over market share in China, the world’s top automotive market, with innovative EVs and software. To make matters worse, these brands are also in expansion mode in other prominent markets.
Honda faced slumping sales in China, which contributed to the automaker’s recent 15% drop in quarterly profit. Nissan, which has struggled with sales, has announced plans to reduce capacity by 20% and cut 9,000 jobs worldwide. These challenges highlight tough competition from Chinese firms which are catching up to automotive stalwarts.
As per a June 2024 Counterpoint Research study, Chinese carmakers have gained a strong foothold in Southeast Asia’s booming EV market, eating into the share of Japanese and Korean automakers that once dominated the region. In 2023, BYD and its Chinese peers accounted for 70% of all EV sales in the region.
However, Sanshiro Fukao, executive fellow at the Itochu Research Institute in Tokyo, warned that despite the tie-up, Honda and Nissan will find it difficult to turn the tables upon their Chinese rivals. He stressed the urgent and transformational shifts in the industry, and that the era of ‘churning out profits through economies of scale’ is over.