Honda and Nissan are considering a merger that could transform the automotive sector, with reports suggesting a potential holding company formation. This speculation has boosted Nissan’s stock by 24%. As traditional automakers face challenges from EV manufacturers and declining sales, both companies must innovate while managing existing combustion models. Analysts indicate that a merger might offer Nissan a vital opportunity to recover, despite obstacles such as its partnership with Renault and Honda’s historical independence.
Potential Merger of Honda and Nissan: A Game Changer for the Automotive Industry
Japanese automotive giants Honda and Nissan Motors are exploring the possibility of a merger that could reshape the landscape of the automotive industry. According to reports from the “Nikkei” business newspaper, these two influential players are contemplating the formation of a holding company that would unite their operations. Moreover, there are discussions about potentially incorporating Mitsubishi Motors, a partner of Nissan, into this new alliance.
This merger speculation has positively impacted Nissan’s stock price, which surged by 24% at the start of trading. Following months of dialogue regarding technological partnerships, there is anticipation that Honda and Nissan will soon formalize their intentions through a letter of intent, detailing the merger’s framework and the structure of the holding company. This alliance could have far-reaching implications on a global scale.
Challenges Facing Traditional Automakers
Amid these developments, it has come to light that Taiwanese contract manufacturer Foxconn is quietly pursuing a stake in Nissan, adding to the complexities surrounding the collaboration between Honda and Nissan. The increasing pressure from electric vehicle (EV) manufacturers and competition from Chinese brands has intensified challenges for traditional car makers. Both Honda and Nissan must innovate new platforms for electric vehicles while continuing to support their combustion engine models, putting them at a disadvantage against dedicated EV manufacturers like Tesla.
In 2021, Fiat Chrysler’s merger with France’s PSA Group resulted in the creation of Stellantis, the fourth-largest automotive group globally with over six million vehicles sold. As traditional manufacturers face declining market shares, especially in China, where local brands are gaining traction, Honda and Nissan have also encountered a drop in demand. Honda is reducing its production by 30% in China, while Nissan plans to cut its output by 20% globally.
Nissan is in a precarious position, especially after experiencing a significant drop in profit margins, from 5.6% the previous year to just 0.5% in the first half of its fiscal year ending in September. Compounding its challenges, the alliance with Renault, which once provided crucial support, is now only a sporadic collaboration, with Renault seeking buyers for its shares in Nissan.
According to auto analyst Chris Richter from CLSA in Tokyo, Nissan’s stock price has plummeted, losing nearly half its value since mid-March. The company has fallen behind not just Toyota and Honda, but also Suzuki, Subaru, and Isuzu in market capitalization. Richter points out that Nissan’s brand image has suffered due to a lack of revenue generation from its products, which are often associated with discounts, particularly in the American market.
Nissan’s management has struggled with its product strategy, failing to capitalize on the growing demand for hybrids in the U.S., a market segment critical for compact crossover SUVs. Richter believes that despite having solid technology and products, Nissan has not positioned them effectively. As a result, the company now sells only about three and a half million units annually, highlighting the urgent need for a turnaround.
Auto analyst Takaki Nakanishi suggests that a merger could be a “lifeline” for Nissan, although he acknowledges that significant hurdles remain. Dissolving cross-shareholdings with Renault and overcoming Honda’s resistance to the partnership are crucial challenges that must be addressed. Historically, Honda has prided itself on its independence, following the principles of its founder, Soichiro Honda.
However, the changing dynamics of the automotive industry may compel Honda to reconsider its strategy. Recent discussions about strategic partnerships in electrification, battery technology, and software platforms indicate a conscious shift in corporate policy. Nakanishi sees the ongoing merger negotiations as a vital opportunity for both companies to reassess their future and engage in meaningful discussions about their strategic direction.