Nissan, Honda Merger Talks Reflect Reaction To China Competition

A possible combination of Nissan and Honda is the latest reaction in the global auto industry as laggards in the race to electrify are forced to act or face an existential crisis.

The competitive crisis, prompted by China’s emerging technology leadership, is even being felt in Germany, once the undisputed automotive innovative trend-setter. Volkswagen is currently seeking to close down plants in its home territory as it struggles to switch from internal combustion engines to electric vehicles.

“The discussions between Nissan and Honda are part of the consolidation process of players that lag behind the transformation path to electromobility,” said Professor Stefan Bratzel, director of Germany’s Center of Automotive Management.

“Nissan and Honda are laggards in electromobility and the software- defined car and it’s not clear if they will be successful in this transition,” Bratzel said in a telephone interview.

Nissan and Honda are discussing the possibility of deepening ties, including a possible merger that would create a company with annual sales of nearly 7.5 million vehicles. That would make it the world’s 3^rd largest automaker behind Toyota and 2^nd place Volkswagen. Another unconfirmed report said Taiwan’s Foxconn was also interested in buying a controlling stake in Nissan.

In March, Nissan Motor CEO Makoto Uchida and Honda Motor CEO Toshihiro Mibe announced a partnership to develop electric vehicles to compete with rival EV manufacturers such as China’s BYD and Tesla.

Nissan, which owns a 24% stake in Mitsubishi, and in which Renault of France is a major shareholder, has launched a cost savings plan resulting in 9,000 job cuts globally and warned shareholders profits were evaporating. Renault is in the process of ending a long-term alliance with Nissan. A closer alliance with Honda, would also buttress Nissan’s competition in its home market against Toyota and its coalition including Mazda, Subaru and Suzuki. The Financial Times, in an article late last month, said Renault could sell some of its 36% Nissan stake to Honda.

Reuters’ BreakingViews column said the talks could lead to a full merger which could bolster profit margins, “but as Stellantis’s woes show, tie-ups alone don’t create great manufacturers”.

“A well-executed merger could buy Nissan and Honda time not just to slash expenses but to bolster their subpar portfolio, not least of electric and hybrid cars. Stellantis shows that if executives don’t focus on producing vehicles customers want to buy at prices that keep shareholders happy, any union is likely to careen off the road again,” BreakingViews columnist Antony Currie said.

Multi-brand Stellantis recently lost its legendary CEO Carlos Tavares when its impressive profitability was suddenly undermined.

Investment researcher Jefferies said a Honda-Nissan combination would help Renault end its Nissan relationship, and generate a huge global competitor.

“The combination of Honda, Nissan and Mitsubishi Motor would create a top three (manufacturer) with about 8 million units and a global footprint, continuing the consolidation of the Japanese market into 2 main groups, improving scale across regions, and accelerating technology developments in EVs, AVs (autonomous vehicles) and software,” Jefferies said in a report.

CAM’s Bratzel said Nissan-Honda’s plans concerned competition in the industry.

“All this costs a lot of money and those left behind or who don’t have enough money for investment will get into big trouble and become victims in the consolidation process. We see that in Europe too, with Volkswagen discussing with unions about the competitiveness of its German plants. In France, Renault and Stellantis have their troubles and it’s all about the future competitiveness,” Bratzel said.

Will combining two weak players make one strong one?

“They are both weak in those areas (electric vehicles and the software-designed car). It’s not clear if they will be successful in this transition,” Bratzel said.