Honda and Nissan are set to begin negotiations for a merger to consolidate resources and better compete with Tesla and Chinese electric vehicle manufacturers in the rapidly changing automotive industry, according to a report by Nikkei Shimbun on Tuesday (December 17th).
Japanese automakers are facing intense competition in the electric vehicle market from Tesla and local competitors in China. Chinese electric vehicle manufacturers are gaining market share both domestically and internationally with the support of subsidies from the Chinese government for affordable electric cars. The stagnation in demand for electric vehicles in Europe and the United States is also adding pressure on traditional automakers.
According to Nikkei, Honda and Nissan are considering operating under a holding company and are expected to soon sign a memorandum of understanding. Details regarding their respective stakes in the new entity and other specifics will be decided later. The groundwork for the negotiations between Honda and Nissan began in March, with the two companies establishing a strategic partnership in August for sharing automotive components and software.
Reuters reported that both Honda and Nissan released similar statements on Tuesday, denying any announcement of a merger. Reuters has yet to independently verify the report.
In separate statements, both companies expressed, “As announced in March this year, Honda and Nissan are exploring various possibilities for future collaboration to leverage each other’s strengths.” The statements further mentioned that stakeholders will be informed of any updates at the appropriate time.
Honda has a market value of 5.95 trillion yen (US$ 388 billion), while Nissan’s market value is 1.17 trillion yen (US$ 76 billion). Their collaboration deal could potentially become the largest industry transaction since Fiat Chrysler and PSA merged to form Stellantis in 2021 for $52 billion.
Honda ranks just behind Toyota in proprietary energy-saving technology for hybrid cars. Nissan introduced the world’s first mass-market electric vehicle, the Leaf, in 2010 and has since expanded its electric vehicle product line to include sport utility vehicles (SUVs).
Supported by substantial subsidies from the Chinese government, BYD and other emerging Chinese companies are rapidly expanding, weakening the operations of Japanese automakers in China and Southeast Asia. Honda’s sales in China from January to November this year dropped by 30.7%, while Nissan’s sales decreased by 10.5%.
Facing headwinds, Honda has decided to cut global production capacity by approximately 500,000 vehicles, about 10%, including its first capacity reduction in China. Meanwhile, Nissan is not only facing sales challenges in China but also in the United States. Product development delays have hindered Nissan from launching demand-driven plug-in hybrid cars in the United States.
Nissan announced in November to reduce production capacity by 20% and to lay off nearly 10% of its workforce globally.