Honda and Nissan Explore $54 Billion Merger to Become World's Third-Largest Automaker in EV Sales

Honda and Nissan are currently in discussions about a possible merger that could create the world’s third-largest automotive group. If successful, the merger would result in a combined company worth $54 billion and an annual output of 7.4 million vehicles, positioning it behind only Toyota and Volkswagen in global vehicle sales.

Surge in Nissan’s Share Price Amid Talks

Following the news of merger talks, shares of Nissan surged by more than 22% in Tokyo trading. However, Honda’s shares declined by 2.3%, reflecting differing market reactions to the potential merger. Additionally, shares of Mitsubishi Motors, in which Nissan holds a 24% stake, rose by 13%.

Honda and Nissan’s Strategic Partnership

The two automakers already have a strategic partnership, established in March, to work together on electric vehicle (EV) development. The ongoing financial struggles of Nissan, including a drastic reduction in profits and a massive cost-saving initiative, have accelerated the urgency for deeper cooperation with Honda. Nissan recently announced plans to cut 9,000 jobs and reduce its global production capacity by 20%.

Financial Troubles Push Nissan Toward Merger Talks

Nissan’s financial difficulties, particularly from slumping sales in China and the US, have prompted the company to seek strategic solutions. With a drastic drop in its second-quarter profits by 85%, the merger talks with Honda are being seen as a potential lifeline. Analysts believe the merger would allow Honda to assist in stabilizing Nissan’s operations while also benefiting from the synergies that the two companies could create together.

Nissan Faces Competition from Chinese and EV Manufacturers

Both Honda and Nissan are facing increasing competition from electric vehicle manufacturers, especially Tesla and Chinese automakers like BYD. The rise of these global players has created immense pressure on traditional automakers, forcing Honda and Nissan to find ways to cut costs, innovate faster, and remain competitive in the evolving automotive landscape.

Merger Discussions and the Possibility of a Holding Company

The ongoing merger discussions focus on enhancing collaboration between Honda and Nissan. One option under consideration is the creation of a holding company, which would allow the two companies to share resources and technologies more efficiently. Additionally, there is talk of full integration, which could see the two companies combine operations to create a more formidable global automaker.

Potential Involvement of Mitsubishi Motors

Both Honda and Nissan are also exploring further collaboration with Mitsubishi Motors, of which Nissan is the largest shareholder. The three companies are exploring ways to leverage Mitsubishi’s resources and technology to strengthen their competitive position. However, no formal deal has been finalized yet.

Honda and Nissan’s Market Capitalization

Currently, Honda’s market capitalization is about $44 billion, while Nissan’s market value surged to around $10 billion following the announcement of the merger talks. If the merger proceeds, it would be one of the largest in the automotive industry, surpassing the $52 billion deal between Fiat Chrysler and PSA Group in 2021, which created Stellantis.

Foxconn’s Interest in Nissan

Reports suggest that Foxconn, the Taiwanese company that manufactures Apple’s iPhones, has approached Nissan about acquiring a controlling stake. This potential acquisition could provide Nissan with the necessary resources to compete in the growing EV market. However, both Foxconn and Nissan have yet to comment on the matter.

The Impact of the EV Price War

The ongoing EV price war, particularly driven by Tesla and BYD, has intensified the pressure on automakers who are struggling with the high costs of EV production. Mergers like the one between Honda and Nissan are viewed as an effective strategy to pool resources, reduce costs, and accelerate innovation in the EV market, allowing both companies to remain competitive.

Long-Term Industry Implications

The potential merger is viewed as positive for the Japanese auto industry, particularly in the context of competition with Chinese manufacturers and other global players. Analysts suggest that a combined Honda-Nissan entity could help create a "second axis" against the dominance of Toyota, thus fostering healthy competition and potentially driving growth for the entire industry.

Potential US Scrutiny and Corporate Culture Challenges

Any merger between Honda and Nissan would likely face scrutiny from US regulators, especially given the ongoing trade tensions and threats of tariffs from the US government. Additionally, the companies would have to navigate significant cultural differences, as Honda and Nissan have distinct corporate philosophies. Integrating these cultures would require careful planning to avoid internal resistance.

Conclusion

As Honda and Nissan explore their merger options, the automotive industry is closely watching these developments. With EVs becoming central to the future of transportation, a combined entity could help Honda and Nissan remain competitive while dealing with financial challenges and growing competition. However, challenges remain, particularly in terms of regulatory approval and corporate culture integration.