Japanese carmakers Honda and Nissan have announced plans to move towards a merger that would make them the world's third-largest carmaker by sales, amid dramatic changes in the industry as it transitions away from fossil fuels.
The two companies said they signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors had also agreed to join talks to integrate their businesses.
Honda CEO Toshihiro Mibe said Honda and Nissan will seek to unify their operations under a joint holding company. Honda will initially lead the new management while maintaining each company's principles and brands. The goal is to conclude a formal merger agreement by June and complete the transaction and list the holding company on the Tokyo Stock Exchange by August 2026, he said.
No dollar value has been given and formal talks are just beginning, Mibe said.
There are “points that need to be studied and discussed,” he said. “Honestly, the likelihood of this not being implemented is not zero.”
Japanese automakers lag behind Tesla and Chinese rivals
Automakers in Japan are lagging behind their big rivals in electric vehicles – namely Tesla and China's BYD – and are trying to cut costs and make up for lost time.
Over the past few years, China's automotive sector has seen a surge in exports, spanning one industry group affirmatively that in 2023 it will overtake Japan as the largest car exporter in the world. In China's domestic auto market, the world's largest, hybrids and electric vehicles accounted for more than half of car sales this year.
The Japanese government has been sounding the alarm about China's existential threat to the auto industry since at least 2019, when apparently insisted that Honda and Nissan meet and discuss potential consolidation. The merger could create a behemoth worth more than $50 billion, given the market capitalization of all three automakers.
Together, Honda, Nissan and Mitsubishi would gain the scale to compete with Toyota Motor Corp. and the German Volkswagen AG. Toyota cooperates technologically with Japanese companies Mazda Motor Corp. and Subaru Corp.
Planned merger 'desperate move'
News of the possible merger emerged earlier this month, with unconfirmed reports saying talks on closer cooperation were partly driven by Taiwanese iPhone maker Foxconn's aspirations to partner with Nissan by purchasing shares from the Japanese company's other alliance partner, French Renault SA. .
Nissan CEO Makoto Uchida said Foxconn had not contacted his company directly. He also admitted that Nissan's situation is “serious.”
Canada is following the US and imposing 100 per cent tariffs on all electric vehicles imported from China to combat the “unfair advantage” it has in the global market. About it Producer Lauren Bird examines why North America is closing the door to a huge source of cheap electric vehicles and why experts say consumers will pay the price. CORRECTION: At 1:47 in this video we state that the cheapest Tesla on the market as of August 28, 2024 in the US is the Model Y at around $45,000. In fact, the cheapest Tesla you can buy in the U.S. without the federal tax credit is the rear-wheel-drive Model 3, at $38,990.
Even after the merger, Toyota, which produced 11.5 million vehicles in 2023, will remain Japan's leading automaker. If they merge, the three smaller companies will produce about eight million vehicles. In 2023, Honda earned four million and Nissan earned 3.4 million. Mitsubishi Motors earned just over a million.
Nissan, Honda and Mitsubishi announced in August that they would share electric vehicle components such as batteries and jointly explore autonomous driving software to better adapt to the radical changes of electrification, following a tentative agreement between Nissan and Honda in March .
Nissan has been struggling following a scandal that began with the late 2018 arrest of former CEO Carlos Ghosn on charges of fraud and misuse of company assets, which he denies. He was eventually released on bail and fled to Lebanon.
Speaking to reporters in Tokyo via video link on Monday, Ghosn derided the planned merger as a “desperate move.”
Nissan has many years of experience in building batteries and electric vehicles
From Nissan, Honda can acquire large, body-on-frame, truck-based SUVs such as the Armada and Infiniti QX80, which Honda does not have, with strong towing capacity and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told the Associated Press.
Nissan also has decades of experience building battery and electric vehicles and gas-electric hybrid powertrains that could help Honda develop its own next-generation electric vehicles and hybrids, he said.
However, in November, the company said it was cutting 9,000 jobs, or about six percent of its global workforce, and reducing its global production capacity by 20 percent after reporting a quarterly loss of 9.3 billion yen (about $85 million CDN). ).
There has been a recent management shake-up, with Chief Executive Makoto Uchida agreeing to a 50 percent pay cut to take responsibility for its financial woes, saying Nissan needs to increase efficiency and better respond to market tastes, rising costs and more global changes.
“We anticipate that if this integration comes to fruition, we will be able to deliver even greater value to a broader customer base,” Uchida said.
Fitch Ratings recently downgraded Nissan's credit outlook to “negative,” citing deteriorating profitability, partly due to price cuts in the North American market. However, he noted that it has a strong financial structure and solid cash reserves of 1.44 trillion yen ($13 billion CDN).
Nissan's share price has also fallen to the point where it can be considered a bargain.
The merger reflects an industry-wide trend toward consolidation
Nissan's Tokyo-listed shares gained 1.6 percent on Monday. They jumped more than 20 percent after news of a possible merger broke last week.
Honda shares rose 3.8%. Honda's net profit fell almost 20 percent in the first half of the April-March fiscal year from a year earlier due to a decline in sales in China.
The merger reflects an industry-wide trend toward consolidation.
At a routine briefing on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of automakers' plans, but said Japanese companies must remain competitive in a rapidly changing market.
“As the business environment surrounding the automotive industry changes significantly and competitiveness in batteries and software becomes increasingly important, we expect that measures necessary to survive international competition will be taken,” Hayashi said.