Nissan and Honda announced on Monday that they are in talks to merge to create the world's third-largest carmaker by sales. The unprecedented merger is seen as a direct response to Japanese automakers' declining market position in China, the world's largest car market, where they are rapidly losing ground to domestic giants such as BYD.
Honda CEO Toshihiro Mibe, speaking at a press conference, emphasized the need for greater scale to compete with emerging technologies such as electric vehicles (EVs) and intelligent driving. “The business combination will give the companies an advantage not possible under the current cooperation framework,” Mibe said. The combined entity is forecast to generate annual revenue of ¥30 trillion ($191.4 billion) and operating profit in excess of ¥3 trillion.
China's dominance of EV production has cornered Japanese automakers. BYD and other domestic players have eroded the strong position previously held by companies such as Nissan and Honda, leaving them with excess capacity in factories originally built to meet rising demand.
Both Honda and Nissan have announced significant production cuts in China—Honda plans to cut capacity by 20%, while Nissan's output in China has dropped to half its peak.
James Hong, an analyst at Macquarie Securities, highlighted the underlying challenge: “Honda and Nissan have been losing market for some time. They must cut large capacity to address China's fixed cost burden.
The proposed deal would create a company listed on the Tokyo Stock Exchange, with Honda playing a leading role in the control structure. While full integration is not expected until 2030, both companies aim to combine resources to achieve economies of scale, share advanced technology and remain competitive against global EV powerhouses.
Nissan CEO Makoto Uchida addressed concerns about the company's struggles and assured stakeholders that the merger was to ensure future growth. “This is not about giving up a twist,” Uchida said. “It's about looking at the ultimate size and growth through partnerships.”
Although consolidation could solve overlapping challenges, experts remain cautious. Nissan's underperformance — marked by a declining market value and outdated product lines — has made it a potential takeover target. Recent interest from Taiwan's Foxconn underscores Nissan's precarious position. Additionally, analysts suggest the merger will require significant restructuring, including further plant closings and capacity reductions.
The merger reflects a broader industry trend, with automakers around the world consolidating to survive in a fast-growing market.