The Honda Nissan Merger and its Impact on the Auto Industry

Honda and Nissan Eye Merger Amidst Rising Chinese EV Competition

In a groundbreaking development for the global automotive industry, Honda and Nissan announced talks to assess a possible merger by 2026, a move aimed at combating intensifying competition from Chinese electric vehicle (EV) manufacturers. A Honda Nissan merger, if it were to occur, would create the third-largest automotive group globally, highlights the shifting dynamics of the auto industry as legacy automakers face growing pressure from EV innovators like Tesla and China’s BYD.

Why Honda and Nissan Would Want to Merge

Both Honda and Nissan have faced sales setbacks in China, the world’s largest auto market, where domestic EV makers like BYD have rapidly gained market share. Nissan recently announced plans to reduce global production by 20% and cut 9,000 jobs following sales declines in China and the U.S. Similarly, Honda experienced weaker-than-expected earnings due to a slump in Chinese sales, though its motorcycle and hybrid vehicle divisions provided some financial stability.

Despite these challenges, Honda’s CEO emphasized that this merger is not a bailout for Nissan. Instead, it is a strategic response to shifting industry trends, including electrification, software-driven innovation, and autonomous driving technologies.

What a Honda Nissan Merger Might Accomplish

The proposed merged entity would focus on EV and software development, areas where both companies lag behind competitors. A strengthened partnership could enable resource sharing, cost reductions, and technological advancements. Honda, with its market capitalization of over $40 billion—four times that of Nissan—will appoint the majority of the board members for the holding company.

The combined entity would trail only Toyota and Volkswagen in global vehicle sales. Mitsubishi Motors, in which Nissan holds a significant stake, may join the partnership, potentially boosting combined sales to over 8 million vehicles annually.

The proposed merger aims for combined annual sales of 30 trillion yen ($191 billion) and an operating profit exceeding 3 trillion yen. Talks are set to conclude by mid-2025, with a holding company expected to launch by August 2026.

Industry Reactions and Skepticism

While the merger has garnered optimism, it also faces criticism. Former Nissan Chairman Carlos Ghosn, sharply criticized Nissan’s proposed merger with Honda, describing it as a plan that “cannot work.” Ghosn, who led Nissan for nearly two decades beginning in 1999, cited a lack of synergy between the two automakers as the primary reason for his skepticism.

Ghosn claims Nissan has “lost sight of what is happening” and appears to have “no vision” for reviving its declining sales. He also sees no gain in the possible merger, stating that the two automakers do not complement each other. “They are strong in the same fields. They are weak in the same fields. There is duplication everywhere. So industrially, for me, it doesn’t make sense,” he said.

Other auto analysts echo Ghosn’s observations given that Nissan and Honda share similar production lineups and market strategies, which could make a merger less beneficial.

What This Means for the Auto Industry

The Honda Nissan merger talks signals a pivotal moment for legacy automakers as they confront the dual challenges of EV innovation and aggressive market expansion by Chinese manufacturers. If successful, this partnership could reshape the competitive landscape and set a new precedent for collaboration in the global auto industry.

Source: Reuters