Honda and Nissan reported to be in merger talks to create global powerhouse

Japan's manufacturing heavyweights Honda and Nissan are set to begin merger talks as they battle mounting competition from Chinese EV manufacturers, reports the Nikkei.

As Japan's second and third largest car makers after Toyota, both have seen market share erode, particularly in China, where EV sales hit 1.27 million units in November - nearly 70% of the global total.

In 2023, Honda and Nissan sold a combined 7.4 million vehicles worldwide but are grappling to keep pace as those rivals surge ahead. The two companies had already been strengthening ties: in March, they agreed to collaborate on EVs, and by August, they had expanded their technology partnership.

Now, the  car makers are reportedly eyeing a single holding company, with a memorandum of understanding expected soon. Mitsubishi Motors - in which Nissan holds a 24% stake - may also be included, potentially creating one of the world's largest alliances.

In 2023, Honda manufactured nearly 4.2 million cars and sold close to 4 million globally while Nissan reported producing and selling approximately 3.4 million vehicles during the same period. Mitsubishi produced just over 1 million vehicles.

Nissan has been implementing significant cost-cutting measures in response to intensifying competition in electric and hybrid vehicles. It has announced plans to cut 9,000 jobs and reduce its production capacity by 20% as it scrambles to reduce costs by £2 billon in the current fiscal year amid a sales slump in China and the US, its two biggest markets. As part of these efforts, Nissan’s CEO, Makoto Uchida, voluntarily took a 50% pay cut. 

Honda is also facing financial pressures after reporting a 15% drop in operating profit for the July-September period this year compared to the same quarter in the previous year.

French car manufacturer Renault, which holds a 35.8% stake in Nissan, has reportedly been seeking to reduce its stake in the Japanese car maker due to the latter’s recent performance, and this merger could well provide an exit route.

According to equity analysis by Jeffries, a merger between Honda and the Renault-Nissan alliance could lead to significant changes in the distribution of ownership.

It said that in a nil-premium merger where there is no premium paid for either party’s shares, Honda shareholders would control about 84% of the combined equity. Renault’s 35.8% stake in Nissan, valued at €2.78 billion, would be diluted to just 5.8% and consist of two parts: 2.8% from Renault's 17.1% core holding in Nissan and an additional 3% from shares that Renault holds for sale.

If the deal materialises, it would mark the industry's biggest shake-up since Fiat Chrysler's $52 billion merger with PSA in 2021, which formed Stellantis, home to Jeep, Peugeot, and many other major brands.

Honda and Nissan declined to comment on the Nikkei report.