Nissan Motor shares surged on Wednesday following a media report that they are in preliminary talks for a merger with Honda Motor. This is a clear indication of reorganization in Japan’s auto industry as there is immense challenge posed by Tesla and Chinese rivals. This will make it the biggest carmaker mergers forming a bigger entity that can compete with larger rivals and also can invest more in the electric vehicle growing market.
Nissan and Honda agreed to explore a strategic partnership on electric vehicles, in March. Analysts said this move is aimed to complete with Chinese carmakers. Nissan shares were last trading up 22%, while Honda shares slipped 1.6%.
Nissan and Honda merger
A Honda spokesman said on Wednesday that a potential merger was already among the possibilities being discussed.
“We are discussing possibilities for cooperation between Honda and Nissan in the future, in a wide range of fields and in various areas, and those possibilities include the latest reports, but there is nothing decided,” as per the spokesman.
Honda and Nissan are considering operating under a holding company, and they will sign a memorandum of understanding in the near future, according to a report. The carmakers are also looking to eventually bring Mitsubishi Motors, in which Nissan is the top shareholder with a 24% stake, under the holding company, according to the report.
What Nissan and Honda merger means?
The merger, if successful, will be especially beneficial to Nissan, which had previously announced plans to slash 9,000 jobs and cut global production capacity by a fifth amid fierce competition in its major markets.
If Nissan, Honda, and Mitsubishi combine they would equate to more than 8 million vehicle sales annually, as per report. Making the company a0mong the world’s largest automakers, though lesser than Japanese automaker Toyota Motor, at 11.2 million in 2023, as well as German automaker Volkswagen, which last year reported sales of 9.2 million vehicles.
As per Joe McCabe, the president and CEO of AutoForecast Solutions, Nissan needs a “revitalization” after its relationship with Renault went sideways. “They [Nissan] really didn’t have a leadership position in any one of the segments they competed in,” he said.
The merger report follows the two Japanese automakers entering into a strategic partnership earlier this year on shared automotive components and software.
If this merger between Nissan and Honda culminates this would be the largest automotive industry merger since Fiat Chrysler joined PSA Groupe to form Stellantis in January 2021.
Biggest carmaker merger to face competition
Several challenges are faced by the global auto industry majorly transitioning to EVs, where Tesla and China’s BYD are holding the fort. Volkswagen, for instance, plans to close factories and cut thousands of jobs in Germany, while General Motors recently pulled the plug on Cruise, its self-driving robotaxi company.
The pressure on companies like Honda and Nissan is immense in order to seek ways to cut costs and speed vehicle development, and mergers are a major step in that direction.
Honda’s plans for EV
In May, Honda announced plans to double investment in EVs to $65 billion by 2030. This is a part of its mammoth target set three years ago to achieve 100% EV sales by 2040.
Nissan has signaled similar ambitions. It said in March that 16 of the 30 new models it plans to launch over the next three years would be “electrified”.
As more and more auto giants are prioritizing electric and hybrid vehicles owing to climate change grows, there has been a slowdown in the EV market on the back of consumer concern about high prices, reliability, range amongst other things.
Hybrids that combine battery power and internal combustion engines have proved enduringly popular in Japan, accounting for 40% of sales in 2022.
Stock update
Nissan stock surged to 22% on Nikkei. Nissan share price closed at 417.60. Honda stock meanwhile was down 1.6%.
Overall on Tuesday, U.S. stocks ended lower with the Dow falling for a ninth straight session. this was seen as investors showed caution ahead of the Federal Reserve’s last policy meeting of the year.
