Honda, Nissan Eye Potential Merger Amid Efforts To Strengthen Partnership: Report

A merger between Honda and Nissan would create a $54 billion company with an annual production of 7.4 million vehicles, making it the third-largest auto group globally by vehicle sales

In March, the two companies had already formed a strategic partnership to collaborate on electric vehicle development

Source : Somnath Chatterjee

Honda and Nissan are reportedly in discussions to strengthen their partnership, including the possibility of a merger, according to a report by Reuters citing two sources on Wednesday. This marks the most prominent indication yet of how Japan's once-dominant auto industry is being reshaped by competition from Tesla and Chinese rivals.

A merger between Honda and Nissan would create a $54 billion company with an annual production of 7.4 million vehicles, making it the third-largest auto group globally by vehicle sales, behind Toyota and Volkswagen.

In March, the two companies had already formed a strategic partnership to collaborate on electric vehicle development. However, Nissan's worsening financial and strategic challenges in recent months have intensified the need for closer cooperation with its larger rival, Honda.

Last month, Nissan unveiled a $2.6 billion cost-saving plan that includes shedding 9,000 jobs and reducing global production capacity by 20 per cent. This move comes after weak sales in China and the US caused a dramatic 85 per cent drop in second-quarter profits.

"This deal appears to be more about bailing out Nissan, but Honda itself is not resting on its laurels. Honda's cash flow is set to deteriorate next year and its EVs haven't been going so well," said Sanshiro Fukao, executive fellow at Itochu Research Institute, as per the report.

On Wednesday, Nissan's shares surged nearly 24 per cent in Tokyo trading, while Honda’s shares fell 3 per cent, despite its market value of $43 billion being more than four times that of Nissan. Shares of Mitsubishi rose nearly 20 per cent.

The automakers have been facing increasing competition from electric vehicle makers, especially in China, where companies like BYD have gained significant ground. The talks between Honda and Nissan, initially reported by Nikkei, aim to enhance cooperation on technology and create a stronger domestic rival to Toyota.

The discussions are centred on exploring ways to deepen collaboration, including the potential formation of a holding company, as per the report.

One source in the report also mentioned that the companies are considering the possibility of a complete merger and are exploring ways to collaborate with Mitsubishi Motors, in which Nissan holds a 24 per cent stake.

While Honda, Nissan, and Mitsubishi have all confirmed that no deal has been finalised, Nissan and Mitsubishi highlighted that the three automakers had previously indicated interest in exploring future collaboration opportunities.