Impact of possible Nissan-Honda merger on automobile industry

Top Japanese automakers Nissan Motor Co. and Honda Motor Co. are reportedly exploring a blockbuster merger that would send shock waves through the global auto industry as the two rival companies try to remain competitive on the path to full electrification.

Japanese business newspaper Nikkei reported overnight that Nissan and Honda plan to begin merger talks, citing sources familiar with the matter and saying the domestic rivals were expected to sign a memorandum of understanding soon. It is reported that the two companies will also seek ways to involve Mitsubishi Motors, of which Nissan is the largest shareholder with a 24% stake, in this transaction.

According to Citi, the merger could create the world’s third-largest auto group by car sales, with annual sales of 8 million units. If that happens, Nissan, Honda, and Mitsubishi will fall behind Japanese automaker Toyota Motors and Germany’s beleaguered Volkswagen, respectively.

In similar statements, Nissan and Honda neither confirmed nor denied the Nikkei report. Newspapers later reported that talks could begin as early as next week.

The merger report comes at a time when many auto giants are struggling to cope with increasing global competition from large electric vehicle manufacturers such as Tesla and China’s BYD.

Nissan and Honda previously signed a strategic partnership in March to cooperate in the production of core parts for EVs.

However, large-scale mergers are expected to face several challenges. Analysts have expressed concern about the possibility of political scrutiny in Japan given the potential for job cuts if the deal goes through, and the de-alliance of French automakers Renault and Nissan is seen as pivotal to the process.

Peter Wells, professor of business and sustainability at Cardiff Business School’s Center for Automotive Industry Research, described the reported merger as a “really important” development. This could help Nissan and Honda pool assets, cut costs, and develop technology. You need it for the future.

“There’s been a lot of speculation about Nissan’s position over the last 12 months. Nissan has been trying to equalize or balance its relationship with Renault, but it’s struggling,” Wells said on CNBC’s “Street Signs Europe” on Wednesday.

“We’re struggling in the market, we’re struggling domestically, we don’t have the right product lineup. There are so many warning signs, so many red flags around Nissan right now that something had to happen.” Added. “Whether this is the answer is another question.”

Nissan shares surged about 24% on Wednesday, posting its best trading day in at least 40 years, according to data firm FactSet. The company’s Tokyo-listed share price remains nearly 25% lower so far.

Meanwhile, Honda’s stock price fell more than 3% on the New York stock market.

Asked whether a merger between Nissan and Honda could emerge as a good vehicle to fight competition from Chinese EV car makers, Cardiff Business School’s Wells said the deal could be characterized as a “traditional solution”.

“We’re concerned that maybe they left a little late, and they don’t have the right products in place to compete in their current technology and setup (or) in their core markets,” Wells said.

“For Nissan in particular, they are not keeping pace with the US market. This is their main concern, and they cannot solve this problem very quickly,” he added.

JPMorgan’s Akira Kishimoto shared a similar view on some of the barriers to the Nissan-Honda merger, saying “the hurdles to overcome will be high.”

“At a minimum, we believe Nissan should clarify how its particularly complex capital relationship with the French government, particularly with Renault, will end, and also provide details on the announced restructuring proposal,” Kishimoto said in a research note published Wednesday. .

“I think Honda needs to show how it will manage its major (battery electric vehicle) and battery investments in Canada,” Kishimoto said.

JPMorgan said it would now have to wait for specific announcements from both companies.

“This partnership is not entirely unexpected, as we announced the partnership earlier this year,” Lucinda Guthrie, Mergermarket’s editor-in-chief, told CNBC’s “Street Signs Europe” on Wednesday.

“Some reports I have seen claim that this is a result of Foxconn’s approach to Nissan. Now, regarding this particular deal, I question whether it will be a hardcore merger or a merger. A partnership is more important,” he added. .

apologize Bloomberg reported Wednesday, citing unnamed sources, that supplier Foxconn has approached Nissan about acquiring a stake. The Taiwan-based company has invested heavily in EVs in recent years. CNBC has reached out to Foxconn for comment.

Reflecting the latest developments, Honda recently tested the waters with a partnership with General Motors before ultimately deciding to walk away.

Speculation about a merger between Honda and Nissan could follow a similar trajectory, Guthrie said.

“We have to keep in mind that we have to have the blessing of the Japanese government because there is a possibility of workforce reductions, but then how will Japanese car manufacturers compete with low-cost cars from China?” Guthrie said.

Citi’s Arifumi Yoshida said the merger would likely have a negative impact on Honda but a positive impact on Nissan and Mitsubishi.

“Given Honda’s competitiveness in motorcycles and hybrid electric vehicles and the strength of its brand, we believe it is well-positioned to take on competitors over the next five to 10 years,” Mr. Yoshida said in a research note published Wednesday.

Nonetheless, Prime Minister Yoshida said the decision could be seen as one that “anticipates a complete transformation of the automobile industry.”

— CNBC’s Michael Wayland contributed to this report.