Automobile: Discussion between Nissan and Honda for a possible merger

The Japanese automobile giant Honda and its struggling compatriot Nissan must, according to the Japanese press, announce on Monday the opening of negotiations with a view to a merger likely to give birth to the world number three to strengthen its position in the electric sector.

This project comes at a time when traditional manufacturers are being crushed by the slowing down of the market and the costly transition to electric, a technological shift dominated by the American Tesla and Chinese groups, BYD in the lead.

Like the German Volkswagen, Honda and Nissan have seen their sales plummet in China, the world's largest market on which they are very dependent.

A “strategic partnership”

According to several Japanese media, the two manufacturers must sign a memorandum of understanding Monday afternoon, Tokyo time, after the approval of their respective boards of directors.

Already associated in a “strategic partnership”, Nissan and Honda intend to finalize an agreement by June 2025, specifies the public channel NHK.

Mitsubishi Motors, of which Nissan is the main shareholder, would be involved “at the beginning of 2025” in talks to join the new entity, adds the Kyodo agency.

Nissan heavily in debt

Honda and Nissan, the second and third Japanese manufacturers behind Toyota, wish to come together in a joint holding company, with an industrial alliance authorizing each to assemble their vehicles in the partner's factories.

With Mitsubishi, together they would constitute the third largest automobile group in the world with some eight million vehicles sold last year, behind Toyota and Volkswagen.

A providential rapprochement for Nissan: heavily indebted, it suffered an unexpected net loss in the last quarter and drastically lowered its annual forecasts, its operating margin having almost completely melted.

9,000 jobs at Nissan

In its two key markets, it saw its sales plunge in the United States, due to a lack of plug-in hybrids in the face of strong demand, and collapse in China, undermined by the domination of local brands in all-electrics.

At the beginning of November, Nissan announced that it would cut 9,000 positions from its global workforce and cut its capacity.

Witness to its vulnerability: the Taiwanese electronic assembly giant Foxconn (Hon Hai), supplier to Apple, had approached Nissan to acquire a majority stake, according to the Japanese press, an appetite which precipitated the opening of negotiations with Honda .

Sharing the risks of developing electric models

Honda, for its part, would benefit from an enlarged entity to effectively launch fully electric cars, after the failure of a joint project with the American General Motors. The group is aiming for 100% electric vehicles by 2040.

A marriage would share the high costs and risks of developing electric models and batteries, secure supply chains and gain competitiveness through economies of scale.

Japanese groups have long focused on hybrid vehicles (combining thermal and electric engines), neglecting the global rise of all-electric vehicles. China has overtaken Japan as the leading vehicle exporting country in 2023.

“Survive and prevail in international competition”

Alarmed, Nissan and Honda announced a memorandum of understanding in March for a “strategic partnership” in software and components for electric vehicles. Initiative joined in August by Mitsubishi.

“We hope that Japanese firms will act to survive and prevail in international competition,” commented Japanese government spokesperson Yoshimasa Hayashi on Monday, calling for “strengthening competitiveness in […] batteries and embedded software.

“If the Nissan-Honda merger aims to prepare for the future, to develop the components of future electric cars that are hardly produced today, it makes sense,” a source close to the matter told AFP.

“His problem in the United States”

“But an organizational merger will not solve Nissan's short-term problems, for which the priority remains to resolve its problem in the United States as quickly as possible,” warns this source.

According to Kyodo, Honda is demanding that Nissan initiate a “V-shaped recovery” in its performance as a condition of the merger… while saying it is ready to help it produce hybrids in North America.

It would not be a union between equals, Honda being valued on the stock market four times more than Nissan, auguring complex negotiations on common governance.

“Renault has rebalanced the alliance, without unraveling it”

A merger would also contribute to further blurring Nissan's historic alliance with Renault, which is gradually reducing its stake in the Japanese group, after years of a stormy relationship.

The Frenchman still controls some 35% of Nissan (17% directly, and 18.6% via a trust intended to be gradually sold), guaranteeing him a decisive voice in the fate of the Japanese group.

“Renault has rebalanced the alliance, without unraveling it: it is in its interest to preserve the projects that they still have together” and to ensure as a shareholder the value of the Nissan stock, insists the close source.

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