Nissan and Honda begin merger talks

Japanese automobile giant Honda and its struggling compatriot Nissan agreed on Monday to open negotiations for a merger that would create the world number three.

Their objective is to combine their forces to better negotiate the strategic shift towards electric, a booming niche dominated by the American Tesla and Chinese groups, BYD in the lead.

It is also about stopping the market from running out of steam. Like the German Volkswagen, the two Japanese groups have seen their sales plummet in China, the world's largest market on which they are very dependent.

Already associated in a strategic partnershipHonda and Nissan, second and third Japanese manufacturers behind Toyota, wish to conclude a final agreement by June 2025, according to the memorandum of understanding signed on Monday.

Their objective: to come together under a holding uniquewhich they plan to IPO in August 2026.

This marriage would share the high costs and risks of developing electric models and batteries, securing supply chains and gaining competitiveness through economies of scale.

Mitsubishi Motorsof which Nissan is the main shareholder, will determine by end of January if it intends to integrate this new alliance, where each could assemble its vehicles in the partners' factories.

The three manufacturers combined 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 its operating margin almost completely melted.

In its two key markets, its sales have plunged: in the United States, due to a lack of plug-in hybrids in the face of strong demand, and in China, due to the domination of local brands in all-electric vehicles.

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 electronics assembly giant Foxconn (Hon Hai) recently approached Nissan to acquire a majority stake, according to the Japanese press, precipitating the opening of negotiations with Honda.

Undermined by power struggles internal, Nissan was marginalized and finds himself in panic mode, pleading with his lifelong enemy Honda, said the manufacturer's former boss, Carlos Ghosn, on Monday.

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

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

Alarmed, Nissan and Honda unveiled a strategic partnership in software and systems for electric vehicles. Initiative joined in August by Mitsubishi.

If the Nissan-Honda merger aims to prepare for the future, developing the components of future electric cars that are hardly produced today, it makes sensemore an operational merger won't solve Nissan's pressing problemsindicates to theAFP a source close to the case.

It's not about helping to Nissan, confirmed Monday Toshihiro Mibe, the boss of Honda, who sets as a prerequisite the realization by Nissan of its plan to reduce its costs and revive its sales, in particular with hybrids in the United States.

Reflecting the unequal situations of the partners, while Honda is valued on the stock market four times more than Nissan for comparable sales volumes, Honda reserves the right to select the main managers of the future single entity.

Honda has no experience in terms of alliances or mergers, it's an engineering firm, it won't work […]. A possible merged group will fight for its survival and its positioning, it will have difficulty facing the Chinese, Tesla and Toyotareacted Mr. Ghosn.

A merger would contribute to further blurring the historic alliance, established by Carlos Ghosn, of Nissan with Renault.

If the Frenchman gradually reduces his presence in the capital of the Japanese group after years of a stormy relationship, he still controls some 35%, guaranteeing him a decisive voice.

It is in Renault's interest to preserve the projects they still have together and to ensure as a shareholder the value of the Nissan stock, insists the close source.