Honda and Nissan explore potential merger to challenge Tesla and Chinese EV giants

Automakers like Honda and Nissan are struggling to compete with Chinese brands and Tesla vehicles.

The potential merger arises as the auto industry faces intense competition during the shift to EVs, driven by China, which made up 70% of global EV sales. Automakers like Honda and Nissan are struggling to compete with Chinese brands like BYD, whose affordability and innovation recently pushed its quarterly revenues past Tesla’s.

Honda and Nissan, two of Japan’s leading car manufacturers, are reportedly in early discussions about a potential merger as they seek to strengthen their position in the highly competitive electric vehicle (EV) market, particularly in China. The talks follow an agreement in March to explore a strategic partnership for EVs.

Both firms issued identical statements to the BBC, saying, “As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths.” They added that “If there are any updates, we will inform our stakeholders at the appropriate time.”

The discussions, first reported by Japanese business newspaper Nikkei, have not been denied by either company. However, they noted that this development is “not something that has been announced by either company” and that there is no guarantee of a deal being finalized. Japanese TV channel TBS reported that an official confirmation of the talks could come as early as next week.

Challenges for a competitive industry

The potential merger comes amid growing competition in the global auto industry as it transitions from petrol and diesel vehicles to EVs. This shift has been particularly pronounced in China, which accounted for nearly 70% of global EV sales in November. Many automakers, including Honda and Nissan, are grappling with how to compete with Chinese manufacturers like BYD, whose affordability and innovation have disrupted the market. BYD’s quarterly revenues recently surpassed Tesla’s for the first time in October.

Jessica Caldwell, an analyst at Edmunds, emphasized the challenges faced by smaller players in the industry. “The thought that some of these smaller players can survive and thrive is getting more challenging, especially with the additional Chinese manufacturers competing strongly,” she said. “It’s necessary not only to survive but also to afford the future.”

Jesper Koll, from Japanese online trading platform operator Monex Group, expressed skepticism about the potential merger’s impact. “Is this really just rearranging the deck chairs on the Titanic in the sense that neither Honda nor Nissan really have any products or technologies that global consumers want?” he asked. “From that perspective, it’s a nice rescue but it’s not creating a new national champion.”

Strategic partnerships

In recent months, Honda and Nissan have deepened their collaboration, focusing on EV batteries and other technologies. In August, the companies announced an agreement to work together with Mitsubishi Motors on intelligence and electrification. Nissan, which holds a major stake in Mitsubishi, may also involve the company in the potential partnership, according to the Nikkei report.

While the merger talks are still in preliminary stages, analysts expect any deal to face significant challenges. These include political scrutiny in Japan, where a merger could result in substantial job cuts, and the unwinding of Nissan’s long-standing alliance with French automaker Renault.

Market reactions

The merger speculation has already had an impact on stock prices. On Wednesday, Nissan’s shares surged by more than 23% in Tokyo, while Mitsubishi’s jumped nearly 20%. In contrast, Honda’s shares fell by about 3%.

The stakes are high for both companies, whose combined global sales in 2023 amounted to 7.4 million vehicles. However, they continue to lose market share in China to more agile and cost-effective competitors.

As the global automotive landscape evolves, the outcome of these talks could signal a major shift not only for Honda and Nissan but for the industry as a whole.