Honda and Nissan agree to start merger talks in historic car industry shake-up

Ppotential merger, through the establishment of a joint holding company, may include the participation of Nissan's partner Mitsubishi Motors

From left, Nissan Motor's president and chief executive Makoto Uchida, Honda Motor's president Toshihiro Mibe, and Mitsubishi Motors' president and chief executive Takao Kato speak at a joint press coShow more

Honda and Nissan have signed an initial pact to begin talks to explore a potential merger through the establishment of a joint holding company, a historic move in the automotive industry that could create the world's third-biggest auto group after Toyota and Volkswagen.

Mitsubishi Motors, of which 24.5 per cent is owned by Nissan, also signed the initial agreement to participate in the possible merger and the smaller company aims to reach its conclusion by the end of January 2025, the companies said in a statement on Monday after a joint press conference in Tokyo.

The two companies are aiming for combined sales revenue exceeding 30 trillion yen ($191 billion) and operating profit of more than 3 trillion yen, the statement read.

Honda and Nissan plan to establish, through a joint share transfer, a joint holding company that will be the parent company of both. The parent company is scheduled to be listed on the Tokyo Stock Exchange (TSE) on August 2026. At that point, Nissan and Honda will become wholly owned subsidiaries of the joint holding company and will be delisted from the TSE.

"Honda and Nissan have begun considering a business integration, and will study the creation of significant synergies between the two companies in a wide range of fields," Makoto Uchida, Nissan's director, president, chief executive and representative executive officer, said in the statement.

"We anticipate that if this integration comes to fruition, we will be able to deliver even greater value to a wider customer base.“

A merger of Honda, Japan's second-largest car maker, and Nissan, the country's third-biggest car manufacturer, would reshape the landscape of the global auto industry. A deal would mark the creation of the third-biggest auto group by car sales after Toyota and Volkswagen. It would also help the trio to pool resources to face competition from rivals such as Tesla and Chinese electric vehicle maker BYD.

"At this time of change in the automobile industry, which is said to occur once every 100 years, we hope that Mitsubishi Motors' participation in the business integration discussions of Nissan and Honda will lead to further social change and that we will be able to become a leading company in creating new value in mobility through business integration," said Honda director and representative executive officer Toshihiro Mibe.

Shares in Honda closed the day up 3.8 per cent, Nissan rose 1.6 per cent and Mitsubishi Motors gained 5.3 per cent after the reports on the details of the planned merger, while the benchmark Nikkei closed up 1.2 per cent.

Challenging road ahead

Merger talks between Honda and Nissan have been triggered by the challenges both car makers face in an industry undergoing significant transformation, Sammy Krishnamurthy, director of Mobility Customer Engagement in the Middle East & Africa at consultancy Frost & Sullivan, told The National.

"Amid pressures to innovate and the rapid global growth of the number of Chinese EV brands, this development could offer substantial benefits for both companies," he said. "Nissan’s leadership in EVs combined with Honda’s expertise in advanced engine technologies across various powertrain technologies could make a merger between these two Japanese automakers a powerhouse, offering a wide range of powertrain solutions."

A merger between the two Japanese car makers would "pave the way for seamless integration" of engine and battery technology that typically requires different budgets and planning, he added.

The combined company is expected to become a "leading player" after the potential merger, putting it in a great position to take advantage of "substantial" cost efficiencies, he said.

However, the road ahead of Nissan and Honda will be filled with challenges to overcome, according to analysts.

"It will be interesting to see how both will maintain their brand identities and core strengths to exist together in the market," Mr Krishnamurthy said. "This will have some impact on their distribution network’s ability to capitalise on the cost efficiencies and consolidation of suppliers resulting in a degree of redundancy."

In a separate online press conference on Monday, former Nissan chairman Carlos Ghosn said the Nissan-Honda merger will not be a success because the two companies are not complementary and because Chinese EV makers are currently a "strong force" to be reckoned with in the market.

"From an industrial point of view, as a businessman ... if this merger takes place, personally, I don't think it will be successful. There's too much duplication and not enough complementarity," Mr Ghosn, who has been living in Lebanon since his shocking arrest in late 2018, told the Foreign Correspondents’ Club of Japan via teleconference.

"A potential alliance between the two companies is going to be another company fighting for survival and relevance in this industry. But without any doubt they are going to have a tough time against the Chinese, against companies like Tesla and also against Toyota, which is facing these challenges in a way that is much more convincing."