CNA Explains: Honda-Nissan merger talks – why Japan's ...

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SINGAPORE: Japan’s No 2 carmaker Nissan and No 3 Honda are in talks to merge and become the world’s third-biggest automaker by volume.

In part, this is to fend off fierce global competition, particularly in an electric vehicle (EV) marketplace dominated by overseas rivals.

Japan was the great auto exporter of the 20th century: You could go anywhere in the world and find a Toyota or Nissan. 

But it’s China who now wants the 21st century to be theirs in terms of EVs.

Last year, China contributed to two-thirds of global EVs purchased. More than half of the EVs on the world’s roads were in China, propelling the country to become the globe’s largest EV market and producer.

This rapid growth has been fuelled by the Chinese government’s support. From 2009 to 2023, on top of strong policy backing, the state poured an estimated US$230 billion into the industry. 

In recent years, intensified competition has also pushed Chinese companies to innovate and produce cutting-edge designs in the likes of EV batteries. 

Chinese consumer adoption of EVs was another factor.

And when production outpaced demand, EV makers started to export to overseas markets.

According to EV research house Rho Motion, 15.2 million EVs have been sold globally between January and November 2024, a 25 per cent jump from the previous year-to-date. In that same period, China sold 9.7 million EVs.

There are a few factors. One is the country’s love for petrol-electric hybrids. Japanese automakers have bet heavily on hybrid vehicles, and sales in Japan are set to keep growing until 2027.

Market leader and trendsetter Toyota has been slow to embrace EVs, and everyone else has followed its lead.

Second, while other countries heavily subsidise EVs as part of their green policies, there are fewer incentives to go fully electric in Japan.

A recent study by environmental group Greenpeace showed that Toyota, Honda and Nissan rank lowest among the top ten global auto companies when it comes to decarbonisation efforts.

According to a report by the Climate Group non-profit, Japan risks a decline in GDP if it doesn’t shift towards producing EVs, because auto manufacturing accounts for almost a fifth of its exports. This could also lead to massive job losses if the auto industry goes into decline.

Japanese automakers are now trying to claw their way back into the global EV market, by staking their future on solid-state batteries that charge faster and last longer than China’s lithium-ion ones.

In March, Nissan and Honda had already agreed to study the feasibility of a strategic partnership in making EV cars and technologies, to cut costs and improve competitiveness.

Nissan and Honda then said in August that they would roll out an EV by 2030, and jointly develop self-driving software.

The plan is to also include Mitsubishi Motors – of which Nissan is the largest shareholder with a 27 per cent stake.

The three brands would have a combined annual production of about 8 million vehicles.

Though Japan’s automakers have to catch up in areas like battery prices and car design, “they are not far behind”, said Mr Vivek Vaidya, associate partner at the Frost & Sullivan consultancy.

“The first commercially produced EV was not manufactured by China. It was manufactured by Nissan - the Nissan Leaf,” he pointed out to CNA’s East Asia Tonight.

If the merger goes ahead, Honda would have access to a manufacturer with an EV and a battery; while Nissan would obtain the “financial muscle of a bigger partner” and be able to “bring in better models at a cheaper and better rate”, he added. “This is a win-win situation for both.”

It has been unable to reinvent itself after former CEO Carlos Ghosn was arrested for breach of trust and misusing company assets back in November 2018.

Since then, it’s been beset by a lacklustre product line-up and stalled electrification plans.

Nissan recently reported that profits this year will be 70 per cent lower than expected. It suffered a US$60 million loss last quarter.

Last month, it also announced 9,000 job cuts, slashed sales forecasts and said it would reduce global production capacity by 20 per cent.

Warning of a "severe situation", CEO Makoto Uchida said he would forfeit half his salary.

The situation grew so dire that one senior official told Forbes last month that unless Nissan pulls a last-minute rabbit out of the hat, the company would be headed for bankruptcy within 12 to 14 months.

Which brings us to Nissan finding an anchor investor in Honda.

Honda's market capitalisation is 5.95 trillion yen (US$38.8 billion), while Nissan's is 1.17 trillion yen (US$10 billion).

Any deal would be the biggest in the industry since a US$52 billion merger between Fiat Chrysler and PSA in 2021 to create Stellantis.

Market watchers have warned that starkly different corporate cultures and the spectre of job losses could hinder any merger plans.

Mr Vaidya acknowledged that the quest for “efficiencies” could correlate with job losses.

“Going by history, they are unlikely to get rid of one brand and merge it into another. Both brands may still exist in the market,” he said. “So … the backend, at production, at R&D, at suppliers – that's where the consolidation is likely to happen, and that's where job losses or any company closures, if at all, may happen.” 

Globally, consolidation has become the “name of the game”, said Mr Vaidya.

“Every single legacy automaker is facing some challenges, and building economies of scale and derisking innovation … coming together is a part of that.”

Asked by CNA if the potential merger could be affected by the incoming Donald Trump administration in the United States, he said said it was unlikely for tariffs to hit established vehicle production bases.

“Any production base like Mexico, Thailand, Canada - where they already have a lot of production happening - and if a vehicle is produced there and entering the US, it is unlikely to get impacted,” said Mr Vaidya.

“Most of the tariff barriers are against someone like China, whom they perceive that maybe there are some subsidies happening at the backend. That's why you'll see most of the Chinese automakers entering Thailand, because that's an established base and unlikely to get taxed.”

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