Merger Talks Fall Apart

Barely two months after the news broke about a potential merger between Japanese automakers Honda and Nissan, negotiations collapsed.

A few days ago, Nissan CEO Makoto Uchida officially informed Honda CEO Toshihiro Mibe that Nissan had decided to terminate the merger talks. Both parties will decide in the future whether to resume negotiations or narrow their cooperation to the field of electric vehicles.

Just over two months ago, Kyodo News reported new progress in the business integration talks between Honda and Nissan. Both parties were considering producing models at each other's factories and exploring the possibility of mutual production. On December 23, 2024, Honda and Nissan announced the initiation of business merger consultations, aiming to reach an agreement by June 2025. The two companies also planned to eventually bring Mitsubishi Motors under the umbrella of the holding company. Currently, Nissan is the largest shareholder of Mitsubishi Motors, holding a 24% stake.

This news garnered intense global attention. The industry generally believes that a successful integration would reshape the landscape of the Japanese automotive industry, giving birth to the world's third-largest automotive group.

However, this integration did not proceed smoothly. Initially, the plan was for the two companies to jointly invest in establishing a holding company, with both merging as subsidiaries. During negotiations, Honda proposed acquiring Nissan as a subsidiary, leading to strong opposition within Nissan, and ultimately a decision to terminate the talks.

In fact, as early as December 20, 2024, Carlos Ghosn, the former chairman of Nissan, stated in an interview that Nissan's pursuit of an agreement with Honda was a "desperate move." Ghosn believed it was not a pragmatic deal, as it was difficult to find synergies between the two companies.

Ghosn suggested that the Japanese government's push for a "partnership" between Honda and Nissan was largely driven by competition from Chinese automakers. To some extent, this was a defensive strategy.

Amidst the industrial transformation brought about by new energy vehicles, Chinese brands have continued to hit new market share highs, while Japanese automakers have retreated in the Chinese market, resorting to layoffs and plant closures to maintain operations.

It remains unclear whether Honda and Nissan will pursue other forms of cooperation after the collapse of their talks. More urgently, both companies are facing increasing difficulties in the Chinese market.

A "Desperate" Merger?

The merger between Honda and Nissan originated from the "matchmaking" efforts of the Japanese government.

According to media reports, as early as 2019, the Japanese government attempted to promote and lobby for the merger of Nissan and Honda, concerned about the future of the Japanese automotive industry. However, at that time, the crisis had not yet emerged, and this move was dubbed "absurd" by public opinion. Even top executives from both parties clearly expressed their "impossibility" of merging.

Five years later, this "incredible" event was on the verge of becoming a reality.

There were early signs of a merger between the three companies. In March 2024, Honda and Nissan announced the signing of a memorandum of understanding to conduct a feasibility study on strategic cooperation in the electrification and intelligentization of vehicles. This study would involve automotive software platforms, core components of electric vehicles, and complementary products.

In July of the same year, Nissan, Honda, and Mitsubishi signed a memorandum of understanding, planning to cooperate in software, battery, and other electric vehicle-related technology research to save development costs and improve market competitiveness.

At that time, Mitsubishi Motors President and CEO Takao Kato expressed confidence that the cooperation among the three companies would create more possibilities in the fields of electrification and intelligence.

On August 1, Honda and Nissan signed another memorandum of understanding to deepen strategic partnerships, conducting extensive discussions and reviews. It is understood that both parties reached a joint research agreement on the basic element technology in the field of the next-generation software-defined vehicle (SDV) platform and signed a memorandum of understanding on deepening strategic partnerships, involving core technologies such as batteries and electric vehicle drive units ("E-Axle").

Perhaps the frequent increase in cooperation brought new possibilities for the merger of the three companies. Honda CEO Toshihiro Mibe said in an interview on December 23, "The agreement signed today is only the first step in officially starting to consider the transaction agreement. There are still many points to discuss to achieve this agreement."

In terms of volume, if Nissan's partner Mitsubishi Motors also joined, based on 2023 sales, the annual sales of this new group would reach 8 million vehicles, second only to the Toyota Group with 11.23 million vehicles and the Volkswagen Group with 9.23 million vehicles.

However, in Ghosn's view, the merger between Nissan and Honda was a desperate move, not a pragmatic deal. It was difficult to find synergies between the two companies, and there was almost no complementarity. They operated in the same market, with almost identical products and very similar brands.

Ghosn believed that Honda had always been renowned for its superior engine technology and chassis tuning skills, from the racetrack to civilian use, with its technological advancement and reliability tested over time. Nissan, too, had cultivated for many years in the fields of intelligent driving assistance and vehicle lightweighting engineering technology, with remarkable achievements. When the two automakers merged, the first challenge was the technical integration dilemma.

As early as August, in an interview with Automotive News Europe, Ghosn said that Honda was planning a "disguised acquisition" of Nissan and Mitsubishi. He believed that Honda, being the largest of Japan's three major automakers, would "control" the situation in this alliance. Ghosn's prediction came true. The original deadline for Honda and Nissan to determine the direction of integration was postponed from the end of January 2025 to mid-February, and then news of the termination of negotiations emerged at the beginning of February. Mitsubishi Motors, which was originally scheduled to decide whether to join the consultations around the end of January, also spread the news that it was "coordinating to abandon joining the merger." Mitsubishi's hesitation and Nissan's resistance seemed to confirm Ghosn's prediction that "Honda would be in a dominant position." Related reports pointed out that Nissan had a strong sense of adhering to an equal relationship, and the differences between the two parties were too great to bridge, ultimately leading to the collapse of merger negotiations.

Difficulties in Maintaining Performance

Currently, the Chinese and Southeast Asian territories where Japanese automakers once held an advantage are undergoing tremendous changes. From January to November 2024, Honda's cumulative sales in China declined by 30.7% year-on-year, and Nissan's declined by 10.5% year-on-year.

Data shows that for the first half of fiscal year 2024 (April 2024 to September 2024), Nissan's sales amounted to 5.98 trillion yen, a year-on-year decrease of 1.3%; operating profit was 32.91 billion yen, a year-on-year decrease of 90.2%; and net profit decreased by 93.5% to 19.22 billion yen.

Honda's situation was also not optimistic. From April 2024 to September 2024, Honda's revenue increased by 12.4% year-on-year to 10.8 trillion yen; operating profit increased by 6.6% year-on-year to 742.6 billion yen; and net profit was 494.6 billion yen, a year-on-year decrease of 19.7%.

Faced with the dual pressure of revenue and sales, last month, Nissan announced that it would lay off 9,000 employees worldwide and cut production capacity by 20% to cope with the decline in sales in major markets. Nissan CEO Makoto Uchida announced that he would voluntarily forgo 50% of his monthly salary from November, and other executive committee members would also voluntarily take corresponding pay cuts.

In the Chinese market, Dongfeng Nissan closed its Changzhou plant, marking the first time Nissan had closed a passenger car plant in China. Honda also closed two factories, with GAC Honda closing a factory in Guangzhou and Dongfeng Honda closing a factory in Wuhan.

Image source: Honda China

However, after closing its traditional fuel vehicle factories, Honda will build two new energy production facilities. GAC Honda stated that it would increase production capacity through a new industrial chain and continuously strengthen its corporate competitiveness to respond to China's new energy vehicle development strategic goals. On December 23, 2024, GAC Honda's new energy factory in the development zone was officially put into production with a designed annual production capacity of 120,000 vehicles. Dongfeng Honda also responded by promoting its electrification transformation and optimizing its production capacity structure.

In previous reports, Nikkei News commented that in the global automotive industry, pure electric vehicle companies such as Tesla in the United States and Chinese companies are challenging traditional large enterprises, leading to a historic structural transformation in both technology and participants. The three Japanese manufacturers aimed to pool their technical strength and other operational resources to strive to become the world's third-largest group.

When the merger news broke, Cui Dongshu, secretary-general of the Passenger Car Association, expressed his disapproval of the merger between Nissan and Honda. He believed that both Honda and Nissan needed to increase localized R&D investment in China and achieve product innovation relying on the advantages of the Chinese industrial chain, thereby enabling the global development of Nissan and Honda.

In Cui Dongshu's view, both Honda and Nissan required technological innovation and upgrading of their own technologies, rather than simply scaling up to reduce manufacturing costs.

Ghosn even believed that the Honda-Nissan alliance would not succeed because the businesses of these two automakers were not complementary. After all, the previously merged Stellantis Group also experienced issues such as market share decline and brand power decline in fiscal year 2024.

The power struggle seems to have come to an end, and Honda and Nissan are still seeking new breakthrough directions.

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