Nervous car industry watches Japan's manufacturing giants partnering up

The global automotive industry had its eyes on Japan this week as Japanese car producers Nissan Motor Corp. and Honda Motor Co. have confirmed discussions about closer collaboration, yet denied rumors of a potential merger. These talks, which also involve Nissan’s alliance partner Mitsubishi Motors Corp., come amid growing challenges in the automotive industry, including competition from Chinese electric vehicle (EV) makers and the global shift toward electrification.

The Japanese auto giants issued a joint statement on December 18, emphasizing that no decision on a merger has been mad. Yet nervous industry experts led to Nissan’s shares surging nearly 24% on the speculations, while Honda’s shares fell by 3%, as an article by AP recorded.

The rise of Chinese automakers like BYD, Great Wall, and Nio, which produce relatively affordable EVs, has disrupted the market, impacting the global presence of American, European and Japanese carmakers alike. Japanese automakers, including Nissan and Honda, have lagged in EV development compared to rivals and are now seeking cost-cutting measures and strategic partnerships to adapt.

The article recalls, that Japan’s Nissan, Honda, and Mitsubishi announced back in August plans to share EV components such as batteries and to collaborate on autonomous driving software. A merger could create an entity worth approximately $55 billion, which would catapult the newly formed synergy to become the third-largest automaking group worldwide. This would enable the companies to compete more effectively with their biggest local competitor, Toyota Motor Corp. and Germany’s Volkswagen AG, which rank first and second on the list respectively.

Toyota has established technology partnerships with Mazda Motor Corp. and Subaru Corp., emphasizing the importance of alliances in the evolving automotive landscape.

For Honda, which recorded total revenues almost double that of Nissan in previous years, partnering with the Japanese competitor offers access to product segments where it lacks a presence. Nissan’s lineup includes large SUVs like the Armada and Infiniti QX80, which offer substantial towing capacity and off-road capabilities. Additionally, Nissan has extensive experience in EV technology, including building batteries and hybrid powertrains, which could accelerate Honda’s development of EVs and next-generation hybrids.

Nissan’s EVs, such as the Leaf and Ariya, have struggled in the U.S. market but are recognized for their solid technology. Analysts note that these vehicles and upcoming products could provide a strong foundation for Honda’s future EVs.

Nissan has faced significant financial difficulties in recent years, including a quarterly loss of 9.3 billion yen ($61 million) and a decision to cut 9,000 jobs, or 6% of its global workforce. The company is also reducing global production capacity by 20% to improve efficiency and align with market demands. CEO Makoto Uchida has taken a 50% pay cut and acknowledged the need for strategic changes.

Fitch Ratings recently downgraded Nissan’s credit outlook to “negative,” citing declining profitability due to price cuts in the North American market. However, Nissan’s strong financial reserves, amounting to 1.44 trillion yen ($9.4 billion), and its undervalued share price have made it an attractive partner or acquisition target. Reports suggest that discussions with Honda gained urgency after Foxconn, a Taiwanese electronics manufacturer, expressed interest in acquiring Nissan as part of its EV expansion plans.

Nissan has also been recovering from the fallout of a corporate scandal involving former chairman Carlos Ghosn, who was arrested in 2018 on fraud charges but has since been released and fled to Lebanon. Although the scandal damaged the company’s reputation, Nissan remains financially stable and technologically advanced, making it a viable partner for Honda.

By Nazrin Sadigova