Honda and Nissan, Japan’s second-and third-largest automakers, ranked seventh and eighth globally in vehicle sales, are in talks about a potential merger.
While not yet finalized, the two companies are expected to begin formal discussions next week. They are reportedly considering establishing a new holding company under which both firms would operate.
According to Shinhan Investment Corp, Honda and Nissan’s vehicle sales in 2023 will reach 3.99 million and 3.37 million units, respectively. Mitsubishi Motors, in which Nissan holds a 24% stake, also has the potential to be incorporated after the merger.
Nissan reported a loss of 9.3 billion yen (approximately $63 million) in the second quarter, attributed to weak sales in the U.S. and Chinese markets and rising raw material costs.
The company has announced plans to reduce its global production capacity by 20% and cut 9,000 jobs. Nissan also sold a 10% stake in Mitsubishi Motors to bolster its finances.
Industry analysts suggest that Nissan’s financial difficulties and poor performance have raised concerns about the company’s potential bankruptcy.
This has led to speculation that Taiwan’s Foxconn might attempt to acquire a stake in Nissan for its electric vehicle (EV) business, which may have prompted merger talks with fellow Japanese automaker Honda.
In March, Honda and Nissan signed a partnership agreement to collaborate comprehensively in areas such as vehicle software. Mitsubishi Motors joined this partnership in August.
The shift towards EVs and the rise of Chinese EV manufacturers have significantly impacted Honda and Nissan’s sales in China. Through October, they dropped by 46% and 7.6%, respectively.
Choi Won Seok, an analyst at Shinhan Investment Corp, notes that Honda and Nissan are collaborating to reduce development costs for EVs, autonomous driving technology, and vehicle software while enhancing global competitiveness.
However, vital challenges remain for both automakers.
The transition to EVs and competition from Chinese manufacturers has resulted in a declining market share for Japanese automakers in China and Southeast Asia.
Furthermore, President-elect Donald Trump proposed a 10% additional tariff on Japanese exports to the U.S. and a 25% tariff on Mexico, which could impact Japanese automakers’ sales and performance in the U.S. market.
Choi predicts that Japanese automakers could face a 0 to 35% decline in operating profits due to increased U.S. tariffs. If tariffs are imposed on Mexico, companies like Toyota, Honda, and Nissan with factories there will need to reassess their strategies and brace for further profit declines.
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