A potential seismic event is underway in the automotive world.
Nissan (NSANY) and Honda (HMC) are in talks to merge, as first reported by Japan’s Nikkei news agency. Bloomberg reported the two Japanese giants pushed their merger talks forward as Taiwan’s Foxconn, the maker of devices like the iPhone and others, approached Nissan about a stake. And just this morning Japan’s Yomiuri news outlet reported a memorandum of understanding with regards to a merger could be signed as early as Dec. 23.
Nissan, struggling with sales both in the US and globally, would be receiving a lifeline in the form of Honda with potential access to capital and shared development costs. Honda would gain more manufacturing capacity and benefit from cost sharing as well. The companies are already partnering on developing next-gen EV platforms, where Nissan has an advantage with its many years selling the Leaf EV and current Ariya EV crossover.
Nissan shares, both traded overseas and in OTC markets in the US, soared after the news broke.
“The announced merger talks between Nissan and Honda are not surprising, given the recent turbulence impacting legacy automakers globally,” said Michael Brisson, auto economist at Moody’s Analytics.
A potential merger between Nissan and Honda would create the world’s third-largest automaker, right behind Toyota and Volkswagen, and leapfrogging Korea’s Hyundai-Kia group in total unit sales.
Nissan’s struggles have been an issue all year. The company reported global revenues fell 5% in its most recent quarter (fiscal Q2 — July to September) and a net loss of $62 million versus a profit a year ago. Operating margins dropped below 0.2%.
The company also cut its revenue projection for the 2025 fiscal year by 10%, with the company saying that it is “facing a severe situation” and that it is “taking urgent measures to turn around its performance and create a leaner, more resilient business capable of swiftly adapting to changes in the market.” Nissan said it would cut its global capacity by 20% and reduce its global workforce by 9,000.
Honda’s earnings, meanwhile, were mixed in its fiscal Q2, with revenue topping estimates but earnings missing the mark.
Nissan’s US sales are struggling, with sales down 2.2% in Q3, while Honda’s sales have surged, up 8% in Q3 and up 13.4% year to date. Part of that success is due to Honda’s hybrid offerings, which are popular in the US, and the company said it intends to make more hybrids in the future, doubling hybrid sales by 2030.
Meanwhile, Nissan decided to push more into EVs with the Ariya EV and ended hybrid production, which is looking like a mistake. While Ariya sales are higher year over year, the company has had to discount these models heavily, eating into margins.
Nissan also saw big struggles in China due to surging competition. Moody’s noted that China sales in 2023 were roughly half of its 2019 volume, when China accounted for 1 in 3 of Nissan’s global sales.
“These Nissan-Honda merger discussions, coupled with the recent challenges at Stellantis and production cutbacks in Europe, all point to a single, stark reality: a new force has emerged in the automotive sector, and legacy automakers need to be acutely aware of the competitive threat,” Moody’s Brisson said, the “new force” referring to Chinese automakers like BYD, Li Auto, and Nio, among others.
In addition to Nissan’s struggles, Volkswagen (VWAGY), Ford (F), and GM (GM) have all faced the ramifications of that stark reality in China, with the three retrenching in China in the past year. Local competition and price wars were cited by the legacy automakers as reasons for the brutal conditions of the Chinese auto market.
In fact, local competition in China has been fierce and is growing over time. In 2020, Chinese domestic automakers had a 35.8% market share in China. By 2021, that figure rose to 41.2%, and in 2023, it surpassed the halfway point, hitting 51.9%, according to IMD.
And that growth is pushing beyond the Chinese mainland too. China’s BYD is expected to overtake Ford, and even Honda, in global sales this year.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on X and on Instagram
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