Proposed Honda-Nissan Merger Could Change Auto Industry Landscape

Of course, the merger is pitched as forward looking. NikkeiAsia, the English language version of Japan's top business daily, reported that the two companies will negotiate a merger“to better compete against Tesla and Chinese electric vehicle makers in a rapidly changing automobile industry.” The Financial Times, which is owned by Nikkei, reported that the two companies“are in exploratory talks about a merger of the two carmakers that would create a $52bn Japanese behemoth.”

But the front page headline of the Thursday morning Japanese language Nikkei was“Hon Hai purchase, sense of crisis.” Honda, which had begun discussing a“strategic partnership” with Nissan last March, said it would cancel if Nissan tied up with Hon Hai.

Hon Hai is building its own electric vehicle business, adding to the pressure on Honda and Nissan. In 2020, it established the Mobility in Harmony (MIH) Consortium in hopes of becoming the“android system of the EV industry” and“creating a 'software-defined' open ecosystem for the EV manufacturing industry.” Hon Hai also has a joint venture with Taiwanese automaker Yulon, which produces electric vehicles designed by Hon Hai.

The MIH Consortium, which develops reference designs and open standards, now has more than 2,700 members, including more than 100 in Japan. Its CEO is the Japanese corporate executive Jun Seki, who previously served as president of Dongfeng Nissan (Nissan's joint venture with Dongfeng Motor in China), chief operating officer of Nissan, CEO of Japanese motor maker Nidec and, most recently, chief strategy officer for Hon Hai's electric vehicle operations.

Seki reportedly sees potential synergies with Nissan, which launched its pioneering electric vehicle, the Nissan LEAF, in 2010, and is said to be interested in acquiring Renault's share of Nissan.

Renault has been backing away from its alliance with Nissan and Mitsubishi Motors, while Honda and Nissan are considering bringing Mitsubishi Motors into a new, all-Japanese, three-way alliance. Such an alliance would be about 80% the size of Toyota today but probably no more than 70% as large after cutting back production of gasoline powered cars. But even so it would probably be about the same size as the Hyundai Motor Group, which currently ranks third after Toyota and Volkswagen.

Note that only three of the world's top 10 automakers reported year-on-year unit sales increases in the three months to September 2024: BYD (+38%), Geely (+20%) and Ford (+1%). The others reported single-digit declines, except for GM (-13%) and Honda (-12%). On current trends, BYD may soon overtake GM and Stellantis, while Geely catches up with Honda.

Total unit sales of Nissan vehicles were down only 3% last quarter, but both deliveries and prices have collapsed in China. As a result, the company's net profit dropped by more than 90% in the first half of this fiscal year, which ends in March 2025. Honda's net profit was down 20% in the same period, for the same reason.

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Honda also needs an alternative to its self-driving vehicle partnership with GM – which gave up on its Cruise robotaxi last week, leaving Honda in the lurch. Honda and GM had been planning to bring Cruise to Tokyo in 2026.

The alternative may already be on the way. At the beginning of August, Honda and Nissan announced plans to conduct joint research into next-generation software-defined vehicles, autonomous driving and AI, as well as batteries, battery charging, and electric vehicle motor and transmission systems (e-axles). With time, this could lead to self-driving taxis.

Honda also plans to double its sales of hybrid vehicles, following Toyota and BYD into the strongest segment of the passenger car market.

It is easy to be cynical about these developments, but we need to remember that Toyota's commitment to hybrid vehicles was ridiculed for years by people who thought pure electric battery-powered cars were the wave of the future. They were wrong, and those who are skeptical of the Honda-Nissan merger may also be mistaken. But fighting back against Toyota, Hyundai, BYD, Geely and other aggressive competitors won't be easy.

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