Amidst the wave of transformation in the automotive industry, the two major Japanese giants have decided to "band together for warmth".
On December 23rd, Honda Motor Company and Nissan Motor Company jointly announced that Honda and Nissan will officially begin merger negotiations. At the same time, Honda, Nissan, and Mitsubishi Motors have signed a memorandum of understanding, and Mitsubishi Motors will discuss its participation in the merger.
The memorandum of understanding indicates that both parties intend to establish a joint holding company, which will serve as the parent company of Honda and Nissan. It is reported that Honda and Nissan plan to determine the integration direction by the end of January 2025, sign the final agreement in June 2025, and then complete the listing of the joint stock company on the Tokyo Stock Exchange in August 2026.
In this merger, Honda still holds the dominant position. According to the documents, more than half of the members of the board of directors of the holding company will be nominated by Honda, who will hold more than half of the shares. The holding company plans to go public in August 2026, and Honda and Nissan will be delisted accordingly.
Collaboration is a choice made by both parties under the pressure of transformation. The electrification transformation of Japanese car companies has been slow, as evidenced by a significant gap in sales compared to top electric vehicle companies. According to statistics from research firm MarkLines, Nissan's sales of pure electric vehicles in the third quarter of 2024 were only 34000 units, while Honda's sales of pure electric vehicles during the same period were only 20000 units. In contrast, BYD and Tesla sold 424000 and 432000 vehicles respectively during the same period.
In addition to the decline in electrified products, Nissan and Honda have been under pressure in their performance in recent years. Honda has fallen into a vicious cycle of increasing revenue without increasing profits; Nissan is deeply mired in an operational crisis, with net profit turning from profit to loss in the third quarter of this year, a year-on-year decrease of 104.9%.
However, Honda CEO Mibe Toshihiro stated that the success of the merger negotiations depends on whether Nissan can successfully turn its losses into profits. He believes that both sides need to make more efforts in the development of new technologies for electric vehicles and intelligent driving.
Nissan has expectations for cooperation. After adopting this approach of turning losses into profits for future development and growth, we need to consider the ultimate scale and growth, which may be achieved through partnerships, "said Makoto Uchida, CEO of Nissan.
Long brewing
Faced with the electrification crisis, Nissan and Honda ultimately chose to work together.
The idea of cooperation between both parties was already implemented as early as March this year. On March 15th of this year, Honda and Nissan signed a memorandum of understanding to begin cooperation in the field of electric vehicles, involving automotive software platforms, core components related to electric vehicles, and more. On August 1st, the cooperation between the two sides further deepened, and Mitsubishi Motors joined this cooperative alliance. Honda, Nissan, and Mitsubishi have signed a memorandum of strategic cooperation, announcing the start of discussions on the framework for cooperation in intelligent and electrified vehicles. In addition to the addition of Mitsubishi Motors, Honda and Nissan have also announced their joint development of software defined vehicles to enhance the value of their cars and services.
Moving towards consolidation means deep business integration. At a press conference on December 23rd, Toshihiro Sanbu stated that the transaction aims to enable both parties to share intelligence and resources, achieve economies of scale and synergies, while protecting both brands. Business integration will bring "advantages that cannot be achieved under the current cooperation framework" to the two companies.
The automotive industry is facing unprecedented changes that are affecting all players. Sanbu Toshihiro believes that electrification is imperative. After taking office for a month, Honda changed its previous "conservative" transformation strategy and began to accelerate its electrification process in May 2021. He set a goal for Honda's electrification transformation - to end the production of pure internal combustion engine vehicles by 2040, in order to achieve carbon neutrality.
In November of the same year, Nissan also proposed the "Nissan Vision 2030", planning to launch 23 electric drive models by the 2030 fiscal year, including 15 pure electric models. The proportion of electric drive models from Nissan and Infiniti brands will exceed 50%. Simultaneously achieving carbon neutrality throughout the entire lifecycle of products by 2050.
The sense of crisis on both sides stems from sales pressure. In the US market, Nissan's market share has decreased by over 25% in the past 5 years, while Honda's market share in the US market will only increase by 1.3 percentage points year-on-year in 2023. The pressure on the Chinese market is greater. From 2022 to 2023, Nissan's sales decreased by 22.1% and 24% year-on-year, respectively, while Honda's sales decreased by 12.1% and 11% year-on-year, respectively.
For Nissan and Honda, they still need to accelerate their efforts to regain control of the Chinese market. However, Honda's advantage has always been in the internal combustion engine. In the wave of electrification, the penetration rate of new energy in the Chinese automotive market has exceeded 50%, while Honda has been lackluster in electrified products. Moreover, the impact of the price war has further compressed the profit margins of both sides in China.
Merger is Honda's choice to cope with the crisis. Honda's "alliance" signal has already been sent out. In April 2021, Toshihiro Sanbu stated in a public interview with the media that Honda would consider the possibility of forming an alliance. I'm not obsessed with maintaining independence, I just shouldn't prioritize independence
For this reason, Sanbu Toshihiro brought in his old partner General Motors. In April 2022, Honda announced plans to expand its partnership with General Motors to jointly develop a range of affordable electric vehicles based on a new global architecture and utilizing the next generation Ultium battery technology. But a year and a half later, the cooperation plan for this electric vehicle was announced to be terminated. In an interview, Toshihiro Sanbu stated that the company had canceled its plan to develop an economical electric vehicle in cooperation with General Motors, due to commercial prospects issues.
The problem of lagging behind in the electric vehicle business has not yet been resolved. According to Honda's released financial report, its poor sales performance in the Chinese market from March to June this year dragged down overall revenue. Honda's sales in China have decreased by 32.4% year-on-year, making it the market with the largest decline. Although Honda launched new models in China in the first half of this year, e: NP2， But it failed to effectively resist the loss of market share.
Honda has been increasing revenue without increasing profits for a long time. Starting from the 2022 fiscal year, Honda has started to show a performance of increasing revenue without increasing profits. That year, Honda's revenue increased by 16.2% year-on-year, while net profit and operating profit decreased by 1.7% and 3.7% respectively. By the first half of this fiscal year (April to September), Honda's operating profit increased by 6.6% year-on-year to 742.6 billion yen; Net profit was 494.6 billion yen, a year-on-year decrease of 19.7%.
Compared to Honda, Nissan's situation is even more difficult. Nissan's latest financial report shows that its operating profit for the first half of the 2024 fiscal year (April to September) was 32.908 billion yen, a significant decrease of 90.2%; Net profit was 19.223 billion yen, a year-on-year decrease of 93.5%.
After submitting an unsatisfactory financial report to the market, Nissan lowered its full fiscal year performance forecast to 150 billion yen (previously expected to be 500 billion yen) and adopted measures such as production cuts, layoffs, and executive pay cuts to reduce costs. At the same time, Nissan's former partner, the Nissan Renault Mitsubishi Alliance, is on the verge of collapse. After experiencing a crisis of cross shareholding and management disagreements, Renault is unable to "put out" Nissan again due to its influence and revenue conditions.
It is reported that a Nissan executive previously stated that "with current cash flow levels, Nissan may only survive for 12 to 14 months. Introducing new investments is urgent." Nissan needs to seek a long-term strategic partner.
However, Toshihiro Sanbu emphasized that this merger is not intended to rescue Nissan. From the perspective of market performance, the alliance's joint efforts to overcome difficulties are a common choice for both sides in the face of industry changes.
Time for shuffling?
At the same time as Honda and Nissan officially start merger negotiations, Nissan, as Mitsubishi Motors' largest shareholder, is also considering whether to participate in this merger. Mitsubishi is expected to announce its final decision by the end of January next year. As the automotive industry undergoes a major transformation unseen in a century, we hope that Mitsubishi Motors' participation can bring greater social impact to the integration of Nissan and Honda's business. Nissan and Honda will start discussing from today, striving to clarify the possibility of integration by the end of January 2025 and synchronize it with Mitsubishi Motors' considerations, "said Toshihiro Sanbu at a press conference.
According to industry predictions, after integration, Nissan and Honda will become the third largest automotive group with sales revenue exceeding 30 trillion yen, operating profit exceeding 3 trillion yen, and total annual car sales exceeding 8 million units, second only to Toyota and Volkswagen.
Based on the current market value of both parties, after the completion of this merger, the company's value will reach 54 billion US dollars, including Mitsubishi's market value of 58 billion US dollars. If the transaction is completed, this merger will also be a transaction of comparable scale in the automotive industry, following the merger of FCA Group (Fiat Chrysler Automobiles) and PSA Group (Peugeot Citroen) to form Stellantis in January 2021.
For the Japanese automotive industry, the long-standing tripartite situation of Toyota, Honda, and Nissan will be broken and reorganized into two major factions represented by Toyota: the Toyota Alliance and the Honda Nissan Mitsubishi Alliance. The Toyota Alliance includes companies such as Isuzu, Subaru, Suzuki, Mazda, and Hino Motors, and has already begun collaborating on the development of electric vehicles. The focus of competition between the two camps is also on areas such as electrification and intelligence.
Unlike previous mergers that pursued achieving economies of scale, Nissan and Honda's expectation for the merger is value enhancement. Sanbu Toshihiro believes that this merger "is expected to respond to changes in the market environment such as electrification and enhance corporate value." Nissan President Makoto Uchida said, "I am confident that by combining the strengths of both parties, unprecedented value can be created
Many voices still hold a skeptical attitude towards the effect of "hugging for warmth". The merger of Nissan and Honda is a desperate move, not a pragmatic deal, "former Renault CEO Carlos Ghosn has publicly stated.
Cui Dongshu, Secretary General of the China Association of Automobile Manufacturers, stated that he is not optimistic about the merger of Nissan and Honda. He believes that both Honda and Nissan need to increase their investment in localized research and development in China and achieve product innovation based on the advantages of the Chinese industrial chain, in order to empower Nissan and Honda's global development.
Saburo Fuko, an executive researcher at the Itochu Research Institute in Tokyo, said that the rapid innovation speed of Chinese electric vehicle manufacturers means that Honda and Nissan no longer have time to follow the old path of forming alliances.
In the US market, Honda and Nissan have similar positioning and competitive relationships, such as the Accord and Nissan Altima. How to integrate these overlapping product lines after the merger, as well as the expected resource waste and efficiency reduction caused by brand internal friction, are also concerns in the market.
During the 2023 Munich Motor Show, Mercedes Benz Chairman of the Board, Kang Linsong, stated that the intense competition is not expected to subside soon in the foreseeable future.
The dual pressure of performance and sales is sounding the alarm for Japanese car companies. The merger between Nissan and Honda may accelerate the industry's clearance period as giants turn around to seek support.