Analysis-Honda, Nissan tie-up requires something you can’t spare: time By Reuters
Written by David Dolan
TOKYO (Reuters) – Honda (NYSE: ) and Nissan (OTC: ) expect big profits from their potential merger to create the world’s third-largest auto group but intense competition from China raises questions about whether they can make it work on time.
The Japanese automakers said Monday they had agreed to begin formal merger talks. While the outcome is not guaranteed and will partly depend on how troubled Nissan makes progress in its transition, they aim to finalize the deal by August 2026.
Nissan’s junior partner, Mitsubishi Motors (OTC:), will decide next month whether it plans to participate.
The automakers have targeted more than 1 billion yen ($6.4 billion) in synergies through the use of a common platform, shared research and development (R&D) and joint procurement.
Their goal of an operating profit of more than 3 billion yen represents a 54% increase on their combined results last year.
But the full effect of the synergies will not be felt until after 2030, Honda CEO Toshihiro Mibe told a joint press conference on Monday. Companies need to build up the capacity to deal with Chinese rivals then, he said, or face “a beating”.
Analysts doubt they have that much time.
The biggest obstacle for both would be their models. There are no strong ones for EVs. Nissan, although an early pioneer with the Leaf, later stumbled. The new EV, the Ariya, was supposed to challenge Tesla’s (NASDAQ: ) Model Y but was hampered by production issues.
Honda is very focused on hybrids and unlike Nissan it offers models in the United States, where the demand for cars has increased significantly.
“Both companies do not have compelling EV offerings, and the combined entity will still face the challenge of a new EV model pipeline and R&D technology,” said Vincent Sun, senior analyst at Morningstar.
A standardized vehicle platform can generate cost synergies, but that, too, will take time to develop.
“It may take longer than expected” to fix the business, Sun said.
THE LOST WORLD
In China, the shift to electrified cars has seen consumer interest focus on software-driven features and digital experiences inside the car, areas where Chinese manufacturers excel.
BYD ( SZ: ) and other domestic brands have edged past automakers, releasing new software-loaded EVs and hybrids. Both Honda and Nissan have lost ground in China, the world’s largest auto market.
Honda reported a 15% drop in quarterly profit last month, and was laying off workers in China. Nissan has already announced plans to cut 9,000 jobs worldwide and cut production capacity by 20% due to lower prices in China and the United States.
Shifting their major China operations would involve “significant execution risk”, Dean Enjo, senior analyst at Moody’s (NYSE:) Ratings, wrote in a note to clients.
Both automakers are also focused on the United States and Japan. That “significant overlap” means the merger won’t bring significant benefits in terms of geographic diversity, Enjo said.
However, the integration would help them to face any possible impact from import tariffs under incoming US President Donald Trump, Enjo said.
BIG MONEY
Honda is the second largest car company in Japan, while Nissan is number 3 in the country. Combined, they will be the third largest group in the world by car sales after that Toyota (NYSE: ) and Volkswagen (ETR: ).
The merger will also be the biggest restructuring of the global auto industry since then Fiat (BIT:) Chrysler Automobiles and PSA merged in 2021 to form Stellantis (NYSE:) in a $52-billion deal.
The size of the deal highlights the severity of the threat from China’s rivals, especially as they have been making inroads into regions such as Southeast Asia, where Japanese automakers once had a presence.
In Japan, the threat to the auto industry is a threat to its economic health, as the country’s influence in key industries such as consumer electronics and chips has declined over the years.
The technological challenge means that legacy car companies that do not find new partners are at risk of becoming smaller companies with higher capital costs and R&D costs per car, analysts at Morgan Stanley (NYSE:) said in a note earlier this month, when reports of a possible merger first emerged.
“As the industry evolves, there may be more consolidation to come,” they said.
($1 = 157.0500 yen)
