Japanese automakers Honda and Nissan have announced plans to join forces, as the world’s third-largest automaker by sales undergoes dramatic changes as the industry transitions away from fossil fuels.
The two companies said Monday that they signed a memorandum of understanding and that smaller Nissan alliance member Mitsubishi Motors also agreed to join talks on integrating their businesses.
“If this integration is successful, we hope to be able to offer even greater value to a broader customer base,” Nissan CEO Makoto Uchida said in a statement.
Japan’s automakers have lagged behind their larger rivals in electric vehicles and are scrambling to cut costs and make up for lost time.
News of a potential merger emerged earlier this month, with talks for an unconfirmed collaboration prompted in part by Taiwanese iPhone maker Foxconn’s aspirations to strike a deal with France’s Renault SA and Nissan, which has alliances with Mitsubishi.
A merger could result in a behemoth worth more than $50 billion based on the market capitalization of all three automakers. Together, Honda and its alliances with France’s Renault SA and smaller automaker Mitsubishi Motors Corp. will be leveraged to compete with Toyota Motor Corp. and Germany’s Volkswagen AG. Toyota has technology partnerships with Japan’s Mazda Motor Corporation and Subaru Corporation.
Toyota, which will turn out 11.5 million vehicles in 2023, will remain Japan’s leading automaker even after the merger. If they join, the three smaller companies will make about 8 million vehicles. In 2023, Honda produced 4 million and Nissan 3.4 million. Mitsubishi Motors alone earned over 1 million.
Nissan, Honda and Mitsubishi announced in March that they will share components for electric vehicles such as batteries and jointly research software for autonomous driving to better adapt to dramatic changes centered around electrification, following an initial agreement between Nissan and Honda.
Honda, Japan’s second-biggest automaker, is widely seen as the only potential Japanese partner to influence the rescue of Nissan, which has struggled since a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on fraud and embezzlement charges. Misappropriation of company assets, allegations he denies. He was eventually released on bail and fled to Lebanon.
Speaking to reporters in Tokyo via a video link on Monday, Ghosn derided the planned merger as a “desperate move”.
From Nissan, Honda could get truck-based body-on-frame large SUVs like the Armada and Infiniti QX80 that Honda doesn’t have, with bigger towing capacity and better off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told The Associated Press.
Nissan also has years of experience building battery and electric vehicles and gas-electric hybrid powertrains that could help Honda develop its own EVs and next-generation hybrids, he said.
But the company said in November it would cut 9,000 jobs, or about 6% of its global workforce, and reduce its global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($61 million).
It recently reshuffled its management and its chief executive Makoto Uchida took a 50% pay cut to take charge of financial problems, saying Nissan needed to become more efficient and respond better to market tastes, rising costs and other global changes.
Fitch Ratings recently downgraded Nissan’s credit outlook to “negative” due to falling profits, which has led to lower prices in the North American market. But it noted that it has a strong financial structure and solid cash reserves of 1.44 trillion yen ($9.4 billion).
Nissan’s share price has also fallen where it is believed to be a deal.
On Monday, its Tokyo-traded shares rose 1.6%. They jumped more than 20% last week after news of a potential merger broke.
Honda shares rose by 3.8 percent. Honda’s net profit fell nearly 20 percent in the April-March first half from a year earlier as sales in China were hit.
The merger reflects an industry-wide trend toward consolidation.
At a regular briefing Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of the automakers’ plans, but said Japanese companies needed to remain competitive in a rapidly changing market.
“As the business environment around the automobile industry changes drastically, competitiveness in storage batteries and software is increasingly important, we hope that the necessary measures will be taken to survive in international competition,” said Hayashi.
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