Nissan and Honda have halted their merger discussions, initially aimed at strengthening their positions in the electric vehicle market. Disagreements over leadership roles derailed talks that began in December, despite the potential to create a major automaker. Both companies will now pursue a strategic partnership focused on EV collaboration. The automotive landscape remains challenging for Japanese manufacturers as they adapt to market shifts, particularly with rising competition from China and ongoing financial pressures.
Nissan and Honda Call Off Merger Talks
In a surprising turn of events, Japanese automotive powerhouses Nissan and Honda have officially ended their merger discussions as of Thursday. The talks, which commenced in December, aimed to leverage each company’s strengths in the electric vehicle (EV) sector. However, Honda’s insistence on taking the lead in the merged entity became a sticking point.
Nissan, grappling with significant financial challenges, initiated negotiations with Honda towards the end of 2024. The proposed merger had the potential to create the world’s third-largest automaker by 2026. In a joint statement, both companies expressed that, “to prioritize the speed of decision-making and execution in an increasingly volatile market environment, it would be more appropriate to cease talks and terminate the memorandum of understanding.” This decision was largely expected, as Nissan’s board had already voted to halt discussions the previous week.
Implications for the Automotive Industry
The original intent behind the merger was to combine the resources of Honda and Nissan, positioned as the second and third largest Japanese automakers following the global leader, Toyota. The initial plan even considered bringing in a third automaker, Mitsubishi, to strengthen their negotiating power in the costly transition to electric vehicles. Currently, the EV market is dominated by American company Tesla and Chinese manufacturers such as BYD, while Japanese automakers have lagged behind due to their historical focus on hybrid technologies.
As the electric vehicle market gains traction, China has overtaken Japan as the world’s largest vehicle exporter in 2023, raising alarms for Japanese manufacturers. In response to their declining position, Nissan and Honda had announced a “strategic partnership” in March 2024 to collaborate on software and equipment for electric vehicles. They reaffirmed their commitment on Thursday, stating, “In the future, Nissan and Honda will collaborate within the framework of a strategic partnership to face the era of electrified and intelligent vehicles.”
A merger would have offered substantial economies of scale, allowing for shared funding in research and development as well as upgrades to production facilities. The initial vision was to create a single holding company. However, Honda’s demand to make Nissan a subsidiary, given its stronger market capitalization, was unacceptable to Nissan, which values its independence.
The joint statement elaborated, “Various options were considered regarding the structure of the business integration,” revealing Honda’s proposal to transition from a shared holding company to a parent-subsidiary structure, which Nissan rejected. Renault, which owns 35% of Nissan, also criticized Honda’s conditions, indicating they were “not acceptable” and praised Nissan’s focus on its recovery plan.
Despite the setback, Nissan remains committed to its ongoing projects and seems determined to maintain its strategic autonomy. However, the outlook for Japanese automakers is challenging, as they are facing a slowdown in the global market, particularly with declining sales in China and a complicated shift to electric vehicles. Honda is also feeling the pressure, reporting only a modest 4.7% increase in operating profit for the October-December period, with expectations of stagnant automotive sales across Asia and North America, alongside significant declines in Japan and Europe.