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Mint Primer | One for the road: All about Honda-Nissan merger
Summary
- The new entity will have a combined market cap of $50 billion. It is expected to have a revenue of $191 billion and profit of $19 billion. Mitsubishi Motors Corp., a smaller player which has Nissan as a majority shareholder, is also expected to be part of the merger.
On Monday, Honda and Nissan, Japan’s two large automakers announced plans to merge and become the third largest auto group in the world. Mint takes a close look at the proposed deal, the factors driving it, potential benefits and how it will play out in India.
What do we know about the merger?
Honda Motor Company, Japan’s second largest car maker and Nissan Motor Corporation, its third biggest, have begun talks to merge their operations sometime in mid-2025. The new entity will have a combined market cap of $50 billion. It is expected to have a revenue of $191 billion and profit of $19 billion. Mitsubishi Motors Corp., a smaller player which has Nissan as a majority shareholder, is also expected to be part of the merger. The combined sales volumes of the three will exceed 8 million cars, and they will become the third largest auto group globally after Toyota and Volkswagen.
What drove this merger plan?
Two major factors—China and electrification. For major global auto manufacturers, China is proving to be a losing market as new Chinese car makers grab the imagination of local consumers. Not just that. They are also beginning to export in a big way. China has overtaken Japan as the world’s largest auto exporter. Today, four out of the top 17 car makers globally are Chinese. Both Honda and Nissan are losing market share badly in China. The second reason is the electrification of the power trains. Japanese carmakers, strong in hybrid technology, are yet to make it big in electric cars.
What benefits does the merger bring?
On paper, many. Economies of scale to start with. The bigger size will give them greater bargaining clout with the supply chain. It will also enable the automakers to cut costs by sharing resources such as labour, production facilities and platforms. They can work together in electrification and software development. It’s a lifeline for Nissan which has been cutting jobs.
Read more: Electric vehicle sales charged up this year, and not just because of subsidies
Great in theory but will this merger work?
Former Nissan chairman Carlos Ghosn thinks the two manufacturers have no real complementary strengths. Sceptics also point to the failure of past deals. Daimler-Chrysler tie-up is a case in point. It collapsed after nine years. A Renault-Nissan partnership too failed. The CEO of Stellantis, formed in 2021 through the merger of FiatChrysler and PSA group, quit earlier this month. On the other hand, many experts say that a merger among legacy players is the only way to take on nimble new players.
How will this merger play out in India?
Honda and Nissan are marginal players in India. Honda’s market share is 2.1% and its volume in FY24 declined 5% from FY23. One of its two manufacturing facilities in India remains closed for want of volumes. Nissan’s market share is less than 1% and its cars are produced by the plant it has set up with Renault at Sriperumbudur near Chennai. It is not clear how this facility will be utilized post the merger. Both car makers are, however, expected to share platforms and rationalize their operations in India.
Read more: India’s apex auto testing body looks to accelerate to the green lane
