Honda-Nissan potential merger amid China competition raises questions about timing
Analysts questioned the timing of the Honda-Nissan potential deal amid intense competition from Chinese rivals, reported the news agency Reuters.
The Honda Motor Co. and Nissan Motor Co.'s potential new venture to create a Japanese automotive behemoth amid intense competition from the Chinese rivals raises questions about the timing of the deal, reported the news agency Reuters on Wednesday, December 25.
Both companies said on Monday, December 23, that they will start formal talks about a potential new venture or a merger. According to the news agency, the outcome of the deal remains uncertain as it will depend on Nissan's progress on its turnaround. They aim to finalise a deal by August 2026.
The Japanese automakers are targeting over $6.4 billion in collaborations through leveraging a common platform, shared shared research and development (R&D) and joint procurement. Nissan's junior partner, Mitsubishi will decide by next month whether to take part into this deal or not, as per the news report.
As the companies target an operating profit of more than 3 trillion Yen, making up a 54 per cent increase over their combined results of last year, Honda CEO, Toshihiro Mibe, told a press conference that the effects of the deal will not likely be felt until after 2030.
The companies need to build up capabilities to take on Chinese rivals by then, he said, or face being “beaten,” said the chief.
Timing of the deal
The agency cited analysts questioning the timing of the deal. The biggest concern for both companies is likely to be their model lineups as both companies are not strong in the electric vehicle (EV) segment.
Honda focuses more on the hybrid models and offers the models in the United States, unlike the potential future partner Nissan.
“Both companies lack compelling EV offerings, and the combined entity would still face the challenge of a new EV model pipeline and R&D in technology,” Vincent Sun, a senior analyst at Morningstar told the news agency.
It "may take longer than anticipated" to fix the business, said Sun.
Also Read | Honda, Nissan say they plan to merge in 2026
China Competition
China's shift to EVs has seen consumer interest focus on software-driven features and the digital experience inside the car, all of the areas where Chinese carmakers excel.
Brands like BYD and other Chinese EV makers have left behind legacy automakers after introducing EVs and hybrid cars loaded with high-tech features. Both the Japanese majors have lost some ground to Chinese manufacturers in the automotive market.
Honda's quarterly profits dropped 15 per cent last month, and the company reduced its workforce in China. On the other hand, Nissan announced is plans to cut 9,000 jobs globally and reduce the manufacturing capacity 20 per cent due to dropping sales in both China and the United States, reported the news agency.
Senior analyst at Moody's Ratings Dean Enjo, in a research note on Tuesday, said that turning around their sizable China operations will entail “significant execution risk,” cited the news agency.
Both automakers are also focused on the United States and Japan. That “significant overlap” means the merger won't deliver big benefits regarding geographic diversification, according to Enjo, reported the news agency. The analyst also highlighted that the deal may help the companies to withstand any import tariff headwinds from the upcoming Trump administration in the US.
Chinese competition like this brings forth a technological challenge for legacy companies like Honda and Nissan, if they do not find new partners to expand, there is a potential risk of becoming smaller companies with higher capital expenditure and R&D costs per vehicle, according to analysts at Morgan Stanley cited in the agency report.
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First Published:25 Dec 2024, 02:42 PM IST
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