Honda and Nissan in Talks for Deeper Ties

By Maki Shiraki and Norihiko Shirouzu

TOKYO (Reuters) – Honda and Nissan are in discussions to deepen their relationship, possibly considering a merger, signaling a shift in Japan's automotive landscape amid competition from Tesla and Chinese automakers.

According to sources, these discussions were first revealed by the Nikkei newspaper and aim to enhance collaboration on technology, positioning Honda, the second-largest automaker in Japan, and Nissan, the third-largest, to better compete against Toyota.

Key points of the talks include:
– Establishing a holding company.
– Exploring a full merger.
– Enhancing cooperation with Mitsubishi Motors, where Nissan holds a 24% stake.

No official agreement has been announced yet, but the companies previously indicated interest in future collaboration. A merger would form the world's third-largest auto group by sales, including Mitsubishi.

Analysts view this development positively, suggesting it could create a stronger competitive dynamic against Toyota, which is crucial for the struggling Japanese auto industry facing intense competition from global players.

In trading on Wednesday, Nissan's shares increased by over 22%, while Honda's fell by 2.3%, and Mitsubishi's shares climbed 13%. Honda's market cap is around $44 billion, while Nissan's reached $10 billion after the stock surge; a full merger would surpass Fiat Chrysler's $52 billion merger with PSA to create Stellantis.

Both Honda and Nissan are exploring strategic partnerships to tackle challenges in the electric vehicle sector, particularly in response to a price war instigated by Tesla and BYD. Automakers are under increasing pressure due to declining demand in Europe and the U.S., prompting them to seek cost-reduction strategies, including potential mergers.

Additionally, Nissan has revealed plans to eliminate 9,000 jobs and reduce global production capacity by 20% to save $2.6 billion in the financial year ending in March.

Experts suggest that while the deal may primarily benefit Nissan, Honda is also facing challenges with deteriorating cash flow and underperforming electric vehicle sales. Renault, a prominent shareholder in Nissan, has refrained from commenting on the situation.