Honda and Nissan have announced plans to merge, creating the world’s third-largest automaker

Japanese automakers Honda and Nissan have announced plans to work toward a merger that would create the world’s third-largest automaker by sales, as the industry undergoes dramatic changes in its shift away from fossil fuels.

The two companies said they signed a memorandum of understanding on Monday, and that Mitsubishi Motors, the junior member of the Nissan alliance, also agreed to join talks on merging their businesses.

Japanese automakers have lagged behind their major rivals in electric vehicles and are trying to cut costs and make up for lost time as new entrants such as China’s BYD and US market leader Tesla gain market share.

Honda and Nissan will continue to consolidate their operations under a joint holding company, Honda President Toshihiro Mebe said. Honda will initially lead the new management, retaining each company’s principles and brands.

He said they aim to reach a formal merger agreement by June and complete the deal and list the holding company on the Tokyo Stock Exchange by August 2026.

The dollar value has not been determined, and formal talks have only just begun, according to Meby. He added that there are “points that need study and discussion.” “Frankly, the probability of this not being implemented is not zero.”

The Japanese government has been sounding the alarm about the existential threat China poses to its auto industry since at least 2019, when… It is said He urged Honda and Nissan to meet and discuss a possible merger.

China’s automotive sector has seen a boom in exports in the past several years, with one industry cluster claim It will overtake Japan as the world’s largest automobile exporter in 2023.

The merger of Honda, Nissan and Mitsubishi could result in a giant company worth more than US$50 billion based on the market capitalization of all three automakers.

Together, the two companies will gain scale to compete with Toyota and Germany’s Volkswagen. Toyota has technology partnerships with Japanese companies Mazda and Subaru.

Planned merger ‘desperate move’

News of a potential merger emerged earlier this month, with unconfirmed reports that Taiwanese iPhone maker Foxconn was seeking to tie up with Nissan by buying shares from the Japanese company’s other alliance partner, France’s Renault.

Nissan CEO Makoto Uchida said there had been no direct contact with his company from Foxconn. He also acknowledged that Nissan’s situation was “dangerous.”

Even after the merger, Toyota, which produced 11.5 million vehicles in 2023, will remain the leading Japanese automaker. If the three smaller companies join together, they will produce about eight million vehicles. In 2023, Honda produced four million and Nissan produced 3.4 million. Mitsubishi Motors manufactured just over one million cars.

Nissan, Honda and Mitsubishi previously agreed to share electric vehicle components, such as batteries, and conduct joint research on self-driving software to better adapt to electricity.

Nissan is facing difficulty in the wake of a scandal that began with the arrest of its former president, Carlos Ghosn, in late 2018 on charges of fraud and misuse of company assets, charges that Ghosn denies. He was eventually released on bail and fled to Lebanon.

Speaking to reporters in Tokyo on Monday via video link, Ghosn mocked the planned merger as a “desperate move.”

Nissan has years of experience manufacturing batteries and electric vehicles

From Nissan, Honda can get large, truck-based SUVs like the Armada and Infiniti QX80 that Honda doesn’t have, with great towing capabilities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told The Associated Press.

Nissan also has years of experience in manufacturing batteries, electric vehicles, and gas-electric hybrid powertrains that could help Honda develop its electric vehicles and next-generation hybrids, he said.

But the company said in November that it would cut 9,000 jobs, or about six percent of its global workforce, and cut its global production capacity by 20 percent after reporting a quarterly loss of 9.3 billion yen (about C$85 million).

It recently shuffled its management, and Uchida, its chief executive, took a 50 percent pay cut while admitting responsibility for the financial problems, saying Nissan needed to become more efficient and respond better to market tastes, rising costs and other global changes.

“We expect that if this integration comes to fruition, we will be able to provide greater value to a broader customer base,” Uchida said.

Fitch Ratings recently downgraded Nissan’s credit outlook to “negative,” citing deteriorating profitability, partly due to price cuts in the North American market. But it noted that it has a strong financial structure and strong cash reserves of 1.44 trillion yen (13 billion Canadian dollars).

The merger reflects an industry-wide trend toward consolidation

Nissan’s stock price has also fallen to the point where it is considered a bargain. On Monday, its Tokyo-traded shares rose 1.6 percent. It jumped more than 20 percent after news of the potential merger emerged last week.

Honda shares rose 3.8 percent. Honda’s net profit fell about 20 percent in the first half of the fiscal year from April to March compared with the previous year, with sales in China affected.

The merger reflects an industry-wide trend toward consolidation.

At a routine news conference on Monday, Chief 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 the rapidly changing market.

“With the business environment surrounding the automotive industry changing significantly, with competitiveness in battery storage and software becoming increasingly important, we expect to take necessary measures to survive the international competition,” Hayashi said.