Nissan and Honda have ended negotiations to merge and create a $60 billion carmaker, deepening Nissan’s uncertainty and highlighting the challenges faced by many automakers as Chinese competitors disrupt the industry. The decision to cancel the deal, which was first reported by Reuters last month, was made by the boards of both companies. Despite this setback, the two Japanese automakers pledged to continue collaborating on electric vehicles.
The proposed merger aimed to strengthen Honda’s position as the world’s fourth-largest auto group, behind Toyota, Volkswagen, and Hyundai, and to help it better compete with emerging Chinese brands like BYD. Honda has faced difficulties in China, while Nissan’s sales have significantly dropped this year as Chinese consumers increasingly turn to local brands that offer greater perceived value.
Talks began in late December. They were complicated soon after by growing differences, including over the balance of power in the tie-up, which was to be led by Honda. Sources said Nissan balked at being a junior partner in the partnership. Nissan’s minor alliance partner, Mitsubishi Motors, was also considering joining the merger and said it may not now do so.
Mitsubishi has a much weaker financial position than Honda and is struggling to recover from the fallout of former chairman Carlos Ghosn’s arrest on charges of embezzlement and false accounting. Nissan and Honda will continue cooperating on EV projects despite the failed talks. They could also seek partnerships with other companies, such as Taiwanese assembler Foxconn, which wants to expand its EV contract manufacturing business.
However, the full effect of a merger would likely be felt until after 2030, when both companies plan to roll out dozens of new models to challenge Tesla’s dominance in the EV market. Moreover, the two have different corporate cultures that may make it difficult to combine their operations.
Mergers between major carmakers are rare but have been prompted by increased competition from Chinese rivals and slumping demand for gasoline-powered cars. Nissan has also been buffeted by turmoil that began with Ghosn’s arrest in late 2018, eroding its reputation and stock price.
The talks’ failure reflects the challenges that Japanese automakers face as they work to transform into EV-focused firms. Unless they can offer more electric vehicle models, they will lose out to competitors that do not have the same cost structures or production scale as traditional carmakers.
A combination of Nissan, Japan’s second-largest automaker, and Mitsubishi and Renault SA of France and Nissan’s more minor alliance partner, is unlikely to yield significant results. A merged company would be worth about $55 billion based on market capitalization, but it would struggle to compete with bigger groups such as Toyota and VW in global sales. It would need a strong brand, a significant presence in the US, and a strong network of dealers to succeed. It would also need to overcome regulatory hurdles, particularly in the United States.
