Earlier this year Nissan announced plans to lay off thousands of workers and reduce production by 20% due to declining sales—and with reports suggesting the company has just 12 to 14 months of financial runway left.
If completed, the merger would unite Nissan, which sold 3.37 million vehicles last year, and Honda, which sold 3.98 million, creating the world’s third-largest automaker after Toyota and Volkswagen. Combined, the two companies have a market value of $54 billion—$44 billion attributed to Honda and just $10 billion to Nissan.
In addition, both automakers announced a strategic partnership to collaborate on electric vehicle production, with Mitsubishi also expressing interest in joining the agreement. Now, it appears Mitsubishi, 24% owned by Nissan, may also become part of the newly formed entity.
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Both companies are heavily focused on the North American market, which accounts for over a third of their total sales. Given the market’s current skepticism toward electric vehicles, the two automakers may need to prioritize hybrid models, which are gaining popularity in the U.S.
Although the merger appears to stem from Nissan’s financial struggles, Japanese analysts predict Honda will also face challenges in the coming year, as its cash flow is expected to decline significantly. Meanwhile, Renault, which holds a 15% stake in Nissan, may sell its share after the merger is finalized.
Following news of the potential merger, Honda’s stock dipped on the Tokyo Stock Exchange, while Nissan’s shares surged. The contrasting market reactions highlight which company approaches this merger from a position of strength and which is being pulled into it reluctantly.
While the creation of a major new player in the auto industry could spark optimism, a merger is a short-term solution. Long-term success will require significant innovation, development, and efficiency improvements. This is especially critical as traditional automakers face stiff competition from emerging Chinese manufacturers.
Anyone expecting the merger alone to resolve all challenges should look no further than Stellantis’ ongoing struggles for a reality check.