Honda, Nissan Merger in the Works as Tesla and BYD Crush China’s EV Market Share

Japanese auto giants Honda and Nissan are exploring a merger to combat rising pressure from Tesla and BYD, who continue to dominate China’s surging electric vehicle market. The talks mark a bold shift amid global EV turbulence.

Honda and Nissan Consider Merger Amid Tesla and BYD's Dominance in China’s EV Market

As they confront increasing competition from larger global electric vehicle manufacturers, Japanese auto titans Honda Motor and Nissan Motor will begin merger talks, according to Tuesday's Nikkei newspaper (via Reuters).

As the auto industry struggles to adapt to the evolving electric vehicle market, relations between the companies have grown in recent months. There is a lot of pressure on conventional manufacturers due to a combination of factors, including slow demand in the United States and Europe and fierce competition from Tesla and local competitors in China, a country that is quickly embracing electric vehicles.

On Tuesday, both Honda and Nissan released comments denying rumors of a combination. No independent verification of the report has been made by Reuters.

EV Price Wars With Tesla and BYD Amplify Financial Pressure

"As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other's strengths," the firms said in separate statements. They then added that they will inform stakeholders of any developments when they are ready.

Furthermore, Renault, a significant shareholder in Nissan, a French automaker, claimed ignorance and chose not to comment.

Companies who are losing money on next-gen vehicles are under even more pressure after a year of an electric vehicle pricing battle between Tesla and Chinese automaker BYD. Mergers are a big step toward cost savings and accelerated car development, which has pushed firms like Honda and Nissan to seek methods to decrease expenses.

While Nissan's market valuation is 1.17 trillion yen ($7.6 billion), Honda's is 5.95 trillion yen ($38.8 billion). Any agreement would be the largest in the sector since Stellantis, formed in 2021 through the $52 billion combination of Fiat Chrysler and PSA.

Chinese EV Market Poses Threat to Honda and Nissan's Global Sales

“The thought that some of these smaller players can survive and thrive is getting more challenging, especially when you add on the complexity of all the additional Chinese manufacturers who have come in and are competing quite strongly," according to Edmunds analyst Jessica Caldwell. "It's just sort of necessary to survive, not only to survive, but also just to afford the future."

In afternoon trade, Honda's U.S.-listed shares rose 0.9%.

In China, both Honda and Nissan, the second- and third-biggest automakers in Japan, respectively, have been seeing a decline in market share. More than 1.27 million electric vehicles were purchased in that country in November, making up over 70% of all EV sales worldwide.

Both companies are under competition from electric vehicle manufacturers, especially in China where BYD and others have made significant gains, despite having 7.4 million vehicles sold worldwide in 2023.

Global Automakers Shift Focus as EV Demand Slows in Key Markets

High borrowing prices and a lack of a reliable charging infrastructure are preventing EV uptake, even with government subsidies, and global automakers like Ford and GM have reduced their investments in EVs as a result. General Motors reported in September that it was in discussions with Hyundai Motor of South Korea to investigate potential cost-cutting collaborations, including cooperative vehicle development.

As a result of a shrinking market, rising costs, a slower-than-expected adoption of electric vehicles, and intensifying rivalry from Chinese competitors, the European automotive industry is in shambles, threatening thousands of jobs.

In an effort to save expenses and increase profits, Volkswagen has threatened to close operations in Germany for the first time in its 87-year history, lay off workers, and reduce pay. Last Monday, the leading European automaker announced plans to shut down its Audi facility in Brussels in 2019.

U.S. Policy Changes Could Complicate Honda and Nissan's Merger Plans

As a result of declining demand and increasing expenses, Volkswagen is engaged in contentious negotiations with its union in Europe on cost reductions.

According to Investing.com, the international car industry is also preparing for the possibility that the incoming U.S. president, Donald Trump, could reverse rules that are favorable to electric vehicles.

Car industry insiders speculated that Trump may try to negotiate concessions from Honda and Nissan in order to get the US government to greenlight a merger between the two companies. Trump has promised to take a firm stance on imported vehicles, even going so far as to impose 25% taxes on vehicles delivered from Canada and Mexico. Trump vowed to impose tariffs on Japanese automobiles during his initial term in office.

Honda and Nissan Collaboration Intensifies With Mitsubishi in the Mix

Following an agreement to collaborate on electric vehicle (EV) operations in March, Honda and Nissan further strengthened their relationship in August by committing to collaborate on e-axles, batteries, and other technologies.

The Nikkei said that the automakers will shortly finalize an agreement for the combined company.

It was reported that Nissan is the leading stakeholder with a 24% stake in Mitsubishi Motors, and that Honda and Nissan are both interested in acquiring the company through their holding company.

No comment was available from Mitsubishi officials at this time.

As a result of falling demand in both China and the United States, the Japanese carmaker Nissan has been slashing expenses.

The business reported a 90% decline in half-year net earnings compared to the same period last year and a 70% reduction in its yearly operational profit forecast last month.