Tokyo – Japanese carmakers Honda and Nissan have announced plans to join forces, forming the world’s third-largest carmaker by sales, as the industry undergoes dramatic changes in its transition away from fossil fuels.
The two companies said they had signed a memorandum of understanding on Monday and that Mitsubishi Motors, the smallest member of the Nissan alliance, had also agreed to join talks on integrating their businesses.
“We anticipate that if this integration becomes a reality, we will be able to offer even greater value to a broader customer base,” Nissan CEO Makoto Uchida said in a statement.
Japan’s automakers have lagged behind their big rivals in electric vehicles and are trying to cut costs and make up for lost time.
News of a potential merger emerged earlier this month, with unconfirmed reports saying talks of closer collaboration were driven in part by Taiwanese iPhone maker Foxconn’s aspirations to link- se with Nissan, which has an alliance with Renault SA of France and Mitsubishi.
A merger could result in a whopping value of more than $50 billion based on the market capitalization of the three automakers. Together, Honda and Nissan’s alliance with France’s Renault SA and smaller automaker Mitsubishi Motors Corp. they would gain scale to compete with Toyota Motor Corp. and with the German Volkswagen AG. Toyota has technology collaborations with Mazda Motor Corp. and Subaru Corp of Japan.
Even after a merger, Toyota, which launched 11.5 million vehicles by 2023, would remain Japan’s top automaker. If merged, the three smaller companies would make about 8 million vehicles. By 2023, Honda made 4 million and Nissan produced 3.4 million. Mitsubishi Motors earned just over 1 million.
Nissan, Honda and Mitsubishi announced in August that they would share components for electric vehicles such as batteries and joint research software for autonomous driving to better adapt to the dramatic changes focused on electrification, after a preliminary agreement between Nissan and Honda established in March.
Honda, Japan’s second-largest carmaker, is widely seen as the only likely Japanese partner capable of rescuing Nissan, which has been struggling after a scandal that began with the arrest of its former chairman Carlos Ghosn in late of 2018 on charges of fraud and misappropriation of company assets, allegations he denies. He was eventually released on bail and fled to Lebanon.
Speaking to reporters in Tokyo on Monday via video link, Ghosn derided the planned merger as a “desperate fad.”
From Nissan, Honda could get large chassis-based SUVs like the Armada and Infiniti QX80 that Honda doesn’t have, with big towing capabilities and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, said in The Associated Press.
Nissan also has years of experience building battery and electric vehicles and gas-electric hybrid engines that could help Honda develop its own electric vehicles and the next generation of hybrids, he said.
But the company said in November it was cutting 9,000 jobs, or about 6% of its global workforce, and reducing its global production capacity by 20% after reporting a quarterly loss of 9,300 million yen ($61 million).
It recently reshuffled its management and CEO Makoto Uchida took a 50% pay cut to take responsibility for the financial woes, saying Nissan needed to be more efficient and better respond to market tastes, the rising costs and other global changes.
Fitch Ratings recently downgraded Nissan’s credit outlook to “negative”, citing worsening profitability, partly due to price cuts in the US market. But it noted that it has a solid financial structure and solid cash reserves that totaled 1.44 trillion yen ($9.4 billion).
Nissan’s share price has also fallen to the point where it is considered a bargain.
Its Tokyo-listed shares gained 1.6% on Monday. They rose more than 20% after the potential merger was reported last week.
Honda shares rose 3.8%. Honda’s net profit fell nearly 20% in the first half of the April-March fiscal year from a year earlier as sales suffered in China.
The merger reflects a trend of consolidation across the sector.
At a routine briefing on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of the automakers’ plans, but said Japanese companies must remain competitive in the fast-changing market.
“As the business environment surrounding the automotive industry changes to a great extent, the competitiveness in storage batteries and software is becoming more and more important, we hope that the necessary steps will be taken to survive the international competition” , Hayashi said.