Japan's Honda and Nissan to begin merger talks, Nikkei reports

• Honda and Nissan face competition from Tesla and Chinese EV makers


• No merger announced, companies exploring collaboration


• Potential merger could face US scrutiny and require concessions

The carmakers have increased ties in recent months as they wrestle with the changing EV landscape. Heavy competition from Tesla and local rivals in China, a nation rapidly adopting EVs, and stalling demand in Europe and the US have intensified the pressure traditional automakers face.

Honda and Nissan on Tuesday issued identical statements saying no merger had been announced by either company. Reuters has not independently verified the report.

"As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other's strengths," the companies said in separate statements, adding they will inform stakeholders of any updates at an appropriate time.

In addition, French automaker Renault, a major Nissan shareholder, said it had no information and declined to comment.

Over the past year, an EV price war launched by Tesla and Chinese automaker BYD has only intensified pressure on any companies losing money on the next-generation vehicles. That has put pressure on companies like Honda and Nissan to seek ways to cut costs and speed vehicle development, and mergers are a major step in that direction.

Honda's market capitalization is 5.95 trillion yen ($38.8 billion), while Nissan's is 1.17 trillion yen ($7.6 billion). Any deal would be the biggest in the industry since the $52 billion merger between Fiat Chrysler and PSA in 2021 to create Stellantis.

“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," said Edmunds analyst Jessica Caldwell. "It's just sort of necessary to survive, not only to survive, but also just to afford the future."

Honda's US-listed shares were up 0.9% in afternoon trading.

Honda and Nissan, Japan's second- and third-biggest automakers, respectively, after Toyota, have been losing market share in China. That nation accounted for almost 70% of global EV sales in November, with more than 1.27 million in purchases for the month.

The two had combined global sales of 7.4 million vehicles in 2023, but are grappling with challenges from EV makers, particularly in China, where BYD and others have surged ahead.

Global automakers General Motors and Ford have slowed investments in EVs as high borrowing costs and poor charging infrastructure hinder their adoption despite government incentives. In September, GM said it was in talks with South Korea's Hyundai Motor to explore ways to collaborate in a move to cut costs, including on joint vehicle development.

Europe's car sector is in turmoil, with thousands of jobs on the line as automakers suffer from a weakening market, high costs, a slower-than-expected takeup of EVs and increasing competition from Chinese rivals.

Volkswagen has threatened to close plants in Germany for the first time in its 87-year history, cut jobs and slash wages to reduce costs and boost profit. Last week, Europe's top carmaker said it will close its Audi plant in Brussels next year.

In Europe, Volkswagen is locked in acrimonious talks with its union over cost cuts as it struggles with falling demand and rising costs.

The global auto industry is also bracing for a potential rollback of EV-friendly policies by US President-elect Donald Trump, Reuters has reported.

Any merger would face significant US scrutiny and Trump has vowed to take a hard line on imported vehicles - including threatening 25% tariffs on vehicles shipped from Canada and Mexico - and he could seek concessions from Honda and Nissan to approve any deal, auto industry officials said. During his first term, Trump threatened tariffs on Japanese vehicles.

Honda and Nissan in March agreed to cooperate in their EV businesses, and in August deepened their ties, agreeing to work together on batteries, e-axles and other technology.

The automakers are expected to sign a memorandum of understanding soon for the new merged entity, the Nikkei reported.

Honda and Nissan are also looking to bring in Mitsubishi Motors, in which Nissan is the top shareholder with a 24% stake, under the holding company, the report said.

Mitsubishi officials did not have an immediate comment.

Nissan has been reeling from weak demand in China and the US, prompting the Japanese automaker to cut costs.

Last month, the company said its half-year net earnings were down more than 90% from a year ago and cut its annual operating profit forecast by about 70%.

(Reporting by Shivangi Lahiri, Abhijith G and Nathan Gomes in Bengaluru, Norihiko Shirouzu in Austin, Texas; Gilles Guillaime in Paris, and David Shepardson in Washington; Editing by Arun Koyyur, Ben Klayman and Matthew Lewis)