Honda and Nissan announced plans to merge, creating the third largest company in the world

Japanese carmakers Honda and Nissan have announced plans to merge, creating the world’s third-largest carmaker by sales as the industry faces radical changes in its shift away from fossil fuels.

The two companies said they signed a cooperation agreement on Monday and a member of the Nissan alliance, Mitsubishi Motors, also agreed to join the negotiations to merge their businesses.

The president of Honda, Toshihiro Mibe, said that Honda and Nissan will strive to combine their operations under a partner company. Honda will first lead the new management, keeping the goals and products of each company. The aim is to have a formal merger agreement by June and finalize the deal and list the participating company on the Tokyo Stock Exchange by August 2026, he said.

No dollar amount has been given and formal negotiations are still underway, Mibe said.

There are “points that need to be studied and discussed,” he said. “To be honest, the possibility of this not happening is not zero.”

Japanese automakers are lagging behind their biggest rivals in electric cars and are trying to cut costs and make up for lost time.

The merger could result in a behemoth worth more than $50 billion US based on the market capitalization of all three automakers.

Together, Honda, Nissan and Mitsubishi will gain scale to compete with Toyota Motor Corp. and Volkswagen AG of Germany. Toyota has a technical relationship with Mazda Motor Corp. of Japan and Subaru Corp.

Planned mergers ‘hard move’

News of a possible iPhone merger emerged earlier this month, with unconfirmed reports saying the talks were partly motivated by Taiwan’s Foxconn’s desire to join forces with Nissan by buying shares in the Japanese company’s other subsidiary, France’s Renault SA. .

The CEO of Nissan, Makoto Uchida, said that there had never been any direct communication with his Foxconn company. He also agreed that Nissan’s situation is difficult.

Even after the merger, Toyota, which produced 11.5 million vehicles by 2023, will remain Japan’s leading car company. If they join, the three small companies will make about eight million cars. In 2023, Honda produced 4 million and Nissan produced 3.4 million. Mitsubishi Motors made just over one million.

Nissan, Honda and Mitsubishi announced in August that they will share electric vehicle components, such as batteries, and joint research software for autonomous driving to better adapt to dramatic changes focused on electrification, following an initial agreement between Nissan and Honda that was set up in March.

Nissan has struggled following a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misuse of company assets, allegations he denies. He was eventually released on bail and fled to Lebanon.

Speaking Monday to reporters in Tokyo via video link, Ghosn derided the planned merger as a “difficult move.”

Nissan has years of experience building batteries, EVs

At Nissan, Honda can get large truck-based SUVs in a frame like the Armada and Infiniti QX80 that Honda doesn’t have, with great towing capacity and good off-road performance, Sam Fiorani, vice president of AutoForecast Solutions, told the Associated Press.

Nissan also has years of experience building batteries and electric vehicles, as well as gas-electric hybrid powertrains that could help Honda produce its EVs and next-generation hybrids, he said.

But the company said in November that it was cutting 9,000 jobs, or about 6 percent of its global workforce, and reducing its global production capacity by 20 percent after reporting a quarterly loss of 9.3 billion yen (about Cdn. 85 dollars).

It has recently changed its management and Makoto Uchida, the chief executive, has cut pay by 50 percent to deal with financial problems, saying Nissan needs to be more efficient and respond better to popular markets, rising costs and other global changes.

“We expect that if this merger is successful, we will be able to bring great benefits to many customers,” said Uchida.

Fitch Ratings recently downgraded Nissan’s credit outlook to “negative,” citing rising profits, in part due to price cuts in the North American market. But it noted that it has a strong financial structure and strong reserves of up to 1.44 trillion yen ($13 billion Cdn).

Nissan’s share price also dropped to the point where it was considered a sell-off.

Consolidation reflects an industry-wide trend toward consolidation

On Monday, shares of Nissan traded in Tokyo gained 1.6 percent. They jumped more than 20 percent after news of a possible merger emerged last week.

Honda shares rose 3.8 percent. Honda’s net profit fell nearly 20 percent in the first half of the April-March fiscal year from a year earlier, as sales struggled in China.

Consolidation reflects an industry-wide trend toward consolidation.

At a general press conference on Monday, Cabinet Secretary Yoshimasa Hayashi said he would not comment on the details of automakers’ plans, but said Japanese companies need to remain competitive in a rapidly changing market.

“As the business environment surrounding the automotive industry changes dramatically, as competition in storage batteries and software becomes more important, we expect that the necessary steps to survive international competition will be taken,” said Hayashi.