The landscape of the global automotive industry appears to be on the brink of a significant transformation, revolving around the potential consolidation of major players such as Honda and Nissan. Reports from the Nikkei newspaper indicate that both companies are engaging in discussions regarding a merger, with the aim of eventually incorporating Mitsubishi Motors into the new holding entity. Currently, Nissan holds a controlling 24% stake in Mitsubishi, positioning it as the largest shareholder.
The motivation behind this prospective union is clear. With intensifying competition within the global automotive market and the ongoing shift towards electric vehicles (EVs), traditional manufacturers face mounting challenges. Manufacturing various types of vehicles—including gasoline, hybrid, and fully electric—demands considerable investments, often in the range of billions of dollars. This transition underscores the importance of scale and cost efficiency in this evolving market.
At present, Nissan is grappling with considerable financial difficulties, having reported that it possesses only enough cash reserves to sustain operations for the next 12 to 14 months. Similarly, Honda has also faced a downturn in its financial outlook, prompting the company to lower its performance and delivery forecasts.
If this merger materializes, it would mark the largest restructuring effort in the automotive sector since the formation of the Stellantis group in 2021. The combined annual sales of Honda, Nissan, and Mitsubishi could surpass eight million vehicles, presenting a formidable challenge to global giants like Toyota, which sold 11.2 million vehicles in 2023, and Volkswagen, with sales reaching 9.2 million units last year.
In response to the merger rumors, stock prices reacted dramatically on the Tokyo Stock Exchange. Mitsubishi shares surged by as much as 17% at one point, although Nissan's stock had not yet begun trading as bidding reached the daily maximum. Conversely, Honda’s stock saw a temporary dip of 2%. Following overnight trading, Nissan's American Depositary Shares experienced an 11.5% increase, culminating in a closing price of $5.10, whereas Honda's shares inched up by 1%, closing at $25.26.
Nissan's precarious situation is particularly alarming. Earlier this year, it revealed a staggering 99% drop in operating profit for its North American market. Key challenges facing Nissan include: escalating vehicle prices, which have led potential buyers to explore options with rival manufacturers; a decline in consumer trust regarding specific flagship models; and fierce competition from industry leaders such as Toyota, Hyundai, and Kia, who maintain dominance in Nissan’s respective market segments.
Adding to Nissan's woes, reports indicate that the company’s financial cushion is dwindling, with just 12 to 14 months of cash reserves left. The pressures of aggressive shareholders and heavy debt burdens have raised concerns in the credit markets regarding its investment-grade ratings. In an effort to maintain its operations, Nissan has ramped up promotional initiatives, including attractive financing offers with 0% interest for popular models like the Rogue, Altima, and Pathfinder. This trend of steep discounts is projected to continue until at least 2025.
Meanwhile, Honda has made the decision to revise its performance guidance downward once more, forecasting a more substantial decline in net profit than previously anticipated. The company raised its projected net profit decrease from 9.7% to 14%. Initially, Honda expected to sell 3.9 million vehicles this fiscal year; however, this estimate has now dropped to a projection of 3.8 million units, following an 8% decline in automotive sales for the first half of the year, equating to 1.78 million vehicles. Although Honda experienced a 12% revenue growth in the same period, the results fell short of market expectations.
As it stands, Nissan's stock has plummeted by approximately 39% year-to-date, valuing the company at around $8 billion. On the other hand, Honda's stock has decreased by roughly 18%, with a market capitalization around $40 billion.
Given Nissan’s existing partnership with Mitsubishi, it is likely that the latter will also become involved in the proposed merger. Notably, Nissan currently owns 34% of Mitsubishi but plans to reduce its stake to 24% as part of a strategy to restore profitability. Analysts suggest that Mitsubishi possesses a competitive edge in the Southeast Asian market and has developed advanced plug-in hybrid technology. A representative from Mitsubishi previously stated, “We are exploring all possibilities and are eager to collaborate in areas where we can leverage our strengths.”
This potential merger is viewed as a significant shift that may give rise to a robust competitor to Toyota, effectively reshaping the Japanese automotive industry into two major factions. By narrowing their longstanding global partnerships with other manufacturers—such as Nissan’s collaboration with French automaker Renault and Honda’s ties with General Motors—both companies stand to consolidate their resources and enhance their competitiveness against larger rivals.
The consolidation initiative may enable these manufacturers to directly compete with electric vehicle innovators like Tesla and various Chinese automotive manufacturers, positioning them more favorably in both domestic and global markets against automotive titans like Toyota.
In recent years, Toyota has made substantial investments by securing stakes in Subaru, Suzuki, and Mazda, thereby leveraging its top-tier credit rating to forge a formidable automotive conglomerate. Over the first half of this year, Honda, Nissan, and Mitsubishi collectively sold around four million vehicles globally—significantly below Toyota’s own sales figures of approximately 5.2 million units.