Honda and Nissan are seeking a merger or other type of financial understanding, as published yesterday Nikkei. The renowned Japanese media assured that this is the path along which conversations that began last Marchwhen both companies announced that they would work on carrying out future collaborations.

last summerHonda and Nissan confirmed that they were delving into the formula for work together in the development of new products related to electric mobility, both in software and batteries. Now, there is already clear talk of a merger.

With everything from Bloomberg They assure that Honda would be considering other types of associations. For example, it considers becoming the majority partner of Nissan or, on the contrary, being part of the same holding company in which Mitsubishi could also enter, a company in which, in turn, Nissan is the majority partner with 20% of the shares. .

When it was confirmed that both companies were having their first conversations last March, Makoto Uchida (CEO of Nissan) assured that the understanding was basic since “companies that do not respond (to the changes in the markets caused by Tesla and the Chinese electric cars) will be annihilated,” in words reported by Guardian.

An earthquake in Japanese industry

Although Honda has made it clear that it needs to renew itself in depth to face a constantly changing market, Nissan is the party most interested in a merger or in being absorbed, in part, by Honda.

The year 2024 is the certification that Nissan is on a tightrope. Between March and September of this year, which corresponds to the first Japanese fiscal semester, the company has reduced its operating profit by 90% their profit prospects by 70%. With these perspectives, The New York Times It stated that this exercise pointed to profits of 975 million dollars, for the 3.6 billion dollars obtained in 2023.

Consequently, Nissan published a month ago that planned to lay off 9,000 workers to adapt to the new financial situation. This involves reducing its current production, which the new CEO had promised to increase throughout the year but which finally they have had to reduce due to the low demand for their product.

Faced with this desperate situation, “we have 12 or 14 months to survive,” a senior official even told Financial Times. Since then, the company has been studying various partnership possibilities, among which Foxconn has even been discussed. The latter could have accelerated interest in an association with Honda, for fear that the Taiwanese company would take control of Nissan taking advantage of the low price of its shares, they say in Bloomberg.

Although the merger of Honda and Nissan (the second and third largest automotive companies in Japan) consolidated into what would be the creation of the largest automobile conglomerate since the birth of StellantisFrom Japan they would not frown upon this happening. The country’s regulators have always preferred that local companies invest in other Japanese companies. Associations such as those maintained by Toyota, Mazda, Subaru and Suzuki, for example, are common.

To this we must add that the alliance between Renault-Nissan-Mitsubishi has not ended up bearing the expected results. With the entry of the French into the shareholding of Nissan, the company embarked on a tough path of cutting expenses and costs under the guidance of Carlos Ghosn. However, relations deteriorated to such an extent that the manager fled Japan on a private flight to clear accusations of embezzlement within the company.

Over time, Renault and Nissan have separated their paths despite the fact that the French came to own 43.4% of the Japanese shares. In July 2023 It was decided that both companies would barely maintain a cross investment of 15%.

The balance of the last 25 years in which Nissan has gone from being on the verge of bankruptcy to be part of the largest industrial group of the automobile in the world and, subsequently, returning to an extremely complicated situation is driving talks with Honda so that it can rescue its hitherto rival. something of which Carlos Ghosn himself already warned last summer.

Reconvert to survive

In the statements in which the possible merger has been discussed, the challenge of facing Tesla and Chinese electric cars has always been put on the table. Both parties seem to have completely changed what we have understood until now by “car” and the big manufacturers seem to be trying to adapt in a hurry to a world that has completely changed.

With China, the largest automobile market, jumping to the electric car and Europe applying aggressive policies that lead to this in a relatively short time (ban on combustion engines other than carbon neutral in 2035 and one strong reduction in polluting emissions in 2030), the electric car is positioned as a fundamental pillar in the automobile market strategy.

For Japanese companies, perhaps it will not be the determining pillar in their strategy (Toyota assures that they do not expect it to be the majority option) but yes one of the most important. Therefore, Nissan and Honda cannot afford to completely disappear from the Chinese market (which is turning towards local companies) nor Europedespite the fact that its sales are already reduced on the continent.

Chinese manufacturers, good for the development of technology or by the impulse of the Statehave managed to build a production chain that has significantly reduced the times of each generation of vehicles. All this with cost savings that allows them to position their cars much lower in price than their rivals.

This collides directly with the way of working of the Japanese, who traditionally opt for slower changes in trajectory and for polishing to exhaustion and perfection the products they already have on the market. They face, with the electric car, the innovator’s dilemma.

In fact, in Financial Times They questioned whether Nissan’s philosophy is understood with that of Honda, when it comes to engineers from both parties collaborating. Nissan has been working with the philosophy of a Western company for a quarter of a century. Honda, for its part, is slower and is committed to rotating its own employees more frequently to offer a less standardized but more polished product.

This way of acting has worked well for Honda, which has grown significantly during the time that Nissan spent under the command of Renault. In fact, before the alliance there was talk that Honda could be Nissan’s lifeline. Together with Renault, he launched the Nissan Leaf. The car arrived just at the moment when it could lay the foundations for what the electric car would be like and give them key leadership. However, they did not manage to impose it as a standard as Toyota did with the Prius, they point out in Bloomberg.

While the train was slipping away from Nissan, Honda has based its growth on combustion engines, which, little by little, it has electrified until achieving great results with its hybrids, both in Japan and, especially in North America. In fact, Honda claims that expects to double the number of hybrids sold between now and 2030 in that market.

Despite this, they are aware that they cannot give up one of the great revolutions that Tesla has brought: software. The Japanese are having serious problems adapting to a market where software is key, gaining weight compared to the traditional values ​​of the automobile. That’s why, Japan has promoted a partnership between Toyota, Honda and Nissan to develop new software that allows them to rival China and Tesla.

But not only that, Honda has already reached a agreement with Sony to delve into these aspects, with the aim of modernizing their vehicles and bringing them closer to an audience that increasingly values what your car is capable of doing with its screensfrom its use as a navigator to turning it into a karaoke on wheels, something common in China.

Added to all of the above is the need for large manufacturers to reduce costs and seek partnerships that allow them to launch products in less time or, at least, renew them more quickly. China is immersed in it, with companies capable of releasing new products in record time and Tesla has chosen to launch a vehicle with a very long term design but that, due to its way of producing it, achieves significantly reduce your production costs. Cars that, in addition, They are renewed every so often with updates constants to expand its functions.

As a result, we are seeing how the market, little by little, is atomized into immense groups of numerous brands to share platforms, developments and research. Honda and Nissan may be the last, but not the only ones. For example, Volkswagen has invested in Rivian to gain its knowledge, leaving 6,000 million euros despite being in one of the biggest crises in its history. Recently too invested in XPeng to gain Chinese knowledge and improve your products in the local market.

Likewise, years ago Volkswagen and Ford reached an agreement so that the American company take advantage of electric platforms one of the first models to be launched in Europe and reduce costs. Luca de Meo, CEO of Renault, proposed an automobile airbus with the aim that European manufacturers would pitch in to carry out new electrical projects. Stellantis is the result of the merger of FCA and PSAforming one of the largest automobile conglomerates in the industry.

The market is changing completely. There is less and less space for small manufacturers, while the values ​​associated with the car change and companies try to find solutions to a market that is directed towards the electric car in two large markets and whose transformation is hindering them.

Photo | Sling

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