Honda, Nissan, Mitsubishi major merger? Japanese automakers are banding together for warmth

Nissan, Honda and other giants are brewing a restructuring, is the automotive industry facing a major reshuffle?

On Wednesday, according to the Nikkei, Honda Motor and Nissan Motor are preparing to negotiate a possible merger, and the two companies also plan to eventually bring Mitsubishi Motors under the holding company. Currently, Nissan is the largest shareholder of Mitsubishi Motors, holding 24% of the shares.

The reasons behind the merger are not hard to understand. As competition in the global automotive market intensifies, the transition to electric vehicles has brought challenges, and both gasoline, hybrid, and pure electric vehicles require billions of dollars in investment capital, making scale and cost very important.

Currently, Nissan is deeply trapped in financial difficulties, with only 12 to 14 months of cash reserves left, and Honda's financial situation has also declined, once again lowering its performance and delivery guidance.

This potential merger would create a holding company that includes Honda, Nissan, and Mitsubishi Motors, marking the largest restructuring in the automotive industry since the establishment of Stellantis Group in 2021. The combined annual sales of the three automakers are expected to exceed 8 million units, enough to challenge global giants Toyota (2023 sales of 11.2 million) and Volkswagen (last year's sales of 9.2 million).

After the merger news broke, Mitsubishi Motors' stock rose as much as 17% today, while Nissan's stock has not yet started trading, with bid orders reaching the daily trading limit. Honda's stock price fell by 2% at one point. Overnight, Nissan's stock price surged significantly, with Nissan American Depositary Receipts rising 11.5% to $5.10, while Honda's stock price also rose slightly by 1% to $25.26.

Nissan is in financial trouble, Honda lowers delivery guidance

Currently, Nissan's situation is more difficult. Earlier this year, Nissan reported a 99% decline in operating profit in the North American market. The main issues facing Nissan include:

• Rising vehicle prices: High prices have led buyers to turn to competitors
• Declining reliability: Consumer trust in key models has decreased
• Intense competition: Toyota, Hyundai, and Kia continue to dominate the market segment where Nissan operates

Even more concerning is that Nissan reportedly has only 12 to 14 months of cash reserves left. The company is also facing pressure from activist shareholders and a heavy debt burden, which has raised doubts in the credit market about its investment-grade rating. To maintain operations, Nissan has significantly increased promotional efforts, including offering 0% annual interest financing and low-cost leasing for popular models such as Rogue, Altima, and Pathfinder, a trend expected to continue until 2025.

Honda, on the other hand, has once again lowered its performance guidance, now expecting a larger decline in net profit, raising its previous 9.7% decline guidance to 14%. It previously expected sales of 3.9 million units for the fiscal year but has now lowered the guidance to 3.8 million units, with group vehicle sales down 8% to 1.78 million units in the first half of the year. For the six months ending September 30, Honda's revenue grew by 12%, but this was below market expectationsNissan's stock price has fallen about 39% so far this year, with the company's market value at approximately $8 billion. Honda's stock price has dropped about 18%, with a market value of around $40 billion.

Additionally, as a partner of Nissan, Mitsubishi Motors is likely to be involved in this merger. However, specific details have not yet been disclosed. If included in the merger, Mitsubishi may face a complete transformation, potentially phasing out less competitive models.

Global Automotive Competitive Landscape Shakes

Analysts believe that this deal will create a competitor to Toyota Motor Corporation, thereby consolidating the Japanese automotive industry into two camps. After reducing long-term global partnerships with other automakers (Nissan with France's Renault and Honda with General Motors), this will also provide Honda and Nissan with more resources to compete with larger peers.

The Nikkei News analysis points out that the merger will help these two manufacturers compete with electric vehicle rivals such as Tesla and Chinese automakers, which also positions them more favorably against the world's largest automaker, Toyota, both domestically and internationally.

Toyota has invested in Subaru Corporation, Suzuki Motor Corporation, and Mazda Motor Corporation, building a strong brand group with its top-notch credit rating. In the first six months of this year, Honda, Nissan, and Mitsubishi collectively sold about 4 million vehicles globally, far below Toyota's own sales of 5.2 million