Shares of Japanese automaker Honda Motor Co. surged sharply following the announcement of plans to merge with fellow Japanese titan Nissan Motor Co. On December 24, 2024, Honda's stock price jumped 17%, marking its best performance in over 16 years, according to Kazinform News Agency. The two companies have confirmed the start of merger talks, which could be finalized by 2026, potentially creating the world’s third-largest automaker.
Under the proposed plan, Honda and Nissan would consolidate their operations under a joint holding company, with Honda taking the lead role. Alongside the merger announcement, Honda revealed its largest share buyback ever, valued at up to ¥1.1 trillion (approximately $7 billion), which accounts for 24% of its outstanding shares. Set to run until December 2025, this buyback aims to bolster stock value and investor confidence as the merger approaches.
Analysts anticipate the Honda-Nissan merger will enable the new entity to compete effectively against industry leaders like Toyota and Volkswagen, particularly as both companies look to strengthen their position in the burgeoning electric vehicle (EV) market.
Former Nissan CEO Carlos Ghosn voiced concerns about the merger's dynamics, stating on CNBC’s “Squawk Box Europe” earlier this month, “I think, without any doubt, Honda is going to be in the driver’s seat, which is very sad to see after having led Nissan for 19 years and brought Nissan to the forefront of the industry.” Ghosn warned of “cost-cutting carnage” as he highlighted the duplication between the two firms, emphasizing the potential pitfalls of the merger on Nissan’s side.
The merger discussions began during a news conference, where the executives of Honda and Nissan outlined their plans. Honda CEO Toshihiro Mibe expressed urgency, saying, “The rise of Chinese automakers and new players has changed the car industry quite a lot. We have to build up capabilities to fight with them by 2030, otherwise we’ll be beaten.”
Further detailing the merger, Mibe noted the expected combined sales of over $191 billion and projected profits of $19 billion. Included within the discussions was the participation of Mitsubishi Motors, of which Nissan is the largest shareholder; Mitsubishi indicated it would be considering joining the megamerger.
The prospective combined entity is set to leapfrog South Korea’s Hyundai to become the third-largest automaker by vehicle sales, following Japan’s Toyota and Germany’s Volkswagen. The merged automaker would represent significant industry consolidation, which has been anticipated as businesses work to manage the high costs associated with developing electric and autonomous vehicles.
Executives at both Honda and Nissan emphasized the importance of collaboration, particularly as they transition toward electric vehicle production. Mibe and other leaders have pointed out the need for economies of scale to boost profitability, projecting operating profits to soar to around 3 trillion yen ($19.1 billion) over the long term.
Despite these optimistic forecasts, Ghosn maintains skepticism about Nissan’s future, stating, “Nissan is in panic mode, looking for somebody to save them from the situation, because they are unable to generate the solution by themselves.”
Investment experts like Kei Okamura, senior vice president and portfolio manager at Neuberger Berman, echoed Ghosn's sentiments, asserting uncertainties about the merger’s success. On CNBC’s “Street Signs Asia,” Okamura noted, “The post-merger integration is going to be absolutely-essential,” stressing the necessity for cultural alignment and operational cohesion among the firms.
The announcement also put shareholders on edge, as some may perceive this as Honda propping up Nissan's struggling operations. Nonetheless, Mibe clarified, “The business integration talks will not come to fruition if the two automakers fail to stand on their own.”
A notable challenge lies within the increasing competition from agile players like Tesla and Chinese automakers such as BYD. Honda and Nissan are aware of the need to innovate their electric offerings quickly to stay relevant, especially as both firms have faced declining market shares against their rival manufacturers.
Interestingly, past merger attempts within the automotive industry, such as the troubled Renault-Nissan alliance, have raised concerns about the viability of such large-scale consolidations. While industry insiders recognize the pressures facing traditional automakers, the cautionary tales of failed integrations loom large as the two companies proceed.
Despite the hurdles, both Honda and Nissan remain committed to advancing their joint ambitions, with shared platforms and resources anticipated as key benefits from the merger. This step could bolster their presence not just domestically, but globally as they seek to redefine their next chapter amid changing consumer demands and global automotive shifts.
With significant transformations underway, the automotive giants are attempting to position themselves for the rapidly approaching electric future. Whether the merger can successfully leverage their combined strengths remains to be seen, but the stakes have never been higher for two of Japan’s most historic manufacturers.
