Nissan and Honda announced on Monday that they are in talks to merge, aiming to create the world’s third-largest automaker by sales. The unprecedented merger is seen as a direct response to their waning market position in China, the world’s largest automobile market, where Japanese automakers are rapidly losing ground to local giants like BYD.
Honda CEO Toshihiro Mibe, addressing a press conference, stressed the need for greater scale to compete in emerging technologies like electric vehicles (EVs) and intelligent driving. “A business integration would give the companies an edge that will not be possible under the current collaboration framework,” Mibe said. The combined entity is projected to deliver annual revenue of ¥30 trillion ($191.4 billion) and an operating profit exceeding ¥3 trillion.
China’s dominance in EV manufacturing has forced Japanese automakers into a corner. BYD and other local players have eroded the once-strong position held by companies like Nissan and Honda, leaving them with excess capacity in factories originally built to meet soaring demand.
Honda and Nissan have both announced significant production cuts in China—Honda plans to slash capacity by 20%, while Nissan’s output in China has dropped to half its peak levels.
James Hong, an analyst at Macquarie Securities, highlighted the underlying challenge: “Honda and Nissan have been losing the market for some time. They must enact large capacity cuts to address fixed-cost burdens in China.”
The proposed deal will create a holding company listed on the Tokyo Stock Exchange, with Honda taking a leading role in the governance structure. While full integration is not expected until 2030, both companies aim to combine resources to achieve economies of scale, share advanced technology, and remain competitive against global EV powerhouses.
Nissan CEO Makoto Uchida addressed concerns about the company’s struggles, assuring stakeholders that the merger is about ensuring future growth. “This is not about giving up on a turnaround,” Uchida said. “It’s about looking at ultimate size and growth through partnerships.”
While the merger could solve overlapping challenges, experts remain cautious. Nissan’s underperformance—marked by declining market value and outdated product lines—has made it a potential takeover target. Recent interest from Taiwan’s Foxconn underscores Nissan’s precarious position. Additionally, analysts suggest that integration will require significant restructuring, including further plant closures and capacity reductions.
The merger reflects a broader industry trend, with automakers worldwide consolidating to survive in a rapidly evolving market.