Three-way merger on cards

Nissan, Honda and Mitsubishi have signed a memorandum of understanding (MoU) they are officially in talks about a possible three-way merger.

Honda and Nissan announced in Japan on December 23 that they have agreed to “start consideration towards a business integration” by establishing a joint holding company. In addition, Mitsubishi will decide on joining by the end of January.

The merger would combine Japan’s second and third-biggest marques, and add the smaller Mitsubishi, with the automotive industry in a major period of global upheaval. 

The joint venture would create the world’s third-largest carmaker in terms of annual sales behind Toyota and Volkswagen.

While Toyota has remained relatively financially resilient thanks to its early lead in hybrids, other Japanese marques are struggling to come up with funding to invest in the switch from internal combustion engines (ICEs) to EVs. 

At the same time, Chinese manufacturers – such as BYD and SAIC – have aggressively targeted fully electric models to secure bigger slices of the worldwide car market. 

Honda’s market value is ¥6.74 trillion – or some NZ$75.4 billion – compared with ¥1.67tn for Nissan and ¥717b for Mitsubishi. 

Honda sold 3.8 million units in 2023. However, it has been more efficient than Nissan, which is worth one-quarter of its rival despite selling three million cars last year. Mitsubishi sold 700,000 in 2023.

Nissan has been in crisis for several years amid falling profits and the turmoil after ex-chief executive officer Carlos Ghosn’s arrest in 2018. He was smuggled out of Japan a year later, reports The Guardian.

Toshihiro Mibe, Honda’s chief executive, says an industry change such as what is being experienced globally at the moment only comes around once a century and suggests the switch to EVs is as fundamental as the start of the mass market for cars.

He adds Nissan and Honda will “clarify the possibility of integration by around the end of January in line with the consideration of Mitsubishi Motors”.

Makoto Uchida, chief executive of Nissan, pictured above left with Mibe, says: “Honda and Nissan have begun considering a business integration, and will study the creation of significant synergies between the two companies in a wide range of fields.”

Potential synergies from deal

A statement by Nissan and Honda explains the two companies “will establish an integration preparatory committee to facilitate a smooth integration and will conduct focused discussions”.

Based on the committee’s talks and results of due diligence, the companies will examine and analyse “more specific synergies… to become a world-class mobility company with sales revenue exceeding 30tr yen and operating profit of more than 3tr yen”.

The expected synergies from the merger are given as:

• Scaling advantages by standardising vehicle platforms across various product segments.
They expect to create stronger products, reduce costs, enhance development efficiencies and improve investments through standardised production processes.

The integration is projected to increase sales and operational volumes, allowing the companies to reduce development costs per unit, including for future digital services, while maximising profits.

By accelerating the complementation of their global line-ups – including ICE, traditional hybrid, plug-in hybrid and EV models – Nissan and Honda will be better positioned to meet “diverse customer needs around the world and deliver optimal products, leading to improved customer satisfaction”.

• Enhancing development capabilities and cost synergies by merging R&D.
The two companies have started joint research in “fundamental” technologies in platforms for next-generation software-defined vehicles.

After the business integration, Honda and Nissan will encompass more integrated collaboration across all R&D functions including fundamental and vehicle application technology research. 

This is expected to enable both to efficiently and swiftly enhance their technological expertise, achieving improvements in development capabilities and reductions in costs by integrating overlapping functions.

• Optimising manufacturing systems and facilities.
The companies anticipate that optimising their manufacturing plants and energy-service facilities, along with improved collaboration via the shared use of production lines, will result in a substantial improvement in capacity utilisation leading to a decrease in fixed costs.

• Strengthening competitive advantages across the supply chain.
To fully leverage synergies from optimising development and production capacity, both brands intend to boost competitiveness by improving and streamlining purchasing operations and source common parts from the same the supply chain.

• Realising cost synergies through operational efficiency improvements.
Honda and Nissan expect that integrating systems and back-office operations, along with upgrading and standardising operational processes, will drive significant cost reductions.

• Acquiring scale advantages by integrating sales finance functions.
By merging relevant areas of sales finance functions and expanding the scale of operations, Nissan and Honda aim to provide a range of mobility solutions, including new financial services throughout the vehicle lifecycle to customers of both marques.

• Establishing a talent foundation for intelligence and electrification.
After the merger, increased employee exchanges and technical collaboration between the companies are expected to promote further skill development. By leveraging each company’s access to talent markets, “attracting exceptional talent will become more attainable”.