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Honda and Nissan have signed a memorandum of understanding to begin talks that could lead to the biggest domestic merger in Japanese automotive history and create the world’s third-biggest carmaker by sales.
The Japanese groups said at a press conference in Tokyo on Monday that they aimed to reach a definitive merger agreement by June and complete it in 2026.
The talks between Japan’s second- and third-largest carmakers are a step towards what many analysts and investors view as long overdue consolidation in the Japanese car industry, and a way to fortify both companies against the rise of Chinese competitors.
Honda chief executive Toshihiro Mibe said the talks were driven by the need to maintain global competitiveness in the face of a “drastically changing business environment”.
Makoto Uchida, chief executive of Nissan, added that the talks were needed “as new players make inroads in our markets and economy of scale is increasingly important”.
The consolidation could also include Mitsubishi Motors, the Japanese carmaker that has been in an alliance with Nissan since 2016. Mitsubishi has signed a separate memorandum of understanding and aims to decide next month whether to join the talks.
The outline plan calls for both companies to be brought under a holding company that would be listed on the Japanese exchange in 2026. Under their current market capitalisations, the combination would be worth $54bn, or $58bn if Mitsubishi were included.
The group would be led by Honda, which is about four times bigger than Nissan in market capitalisation. Even if the newly merged company received a significant re-rating by investors, it would still be dwarfed by Toyota, which is currently worth $287bn.
Honda and Nissan have discussed their outline plans with representatives of Japan’s Ministry of Economy, Trade and Industry, according to government officials. The ministry raised the idea of a Honda-Nissan merger in 2020.
Ministry officials said they were agnostic on which companies they favoured as survivors but noted that the government’s wider mission included the protection of Japan’s industrial base, meaning it broadly supported a deal that appeared to preserve that.
Minister Yoji Muto said last week that in general he took a “positive view on co-operation between companies aimed at strengthening competitiveness” and business restructuring was “one effective means of improving corporate value and creating innovation”.
The combined group, were it to include Mitsubishi, would rank behind domestic rival Toyota and Germany’s Volkswagen in terms of annual vehicle sales, at more than 8mn units.
The threat of a potential approach by Taiwan’s Foxconn, the largest contract manufacturer for Apple’s iPhones, was one of the factors that spurred Honda and Nissan towards a merger, according to two people familiar with the matter.
Foxconn’s electric vehicles unit is headed by Jun Seki, who was formerly in the number-three job at Nissan. He had visited Japan in recent months to meet trade ministry officials, but the company has dropped its interest, according to two people familiar with the matter.
Analysts said a deal should be viewed as a rescue of Nissan, but added that the merged company would achieve the greater scale needed to invest more heavily in electric vehicles and software for autonomous driving — areas in which both have fallen behind global rivals.
It marks the latest step in sector consolidation as the industry undergoes sweeping change. A deal would be of similar size to when Stellantis was formed from the merger of France’s PSA and Fiat Chrysler in 2021.
The talks between the companies have evolved more quickly towards a full-blown merger than had been expected when the pair signed agreements to collaborate on electric car and software collaboration in March and August of this year.
Carlos Ghosn, Nissan’s former chief executive, said at a press conference on Monday that the merger plans “do not make sense” because of “too much duplication and no complementarities” between the two companies.