TOKYO

Japanese automotive manufacturers Honda and Nissan announced on Monday their intentions to merge operations by 2026, marking a watershed moment in Japan's automotive industry. The proposed merger, driven by mounting pressure from Chinese electric vehicle makers, would create the world's third-largest automotive group, trailing only Toyota and Volkswagen.

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The consolidation would unite Japan's second and third-largest automakers, representing the most significant restructuring in the global automotive sector since the £41.6 billion merger that created Stellantis in 2021. Mitsubishi Motors, in which Nissan holds a majority stake, is also contemplating joining the merger, with a decision expected by month's end.

During a joint press conference in Tokyo, Honda CEO Toshihiro Mibe emphasised the transformative impact of Chinese automakers and new market entrants on the industry. "We have to build up capabilities to fight with them by 2030, otherwise we'll be beaten," Mibe stated, citing the technological challenges of electrification and autonomous driving.

The merged entity aims to achieve combined sales of 30 trillion yen (£160 billion) and operating profits exceeding 3 trillion yen. The companies outlined plans to conclude negotiations around June 2025, followed by the establishment of a holding company by August 2026, at which point both companies' shares would be delisted. Honda, with its market capitalisation of more than £32 billion—approximately four times that of Nissan—would appoint the majority of the company's board.

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Should Mitsubishi Motors join the merger, the combined group's global sales would surpass 8 million vehicles, overtaking South Korea's Hyundai and Kia group as the world's third-largest automotive manufacturer.

The announcement follows recent challenges faced by both companies. Nissan recently unveiled plans to reduce its workforce by 9,000 employees and cut global production capacity by 20% following declining sales in China and the United States. Honda, while maintaining relative stability through its motorcycle and hybrid car divisions, reported lower-than-expected earnings due to similar challenges in the Chinese market.

Former Nissan chairman Carlos Ghosn, currently a fugitive in Lebanon, expressed scepticism about the merger's potential success, citing a lack of complementary strengths between the companies. Meanwhile, Renault, Nissan's largest shareholder, indicated its willingness to "discuss with Nissan and consider all possible options."

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The merger talks emerge against the backdrop of reported interest from Taiwan's Foxconn in Nissan, which the Japanese manufacturer rejected. Nissan CEO Makoto Uchida denied that Foxconn's approach influenced the merger discussions with Honda.

Market reaction to the announcement was positive, with Honda's shares rising 3.8%, Nissan's increasing by 1.6%, and Mitsubishi Motors gaining 5.3%, outperforming the benchmark Nikkei index's 1.2% increase.