Nissan and Honda hold talks about a merger of the two carmakers

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Nissan and Honda are in exploratory talks about a merger of the two carmakers that would create a $52bn Japanese behemoth, according to people briefed on the matter. 

The two companies are studying a way to combine that would help them better compete at a time when traditional carmakers are grappling with fast-growing Chinese electric-vehicle manufacturers, and slower-than-expected consumer demand for EVs. 

The talks between Nissan and Honda are at an early stage, and there are concerns about a potential political backlash in Japan because a merger of two of the country’s most storied car brands could result in significant job cuts, one of the people with knowledge of the discussions said.

Nissan and Honda announced in March they would team up to develop EVs and have deepened their talks amid uncertainty about what Donald Trump’s return as US president will mean for the car industry.

This year shares in Nissan, which has a cross-shareholding structure with France’s Renault, have fallen 40 per cent, giving it a market capitalisation of $8.2bn. Honda has a market capitalisation of $44bn.

Nissan in November unveiled an emergency turnaround plan that included 9,000 job losses, saying it would cut global production capacity by 20 per cent. The company downgraded its profit guidance for the second time this year after falling to a loss in the July to September quarter.

Nissan has been searching for an anchor investor for several months, and the Financial Times reported last month that “all options” were being considered, including a merger with Honda.

The merger talks between Nissan and Honda were first reported by Nikkei. Nissan said on Tuesday evening: “The content of the [Nikkei] report is not something that has been announced by either company.” 

It added: “As announced in March this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths. If there are any updates, we will inform our stakeholders at the appropriate time.” 

Honda issued a similar statement, saying it and Nissan were “exploring various possibilities for future collaboration”.

Renault declined to comment. 

In August, Honda and Nissan said they would roll out an EV by the end of the decade, as the two companies agreed to jointly develop software.

A merger between Nissan and Honda would give the enlarged company a major US manufacturing footprint, helping both brands to potentially minimise the impact of tariffs that Trump is proposing on imports from Mexico. Nissan has significant manufacturing operations in Mexico. 

The auto industry also expects Trump, a long-standing critic of EVs, may slow adoption of them in the US, possibly by watering down emissions rules.

Nissan’s deteriorating financial performance came after it failed to counter a slowdown in global EV sales with a strong hybrid offering: cars that combine battery power with a traditional combustion engine. Sales of these vehicles have helped Toyota.

Nissan has recently been targeted by activist investors including Effissimo Capital Management, a Singapore-based hedge fund known for high profile campaigns against some of the biggest names in Japan, including Toshiba.

Nissan, which owns a stake in smaller rival Mitsubishi Motors, is planning a series of key product launches to try to regain momentum.

If talks on a merger persist between Nissan and Honda, the two companies would need to work out how to reconcile their starkly-different corporate cultures.

The FT reported last month that Renault would be open to selling a portion of its shares in Nissan to Honda as part of a restructuring of its 25-year-old alliance.

One person close to Renault said a stronger relationship between Nissan and Honda could “only be positive” for the French group. 

Renault reorganised its alliance with Nissan last year, with the French group cutting its shareholding in the Japanese company to just under 36 per cent.

Nissan gained voting rights over its 15 per cent stake in Renault. Nissan has a 15 per cent voting stake in Renault.