Honda & Nissan Merger: Factories, SUVs, and Navigating Market Pressures

Introduction

Honda's potential merger with Nissan represents a significant shift in the automotive industry. This collaboration, aiming to pool resources and improve competitiveness in response to China's growing influence in the electric vehicle (EV) and autonomous driving sectors, brings both new opportunities and substantial risks.

Motivation Behind the Merger

During a recent media briefing in Las Vegas, Honda executives elaborated on their plans to merge with Nissan. Honda has noted China's rise as a formidable competitor in the EV space, prompting this merger as a strategic response aimed at strengthening their market presence by 2030.

"The rise of Chinese automakers and new players has changed the car industry quite a lot... We have to build up capabilities to fight with them by 2030, otherwise we’ll be beaten," said Honda CEO Toshihiro Mibe.

Market Dynamics

The stakes for such a merger are underscored by market predictions: the global EV market is expected to grow by nearly 30% annually, with 89.6 million units projected to be sold this year. Moreover, the autonomous vehicle market could surge to $448.6 billion by 2035. To remain dominant, Japanese automakers must innovate rapidly and efficiently bring new products to market.

"Since the beginning of last year, we’ve been in conversation with Nissan," noted Noriya Kaihara, Honda's executive vice president, indicating ongoing discussions about the future path.

Leveraging Strengths

Honda sees value in Nissan’s large SUVs and idle production facilities. The merger could help reduce costs related to software-defined vehicles by capitalizing on shared manufacturing capabilities. "We have significant labor and development costs, and if there are operations we could share, that would be good for us," said Kaihara.

Nissan's Armada and Pathfinder SUVs represent potential targets for Honda, which seeks to adapt its hybrid technology to larger vehicles.

The Honda 0 Saloon at CES. Photo: Vjeran Pavic

Financial and Operational Challenges

Nissan's financial struggles, marked by a sharp decline in earnings and substantial layoffs, make it a complex but potentially advantageous partner for Honda. The excess capacity at Nissan's factories in the U.S. could alleviate the pressure on Honda’s fully utilized plants.

"I'm not in a position to make comment [on Nissan], but they have capacity," added Kaihara.

The Nissan Armada. Image: Nissan

External Market Pressures

Future operations will also be influenced by political factors such as tariff threats and changes to EV incentives in the U.S. Honda must remain adaptable to potential policy shifts that could impact production costs and strategies. "If Trump impacts future government strategy, we have to be very flexible when subsidies are cut or stopped," noted Kaihara.

Such changes might necessitate relocating production, potentially increasing costs for consumers.

Continued Commitment to Electrification

Despite uncertainties, Honda remains committed to its electrification initiatives. "For the long term, I think, considering the environmental issues, EVs will be the solution for the future, and that will not be changed," affirmed Kaihara, as Honda continues to push forward with its Zero series EVs.

Honda’s factory in Ontario, Canada. Photo by PETER POWER / AFP via Getty Images