Two of Japan’s largest automakers – Nissan and Honda – announced on Monday that they plan to work toward a merger, which would make the combined entity the third-largest vehicle manufacturer in the world.
The announcement comes at a time when the global automotive industry is undergoing a major shift from internal combustion engines to electric vehicles. Experts say this proposed merger could change the landscape for consumers everywhere, including here in Canada.
The two companies said they had signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors Corp. also had agreed to join the talks on integrating their businesses.
Dimitry Anastakis, a professor at the Rotman School of Management at the University of Toronto, said, “It shows you that there is a lot of consolidation that’s happening in the auto sector.”
Anastakis likened this to the creation of Stellantis in 2021, formed after the merger of Peugeot and Chrysler.
While Honda has had a diverse range of offerings, they have been lagging behind in the race to dominate the EV market.
“They do motorcycles, they do lawnmowers, they do ATVs, they do robots. They do all kinds of stuff, like a lot of Japanese companies. But they didn’t move that quickly into the EV sector,” Anastakis said.
Why merge Nissan and Honda?
Automakers in Japan have lagged behind their big rivals in electric vehicles and are trying to cut costs and make up for lost time as newcomers like China’s BYD and EV market leader Tesla grow.
Anastakis said, “The Chinese are further along in the segment. They’re able to offer less expensive cars.”
One exception among Japanese EV manufacturers is Nissan, which had some success in the sector with the Nissan Leaf.
“When they launched the Leaf, it became the most successful EV pretty much up until 2018, which is not that long ago, you know, it was only recently surpassed by Tesla,” he said.
If Honda gets Nissan’s EV capacity, what does Nissan get in return?
Anastakis said, “They get financial stability, which is what they need because since COVID, Nissan has really fallen a little bit behind.”
Honda’s president, Toshihiro Mibe, said Honda and Nissan will attempt to unify their operations under a joint holding company.
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The Associated Press reported that Honda will lead the new management, retaining the principles and brands of each company.
They aim to have a formal merger agreement by June and to complete the deal and list the holding company on the Tokyo Stock Exchange by August 2026, he said.
No dollar value was given and the formal talks are just starting, Mibe said.
There are “points that need to be studied and discussed,” he said in the Associated Press report. “Frankly speaking, the possibility of this not being implemented is not zero.”
A merger could result in a behemoth worth more than $50 billion based on the market capitalization of all three automakers.
Together, Honda, Nissan and Mitsubishi would gain scale to compete with Toyota Motor Corp. and with Germany’s Volkswagen AG. Toyota has technology partnerships with Japan’s Mazda Motor Corp. and Subaru Corp.
Despite its toehold in the EV market, Nissan’s presence in North America has been limited.
Erik Johnson, senior economist at BMO Capital Markets, said, “Almost all of that presence is focused in the United States and Mexico. They produce about a million vehicles (a year) between those countries. But they’re certainly not a player in the Canadian production space.”
According to Driving.ca, the Nissan Leaf sold 1,469 units in Canada in 2022. Meanwhile, Tesla maintained its lead on the market with 24,400 units sold in 2022 and 36,900 in 2023.
But Canadian demand for EVs is rising fast.
According to analysis by S&P Global, Canada saw a 57 per cent rise in Battery Electric Vehicle registrations and 75 per cent rise in registrations of plug-in hybrids. This growth of the segment in Canada is significantly faster than in the United States.
While Canadians are getting more interested in EVs, they remain too costly for many. The two best selling EVs in Canada – the Tesla Model 3 and Tesla Model Y – cost around $55,000 and $63,000 respectively. The Nissan Leaf can cost over $41,000 in Canada.
Anastakis said, “EVs are expensive because this is a new technology. You have to spend billions and billions and billions of dollars just before you sell the first vehicle.”
But as more and more companies pool resources and combine expertise, EVs could get cheaper to build over the next few years.
“Japanese automakers have really found their footing in making mass market reliable, relatively more affordable vehicles,” Johnson said.
With Canada having imposed tariffs on Chinese-made electric vehicles, Canadian consumers could see more choices in cheap, mass-produced Japanese EVs as an alternative to their Chinese counterparts in the coming years if the merger goes ahead.
Johnson said this merger could also spur Honda and Nissan’s biggest competitor – Toyota – into action.
“(This may even) spur a little bit of competition from Toyota by bringing new kinds of battery electric vehicles to market faster. In the North American auto space, that could meaningfully change the competition landscape and lead to more affordable vehicles,” he said.
What could it mean for jobs?
Honda’s internal combustion engine sales in Canada remain robust. The company sold 112,535 cars in Canada in 2023, according to Driving.ca. Though its market share is still not back to pre-pandemic levels, the company saw an increase in sales of 22 per cent.
Now, Honda wants to put its resources towards getting a bigger share of the EV pie. In April, Honda announced a $15 billion investment in an EV plant in Ontario, which Prime Minister Justin Trudeau described as “historic.”
With the two auto giants combining strengths, Johnson said Canadians should watch out for whether Nissan plans to increase its manufacturing bases in North America.
“Is there going to be some potential here for some of Nissan’s production to be relocated either to the United States or Canada? So either increasing Nissan’s presence in the U.S. or maybe even adding a little bit more production capacity in Canada,” he said.
On the other hand, he said observers shouldn’t discount the possibility that some production facilities might be restructured or consolidated as a result of the merger.
According to Anastakis, however, Canada’s advantage as an EV manufacturing hub may come from an unlikely silver lining — the decline of the loonie.
“The lower our dollar gets, the cheaper it is to make cars in Canada and the easier it is to sell cheap cars made in Canada outside of the country, which is one of the few silver linings of the declining dollar,” he said.
–with files from Associated Press