Honda, Nissan transfer to deepen ties, sources say, together with potential merger

By Maki Shiraki and Norihiko Shirouzu

TOKYO (Reuters) -Honda and Nissan (OTC:NSANY) are in talks to deepen ties, two individuals mentioned on Wednesday, together with a potential merger, the clearest signal but of how Japan’s as soon as seemingly unbeatable auto trade is being reshaped by challenges from Tesla (NASDAQ:TSLA) and Chinese language rivals.

A mixed Honda (NYSE:HMC) and Nissan would create a $54 billion firm with annual output of seven.4 million automobiles, making it the world’s third-largest auto group by car gross sales after Toyota (NYSE:TM) and Volkswagen (ETR:VOWG_p).

The 2 corporations already cast a strategic partnership in March to cooperate in electrical car growth, however Nissan’s deepening monetary and strategic hassle in current months has added extra urgency for nearer cooperation with bigger rival Honda.

Nissan introduced a $2.6 billion value financial savings plan final month that features slicing 9,000 jobs and 20% of its international manufacturing capability, as slumping gross sales in China and the US led to an 85% plunge in second-quarter revenue.

“This deal seems to be extra about bailing out Nissan, however Honda itself is just not resting on its laurels,” mentioned Sanshiro Fukao, government fellow at Itochu Analysis Institute. “Honda’s money movement is ready to deteriorate subsequent 12 months and its EVs have not been going so effectively.”

Shares of Nissan closed practically 24% larger in Tokyo commerce on Wednesday, whereas shares of Honda, whose market worth of $43 billion is greater than 4 instances greater than that of Nissan, declined 3%. Shares of Mitsubishi Motors (OTC:MMTOF), by which Nissan is the highest shareholder with a 24% stake, gained practically 20%.

The automakers have been grappling with challenges from EV makers, significantly in China, the place BYD (SZ:002594) and others have surged forward. 

U.S. President-elect Donald Trump can also be threatening hefty tariffs on automobiles shipped from Canada and Mexico to the U.S., including additional strain on the businesses. Honda and Nissan each produce vehicles in Mexico for export to the US.

The talks between Honda and Nissan, first reported by the Nikkei newspaper, might permit the businesses to cooperate extra on expertise and assist them create a extra formidable home rival to Toyota.

The discussions are centered on discovering methods to bolster collaboration and embody the opportunity of establishing a holding firm, mentioned the individuals, who declined to be recognized as a result of the data has not been made public.

The businesses are additionally discussing the opportunity of a full merger, in line with one of many individuals, in addition to taking a look at methods to cooperate with Mitsubishi.

Honda, Nissan and Mitsubishi mentioned no deal had been introduced by any of the businesses, although Nissan and Mitsubishi famous the three automakers had mentioned beforehand they had been contemplating alternatives for future collaboration.

French automaker Renault (EPA:RENA), Nissan’s largest shareholder, is open in precept to a deal and would look at all of the implications of a tie-up, two individuals accustomed to the matter mentioned.

A Renault spokesperson declined to remark.

Renault shares had been up 6.7% at 1352 GMT, set for its greatest day in just below 2-1/2 years.

The three Japanese automakers are anticipated to carry a joint information convention in Tokyo on Monday, in line with a supply accustomed to the matter.

Taiwan’s Foxconn (SS:601138), which manufactures Apple (NASDAQ:AAPL)’s iPhones and has been searching for to broaden its nascent EV contract manufacturing enterprise, approached Nissan a few bid nevertheless it was rejected by the Japanese agency, two separate sources accustomed to the matter mentioned.

Bloomberg Information reported earlier on Wednesday that Foxconn had approached Nissan to take a controlling stake.

Foxconn didn’t instantly reply to a request for remark, whereas a Nissan spokesperson declined to touch upon Foxconn.

CHANGING LANDSCAPE

Any merger would face vital U.S. scrutiny after Trump has vowed to take a tough line on imported automobiles. He might search concessions from Honda and Nissan to approve any deal, auto trade officers mentioned.

Over the previous 12 months, an EV worth conflict launched by Tesla and BYD has intensified strain on any automakers shedding cash on the next-generation automobiles. That has pushed corporations like Honda and Nissan to hunt methods to chop prices and pace car growth, and mergers are a serious step in that course.

“Within the mid- to long-term, that is good for the Japanese automobile trade because it creates a second axis towards Toyota,” mentioned Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory.

“Constructive rivalry with Toyota is a optimistic for the fairly stagnating Japanese automobile trade when it should compete with Chinese language automakers, Tesla and others.”

S&P International Scores mentioned it might take time for the synergies from a possible merger to spice up the corporations’ creditworthiness.

Variations in company tradition and techniques might imply a merger that doesn’t give one aspect management is unlikely to have significant outcomes.

“In our view, there have been few situations the place mergers and alliances between main automakers have led to vital advantages,” it mentioned in a word.

Honda and Nissan would additionally need to work out combine their totally different company cultures in the event that they proceed with a merger, analysts mentioned.

“Honda has a novel, technology-centric tradition with strengths in powertrains, so there needs to be some inner resistance to the merger with Nissan, a competitor with a special tradition that’s now faltering,” mentioned Tang Jin, a senior researcher at Mizuho (NYSE:MFG) Financial institution.