For Honda, a Nissan rescue comes with only a thin silver lining

ASKED what makes Nissan Motor a strong business partner, Honda Motor chief executive officer Toshihiro Mibe struggled to find the right words.

“That’s a difficult one,” Mibe, having just announced plans to bring the two firms together under a single holding company, mused earlier this week before a packed room of journalists.

His remark raised a few chuckles, but on a serious note, it spoke to real and present qualms over why Honda would ever agree to such a risky deal with Nissan, and what it could gain by folding the flailing Japanese carmaker into its business.

The rapid rise of electric vehicles (EVs) in China and in parts of Europe, coupled with a resurgence in the popularity of hybrids, is pushing legacy brands to band together. At the very least, by assuming Nissan’s resources such as factories, manpower and intellectual property, Honda may gain access to the heft it needs to keep its own head above water.

“Scale definitely has advantages and folks are going to have to take notice,” Neal Ganguli, a partner and managing director at advisory firm AlixPartners’ automotive and industrial practice, said. “Both of these companies are behind on EVs and they are very complementary with regard to the China threat.”

The consolidation of EV platforms, supply chains and shared research and development expenses may also help improve both automakers’ cost competitiveness, Bloomberg Intelligence said.

Nissan developed the world’s first electric car, the Leaf, in 2010, and has sold more than half a million globally. While the company squandered that early lead and Leaf production has now largely wound down, chief executive officer Makoto Uchida has laid out plans to expand Nissan’s EV lineup, in part with the help of Honda.

Before Honda’s move on Nissan, the two inked a partnership to carry out joint research in the area of platforms for next-generation software-defined vehicles. Software-defined vehicles are not by definition also electric, but with consumers who choose to buy electric also expecting the cars to come with the latest cutting-edge technology, including autonomous driving functions and mobile connectivity, it’s an important selling point.

Honda, being mid-sized, “needs to work with another company”, Julie Boote, an automotive analyst at London-based research firm Pelham Smithers Associates, said. “Ideally it would have been a healthy and financially sound company, rather than Nissan.”

Mibe said earlier this week that Nissan’s recovery is a prerequisite for a tie-up of any kind. For all its financial baggage, Nissan has spent decades building a sprawling network of factories and workers. Its brand is still strong in many parts of South-east Asia and has been gaining market share in Singapore while Honda falls further behind.

Nissan also holds claim to what is currently Japan’s best-selling electric car – the Sakura – and has rolled out a number of models from its e-Power line, vehicles that use a hybrid gas-electric power train that are selling relatively well in Japan but struggling in the US.

The inclusion of Mitsubishi Motors, with its hybrids and sport utility vehicles that are popular in emerging markets, would sweeten the deal.

But a “combination without capacity optimisation” may only make things worse, James Hong, an analyst at Macquarie Securities Korea, said. “Both Honda and Nissan have significant overcapacity issues in China, which requires optimisation before any merger talks” can progress, he said.

Ganguli also notes there’s a “lot more overlap than complementary businesses. You have got to have overlap to have synergies, but you also need complementary” operations to have competitive advantages.

Although Nissan’s bottom line has suffered in North America because of its outdated product lineup – namely the absence of attractive hybrid models – Honda is more optimistic.

It’s set a target of selling 1.3 million hybrids annually by 2030, effectively doubling the 650,000 it sold in 2023 outside of China. To do that, beginning in 2026 Honda plans to roll out two overhauled vehicle production platforms, along with a pair of gas-electric powertrains it says will be more efficient and more profitable.

Nissan’s dealer network in the US is severely jaded after almost 40 per cent of the automaker’s some 1,000 showrooms reported losses in the first half as cars no one wanted to buy sat around in lots. A slew of new hybrids from Honda to sell could help solve that problem.

And while it’s hard to see how a combination with Honda would make any immediate difference to Nissan’s grave financial position, Honda’s high-margin motorcycle business – including joint ventures, 5.3 million two-wheelers were sold in the three months to Sep 30, with the vast majority of those in South-east Asia – would act as something of a buffer in the short term.

However, with any holding company that would house the pair’s brands not expected to be listed until at least August 2026, most people accept this transaction will take years to bed down, if it happens at all.

What role the Japanese government is playing behind the scenes lends a “murkiness” to it and “with any merger of this magnitude, it will be three to five years before we know if it works”, Ganguli said.

Nissan’s former chairman Carlos Ghosn perhaps summed it up best when, watching from the sidelines where he’s exiled in Lebanon, he opined the deal may be more about politics than good business.

If Japan’s Ministry of Economy, Trade and Industry influenced or brought about the move, as is typically the case with transactions of this size, then it was probably done to keep Nissan from falling into foreign hands, he suggested. Sources familiar with the matter said earlier that the Honda and Nissan talks hit fast forward after news broke that Taiwan’s Hon Hai Precision Industry, the manufacturer of iPhones known as Foxconn, might be interested in acquiring Nissan.

“That means you are putting control above performance,” Ghosn said. “Personally, I don’t think it’s going to be successful.” BLOOMBERG