Honda and Nissan, two major automotive players from Japan, are reportedly in discussions to merge, as indicated by a report from the financial outlet Nikkei Asia.

The two car manufacturers based in Japan are considering a merger to better compete within a rapidly evolving industry that is increasingly shifting towards electric vehicles, according to the report.

When questioned by YSL News, both companies issued similar statements that did not refute the possibility of ongoing merger talks.

“The content of the report is not something that has been publicly announced by either company,” the statements noted. “As previously stated in March of this year, Honda and Nissan are examining multiple opportunities for future collaboration, aiming to capitalize on each other’s strengths. We’ll provide any updates when appropriate.”

To keep pace in the competitive electric vehicle market, which faces challenges such as declining demand in the U.S. and Europe and competition from Tesla and manufacturers in China, Honda and Nissan have been strengthening their collaboration.

In August, the companies announced they were “enhancing the framework of the strategic partnership” that was established in March 2024 to work together on R&D and investments for new electric vehicles and the software that supports modern vehicles.

“Moving forward, Nissan and Honda will keep exploring avenues to create greater synergies and accelerate specific initiatives,” the statement from the companies read.

Honda and Nissan Merger: Preparing for the Future

According to Jessica Caldwell, head of insights at auto research firm Edmunds, the merger is a sound strategy.

“A merger would serve as a long-term plan rather than a quick fix for immediate challenges facing either automaker. Both Honda and Nissan are gearing up for a future focused on electrification and autonomous technologies—areas that require significant investment,” Caldwell shared with YSL News.

As the industry shifts towards electric and self-driving vehicles, Caldwell noted that “collaboration among smaller automakers may become essential for staying competitive against larger entities, especially with the rise of aggressive competition from Chinese manufacturers.”

Reports suggest that the companies might form a holding company, with plans to sign a memorandum of understanding shortly. This merged entity could also potentially bring in Mitsubishi Motors, for which Nissan has a 24% stake. Mitsubishi has been involved in the Honda-Nissan electric vehicle initiative since August.

If successful, the combined operations would achieve annual sales of around 8 million vehicles, positioning it as the third-largest automaker globally, according to Nikkei.

This merger could enhance the competitive stance of the new automaker. Honda, Nissan, and Mitsubishi collectively sold approximately 4 million vehicles worldwide in the first half of 2024, which places them behind Toyota, the market leader with 5.2 million sales, and Volkswagen, which sold 4.35 million vehicles, as per Bloomberg’s report.

K. Venkatesh Prasad, chief innovation officer at the Center for Automotive Research in Ann Arbor, Michigan, highlighted that the capital-heavy electric vehicle sector demands substantial investment in new factories and battery technologies.

For established automakers like Honda and Nissan, “it makes sense to consolidate now to achieve the volume needed to keep costs manageable and develop high-quality capabilities,” he stated.

Maintaining a profitable business in conventional vehicles with internal combustion engines is essential to fund the transition to a sustainable electric vehicle enterprise in the mid-to-long term, Prasad added.

Challenges Ahead for the Honda-Nissan Merger

Additional challenges include potential pullbacks of pro-EV measures by incoming U.S. President Donald Trump and scrutiny over the merger from his administration.

Trump has pledged to adopt strict measures concerning imported vehicles, including imposing a 25% tariff on cars imported from Mexico and Canada. Both Nissan and Honda have manufacturing facilities in Mexico, and Honda also has a plant in Canada.

Industry executives believe Trump may demand concessions from Honda and Nissan to clear any merger. During his presidency, he previously threatened to impose tariffs on cars from Japan.

Both automakers have also established production in the U.S., with Honda operating 12 facilities producing automobiles, power equipment, and aircraft engines, while Nissan operates three plants in the country.

Last month, the company revealed that it would be laying off 9,000 employees worldwide and reducing production by 20%.