Honda and Nissan Face Challenges in China Amid Potential Merger

In the face of declining sales and intensifying competition in China, Honda Motor and Nissan Motor may be looking to a merger to revitalize their businesses in the world’s largest automotive market. According to Reuters, the Japanese automakers have seen their market share in China plummet over the last five years, and merging their operations could provide an opportunity to cut costs and refocus on electric vehicles (EVs), an area where they lag behind dominant rivals like BYD.

Per Reuters, Honda and Nissan collectively sold two million vehicles in China in the fiscal year ending March 2023. While this performance made China their second-largest market after the U.S., it marked a sharp decline of one-third compared to five years earlier. As Chinese car demand continues to grow, their combined market share has halved to roughly 8%, underlining the urgency for action.

Financial challenges further complicate their position. Comprehensive income in 2023 at Nissan’s joint venture (JV) with Dongfeng Motor plummeted by 95% to 447 million yuan ($61 million), and Honda’s JV income dropped nearly 90%. These financial pressures highlight the difficulties the companies face in maintaining competitiveness while also transitioning to the EV market.

Related: Renault Supports Potential Honda-Nissan Merger Talks

A merger could theoretically streamline their operations in China, particularly since both companies work with Dongfeng Motor. Condensing production lines and supply chains would likely result in cost efficiencies. However, Honda’s partnership with GAC poses a potential hurdle. According to Reuters, GAC previously allowed Mitsubishi Motors to exit their JV, repurposing the facilities for its own growing EV business. This precedent suggests GAC might consider a similar move with Honda, though the specifics remain uncertain.

Despite these possibilities, restructuring efforts face significant challenges. Partnership agreements in China are often opaque, and any reorganization would likely involve complex negotiations with JV partners. Selling surplus assets, such as unused factories, could also prove difficult given the current overcapacity in the Chinese automotive industry.

A more efficient Chinese operation would help Honda and Nissan accelerate their EV efforts. The two companies are reportedly working on around 10 EV models for the Chinese market, according to Reuters. A merger would allow them to focus on producing a smaller, more targeted range of models with greater efficiency.

Source: Reuters