Japan’s Honda, Nissan set to merge amid stiff competition from China 

Honda Motor Co. and Nissan Motor Co. took their first historic steps toward merging to create a new force in the world’s automotive industry, as aggressive competition from China forces legacy carmakers to rethink their business models.

The two Japanese auto manufacturers signed a basic agreement for merger talks on Monday, according to a joint media briefing held in Tokyo. Honda also said it will buy back as much as ¥1.1 trillion yen ($7 billion) of its own shares, according to Bloomberg. 

A holding company will be created to house the new entity and should be listed by August 2026, the firms said, adding that Honda will be able to nominate a majority of directors of the holding company.

Mitsubishi Motors Corp., which is 24.5% owned by Nissan, also signed the memorandum of understanding and will likely be part of the group with a final decision on that expected by the end of January.

Honda’s buyback cancels a previously announced buy back of ¥100 billion and will start on Jan. 6 and run through most of 2025, according to Monday’s announcement. The company plans to repurchase as many as 1.1 billion shares, or almost 24% of its stock excluding treasury securites.

Honda Chief Executive Officer Toshihiro Mibe said synergies from the combined company should lead to an increase in operating profit of more than ¥1 trillion, climbing to ¥3 trillion eventually.

“Both companies will continue as wholly owned subsidiaries of the joint holding company with their respective brands in place,” Mibe said. The holding company will include the brands of both Honda and Nissan, and wrap in Honda’s large motorcycle unit.

Such an alliance would give rise to one of the world’s largest carmakers, pitting the trio against Toyota Motor Corp. at home and Chinese automakers including BYD Co. and Geely Automobile Holdings Ltd. abroad. Toyota has stakes in Subaru Corp., Suzuki Motor Corp. and Mazda Motor Corp., creating a powerhouse of brands backed by its top-notch credit rating.

All three Japanese companies are to some degree facing an existential threat brought on by the global automobile industry’s breakneck shift to battery-powered electric vehicles and hybrid drivetrains and away from combustion engine cars.

In China, the soaring popularity of locally made EVs has foreign brands fighting for survival, and Japanese carmakers there are stuck with too much capacity. Honda and Nissan have both had to pare back staffing and production, while Mitsubishi Motors Corp. has all but extricated itself from China, the world’s biggest car market.