Japan’s two largest automakers, Honda and Nissan, are in talks to deepen their ties, including a potential merger, as traditional carmakers face a huge threat from Chinese electric vehicle (EV) makers. The challenge from China looms large for Japan’s auto industry, which has employed 8% of the workforce.
Honda, Japan’s second-largest car company, and Nissan, its third-largest, are discussing setting up a holding company to slash costs and pool resources through consolidation. This comes as both companies have lost ground in China, where EVs and hybrids loaded with innovative software have won over consumers.
Chinese EV makers, such as BYD, have been quick to innovate, putting pressure on foreign carmakers like Honda and Nissan. The industry’s decline in China has led to job losses and manufacturing capacity cuts for both companies.
Sanshiro Fukao, an executive fellow at the Itochu Research Institute in Tokyo, warns that Chinese EV makers’ speed of innovation means Honda and Nissan cannot follow traditional business models. “We’re no longer in the age where carmakers would join together, churn out profits through economies of scale, and then reinvest them in a five-year restructuring plan.”
A merger between Honda and Nissan could increase their global competitiveness but may also impact local manufacturing and employment if not managed carefully. The Japanese government has pledged to revitalise provincial economies, which could influence any merger.
The auto industry is a crucial sector for Japan’s economy, employing over 5 million people. Consolidation through mergers can help slash costs and improve efficiency, but it remains to be seen whether Japan’s auto industry can compete in EVs with traditional automakers like Toyota.
Source: https://www.reuters.com/markets/deals/behind-potential-honda-nissan-tie-up-existential-threat-posed-by-chinese-evs-2024-12-19