Nissan-Honda merger as Japan's RM260 billion car mega-brand looks to be crumbling

Nissan appears to be stepping back from merger discussions with its rival Honda, casting doubt on a potential $60 billion deal that would have created the world’s third-largest automaker. According to two sources in a report by Reuters, the talks have been complicated by significant differences between the two Japanese automakers, leaving Nissan potentially navigating its turnaround alone.

Those familiar with the matter revealed to the newswire that Nissan has reconsidered the merger after Honda proposed making Nissan a subsidiary. This unexpected shift from what was originally framed as a merger of equals has caused Nissan to hesitate, highlighting the underlying tensions and disagreements about control and strategic direction.

The future of the merger remains uncertain, as the possibility of restarting negotiations has not been ruled out. Nissan and Honda have stated that the recent media reports speculating on the merger’s termination were not based on official announcements and both companies reaffirmed their commitment to finalising a decision by mid-February.

As you’d expect, news of the stalled talks had an immediate impact on the stock market. Nissan’s shares dropped more than 4% on the Tokyo Stock Exchange, leading to a temporary suspension in trading following a report from the Nikkei business daily. Conversely, Honda’s stock surged more than 8%, reflecting investor relief over the potential dissolution of the merger.

Nissan’s long-term alliance partner, French carmaker Renault, which holds a 36% stake in Nissan, responded to the developments by stating that it would “vigorously” defend the interests of its stakeholders. Renault has previously expressed openness to the merger in principle but acknowledged that no final decision had been made regarding the potential end of talks.

It’s no secret that Nissan has also been struggling to regain stability after years of internal crises, exacerbated by the 2018 ouster and arrest of former chairman Carlos Ghosn. The company is currently implementing a turnaround plan, which includes cutting some 9,000 jobs and reducing global production capacity by 20%, raising questions about whether Nissan can achieve its recovery goals without external support.

In contrast, Honda, Japan’s second-largest automaker behind Toyota, appears to be in a far stronger position. With a market value of approximately 7.92 trillion yen (approximately RM230 billion), Honda significantly outweighs Nissan’s 1.44 trillion yen valuation, a disparity that has led to concerns that Nissan’s recovery is progressing too slowly to meet Honda’s expectations.

The proposed merger, which is speculated to have stemmed from the desires of the Japanese government to shore up its automotive sector, was seen as a strategic move to counter increasing competition from Chinese electric vehicle (EV) manufacturers such as BYD, as well as shifting industry dynamics. However, negotiations have coincided with broader disruptions, including potential tariffs from U.S. President Donald Trump’s administration, adding further complexity to the situation.

Industry analysts have expressed concerns about Nissan’s future if the merger collapses. Vincent Sun, an analyst at Morningstar, noted to Reuters that Nissan faces greater exposure to potential U.S.-Mexico tariffs compared to Honda and Toyota. Meanwhile, Christopher Richter, a Japan autos analyst at brokerage CLSA, pointed out that Nissan’s reluctance to become a Honda subsidiary highlights control as a key issue, ultimately prompting Honda to reconsider the deal.

Initially, Nissan and Honda aimed to finalize their integration plans by the end of January, but this deadline was later extended to mid-February as previously mentioned. Meanwhile, Mitsubishi Motors, Nissan’s smaller alliance partner alongside Renault, had previously considered joining the merger but now appears hesitant, according to sources.

If the talks fall apart, Nissan will have to press forward with its turnaround plan alone, while Honda may seek alternative strategies to strengthen its position in the evolving automotive landscape.