Honda-Nissan Faces New Problems with China’s BYD

Officials at Honda and Nissan decide to merge, they first need to fix their China business.

The Honda-Nissan merger deal was one of the most talked-about topics about a month ago. The merger could become the foundation stone for one of the largest corporations in the global car industry. If everything goes according to plan, the merger might seal the deal by 2026.

The company’s presidents, Toshihiro Mibe of Honda and Makoto Uchida of Nissan, signed a memorandum of understanding (MoU) to create a holding company by August 2026. It might put them in third place in the market, behind Toyota and Volkswagen.

They are planning for a merger since Honda, currently Japan’s second-largest automobile company, is widely seen as the prince to rescue Nissan, which has been struggling since its former chairman, Carlos Ghosn, got arrested.

The merger aims to simplify the operations and handle the growing competition in the car industry, especially from EV-focused companies like Tesla and Build Your Dreams (BYD), which has become the world’s largest manufacturer of electric vehicles (EVs) and batteries.

If the two companies establish a holding company, by August 2026, it will get listed on the Tokyo Stock Exchange, after which the shares of both companies will get delisted.

Mitsubishi Motors, which Nissan owns 34% of the shares, will decide by the end of January 2025 whether to join the discussions.

When and if officials at Honda Motor and Nissan Motor decide to merge, they first need to fix their China business. The Japanese pair’s sales have been declining for years in the biggest automobile market in the world. By working together, they can save money, especially on the new electric cars they need to compete with, like BYD. But their joint venture is a wildcard, and the partnership might be a slow tie-up.

In the 12 months ending in March last year, the two companies have sold 2 million cars in the country, as shown in their company presentations. That is second only in their United States operation. However, it is one-third less than what they managed to manufacture five years ago.

And because of rising demand in China, their total market share has decreased more quickly, halving to about 8%. In 2023, when Nissan partnered with Dongfeng Motor, they saw a 95% decline in their overall income, reducing to 447 million yuan ($61 million), while Honda saw an approximately 90% decline.

Theoretically, condensing current production lines and supply chains would be relatively straightforward since Dongfeng Motor works with both. Honda also had partnered with Guangzhou Automobile Group Co (GAC), a Chinese state-owned automobile manufacturer, which might be considering parting ways.

There is a precedent: the Chinese group allowed its previous partner, Mitsubishi Motors, to exit its joint venture and modify its manufacturing units to expand its EV brand rapidly.

Honda and Nissan Motors may be able to catch up to their EVs with the help of more effective Chinese operations. The laggards are creating about ten EV models to sell in the People’s Republic.

Since they have a similar consumer base, they could concentrate on a more efficient range of products and produce large output for one single model after merging.

Joint venture partners could certainly become a barrier. Since partnership terms are unclear, it is difficult to judge whether restricting is realistic. Even if Dongfeng and GAC are willing, the process might be tricky and time-consuming.

Finding buyers for assets such as surplus factories may be challenging due to industry overcapacity.

Furthermore, speed is not the main priority for Nissan and Honda. A Honda official stated that they have not yet approached this subject with their Chinese counterparts, but they acknowledge that they will eventually need to discuss it.

Investors hope it will happen soon as BYD and other competitors expand rapidly.