Here’s what a blockbuster Nissan-Honda merger could mean for the auto industry

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Nissan Motor CEO Makoto Uchida (L) listens to Honda Motor CEO Toshihiro Mibe (R) be a associated property league connected March 15, 2024 successful Tokyo, Japan. 

Tomohiro Ohsumi | Getty Images News | Getty Images

Top Japanese carmakers Nissan Motor and Honda Motor are understood to beryllium exploring a blockbuster merger, sending shockwaves done the planetary automotive manufacture arsenic the 2 rival companies question to enactment competitory connected the road to afloat electrification.

Nissan and Honda are readying to participate into negotiations for a merger, Japanese concern paper Nikkei reported overnight, citing sources adjacent to the substance and noting that the home peers expected to motion a memorandum of knowing shortly.

The prospective tie-up could make the world's third-largest car radical by conveyance sales, with 8 cardinal income annually, according to Citi. That would spot Nissan-Honda-Mitsubishi down chap Japanese automaker Toyota Motor and Germany's crisis-stricken Volkswagen, respectively.

In akin statements, Nissan and Honda neither confirmed nor denied the Nikkei report.

The merger study comes astatine a clip erstwhile galore car giants are struggling to header with accrued planetary contention from bigger electrical conveyance (EV), makers specified arsenic Tesla and China's BYD.

Nissan and Honda antecedently forged a strategical concern successful March to collaborate connected producing cardinal components for EVs.

A mega-merger, however, is expected to look respective obstacles. Analysts person expressed concerns astir the likelihood of governmental scrutiny successful Japan, fixed the imaginable for occupation cuts if a woody pushes through, portion the unwinding of Nissan's confederation with French conveyance shaper Renault is regarded arsenic pivotal to the process.

Peter Wells, prof of concern and sustainability astatine Cardiff Business School's Centre for Automotive Industry Research, described the reported merger arsenic a "really important" improvement — 1 that could assistance Nissan and Honda excavation their assets, prevention wealth connected costs and make the technologies they request for the future.

"There's been a batch of speculation astir the presumption of Nissan implicit the past 12 months oregon so. It's been trying to equalize oregon equilibrium retired its narration with Renault, but it's been struggling," Wells told CNBC's "Street Signs Europe" connected Wednesday.

"It's been struggling successful the market, it's been struggling astatine home, it doesn't person the close merchandise line-up. There are truthful galore informing signs, truthful galore reddish flags astir Nissan astatine the infinitesimal that thing had to happen," helium added. "Whether this is the reply is different question."

Shares of Nissan soared 23.7% connected Wednesday, notching the firm's best trading time successful astatine slightest 40 years, according to information steadfast FactSet. The firm's Tokyo-listed banal terms remains astir 25% little year-to-date.

Honda shares, meanwhile, slipped 3.2% successful pre-market trading successful New York.

Barriers to a imaginable merger

Asked whether consolidation betwixt Nissan and Honda could look arsenic a bully recourse to combat the contention from Chinese EV carmakers, Cardiff Business School's Wells said the woody could beryllium characterized arsenic "a accepted solution."

"My concerns would beryllium that possibly they person near it a spot late, that they don't person the existent exertion and set-up [or] the close merchandise to vie successful their cardinal markets," Wells said.

"For Nissan particularly, they are retired of measurement with the U.S. market. That's their large concern, and they cannot hole that precise quickly," helium added.

Employees enactment connected the assembly enactment of caller vigor vehicles astatine a mill of Chinese EV startup Leapmotor connected April 1, 2024 successful Jinhua, Zhejiang Province of China.

Vcg | Visual China Group | Getty Images

JPMorgan's Akira Kishimoto shared akin views connected immoderate of the barriers to a prospective Nissan-Honda merger, saying "the hurdles to flooded would beryllium high."

"At a minimum, we deliberation Nissan needs to clarify wherever its peculiarly analyzable superior narration with Renault, which involves the French government, volition extremity up and besides supply details connected the restructuring connection it announced," Kishimoto said successful a probe enactment published Wednesday.

"We deliberation Honda needs to amusement however it volition negociate large [battery electrical vehicles] and artillery investments successful Canada," Kishimoto said.

JPMorgan said it would present request to hold for immoderate factual announcements from either company.

'Full-scale translation of the car industry'

"This tie-up is not wholly unexpected due to the fact that evidently they announced their concern earlier this year," Lucinda Guthrie, enforcement exertion astatine Mergermarket, told CNBC's "Street Signs Europe" connected Wednesday.

"Some of the reports I've seen assertion that this came astir arsenic a effect of Foxconn making an attack to Nissan. Now, with this peculiar transaction, I question whether it is going to beryllium a hardcore merger oregon whether it is going to beryllium much of a partnership," she added.

Apple supplier Foxconn approached Nissan astir taking a stake, Bloomberg reported Wednesday, citing an unnamed source. The Taiwan-based institution has been investing heavy successful EVs successful caller years. CNBC has contacted Foxconn for comment.

Echoing the latest development, Honda precocious tested the h2o implicit a concern with General Motors, earlier ultimately deciding to locomotion away.

Speculation implicit consolidation betwixt Honda and Nissan could travel a akin trajectory, Guthrie said.

Nissan signage astatine a dealership successful Richmond, California, US, connected Friday, June 21, 2024.

Bloomberg | Bloomberg | Getty Images

"You person to carnivore successful caput that this would person to travel with the Japanese government's blessing due to the fact that determination is the imaginable for workforce cuts but then, however are the Japanese automakers going to vie with the low-cost vehicles from China?" Guthrie said.

Citi's Arifumi Yoshida said a merger would apt person a antagonistic interaction for Honda, but a affirmative 1 for Nissan and Mitsubishi.

"Given Honda's competitiveness successful motorcycles and [hybrid electrical vehicles] and the spot of its brand, we judge it is positioned to instrumentality connected rivals for the adjacent 5-10 years," Yoshida said successful a probe enactment published Wednesday.

Yoshida nevertheless said the determination could beryllium viewed arsenic 1 made "in anticipation of the full-scale translation of the car industry."

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