Behind the launch of Japan's New Automobile Alliance: Who is pushing it? What are the implications?

With Japan's second- and third-largest automakers coming together, will the pattern of the Japanese and global automotive industry be rewritten?

Honda, Japan's second-largest automaker, and Nissan Motor Co., Ltd., Japan's third-largest automaker, announced on March 23 that they have officially started negotiations on a business merger. Mitsubishi Motors, which has formed a corporate alliance with Nissan, will decide whether to join the alliance a little later than early next year.

If Mitsubishi Motors joins, the new group will sell 8 million vehicles a year, making it the world's third-largest automaker by sales after Toyota Group with 11.23 million units and Volkswagen Group with 9.23 million units.

The presidents of the three companies reported to the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism on the morning of the 23rd, and held a press conference in the afternoon.

According to the memorandum of understanding signed at the meeting, Honda and Nissan plan to sign a definitive agreement in June 2025, and the newly established holding company will be listed on the Tokyo Stock Exchange, while Honda Motor and Nissan Motor will each be privatized in August 2026. Honda Motor will nominate a majority of the board of directors of the combined entity. The combined group is expected to generate revenue of 30 trillion yen and operating profit of more than 3 trillion yen.

Chen Yan, president of the Japan Enterprise (China) Research Institute, who paid close attention to the merger, told the first financial reporter that the main reason for the merger of the two companies is that they are facing strong pressure from Tesla and BYD in the field of electric vehicles.

The role of the Ministry of Economy, Trade and Industry

Chen Yan also mentioned that Nissan's global sales this year are not good, especially in the U.S. market, because of the failure to launch hybrid models in the U.S. market in a timely manner, missing the dividends brought by the increase in hybrid car sales in the U.S. market this year, only through the Japanese government's subsidies to sell cars at a reduced price, barely maintaining a surplus; Honda, on the other hand, hopes to rely on the electric vehicle technology of Nissan and Mitsubishi Motors to make efforts in this area.

In addition, Chen Yan also said that behind the two huddles, there is also an inseparable connection with Hon Hai Technology Group. In 2024, Hon Hai intends to take advantage of Renault's downgrading of its cooperation with Nissan and the release of Nissan's shares, and intends to become a major shareholder of Nissan by buying shares on the stock market. "The Japanese government does not want domestic pillar industries to fall into the hands of foreign capital, so it is also mobilizing Nissan to join forces with domestic car companies." He analyzed.

As for how much the birth of the new alliance can make waves in the market, Chen Yan is not optimistic. He said: "Honda and Nissan have completely different styles in management, research and development, etc., the two overlap in the field of fuel vehicles, and the manufacturing cost in the field of electric vehicles is difficult to match with BYD, and it is difficult to say to what extent the alliance will be effective in the future." ”

Regarding the merger of the two car companies, Carlos Ghosn, the former CEO of Nissan Motor, is also very pessimistic. In his view, the so-called merger of the two companies does not mean the real integration of the two Japanese brands, but more because the Ministry of Economy, Trade and Industry wants to promote this deal to promote the Japanese economy, "The merger of Nissan and Honda is an all-or-nothing move, not a pragmatic deal, because it is difficult to find synergies between the two companies, the two companies have little complementarity, they operate in the same market, the products are almost the same, and the brands are very similar." ”

Chen Yan analyzed that if Honda's hybrid cars can do well in the future, and Nissan's electric vehicles can keep up, then it may become a strong competitor to Toyota in time, "However, at present, Honda and Nissan have no advantages compared with Toyota in battery research and development, especially in all-solid-state batteries." Given Toyota's leading position in hybrid vehicles in Japan, and in the field of electric vehicles, the new alliance does not have an advantage in battery technology, and it is difficult to shake Toyota's position as the No. 1 among Japanese automakers. ”

At present, Toyota's market value is 42.2 trillion yen (about 1.98 trillion yuan), and if Nissan, Honda and Mitsubishi can successfully form a new group next year, the combined market value of the three car companies will be less than 10 trillion yen.

What is the impact on the economy

Since 2024, Nissan has not had an easy time. Nissan's financial report for the first half of fiscal 2024 (April to September) showed that net profit plummeted 94% year-on-year to 19.2 billion yen. This figure is the lowest in recent years. In the face of such dismal performance, Nissan Motor has taken a series of radical measures to save itself, such as announcing a 20% reduction in global production capacity and layoffs.

In addition to Nissan, Japan's other two major auto giants, Toyota and Honda, also saw a sharp decline in net profit between July and September this year, plummeting 55% and 61% respectively. The automobile industry has always been an important pillar of Japan's economic development, and today's overall weakness has undoubtedly had a significant impact on the country's economic strength.

According to statistics from the Japan Automobile Manufacturers Association (JAMA), Japan's automobile industry accounts for about 20% of the total manufacturing industry. R&D expenses include parts and components, which are close to 3 percent, ranking first in the manufacturing industry. More than 5.5 million people are employed, including related industries.

After the fraud scandal of Daihatsu Industries, a subsidiary of the Toyota Group, was exposed at the end of last year, the suspension of production of some models was also cited as one of the reasons for the decline in Japan's gross domestic product (GDP) in the first quarter of this year.

"If Nissan is unable to survive the current crisis, the impact of layoffs on the Japanese economy alone cannot be underestimated." Chen Yan analyzed.

The latest forecasts from Oxford Economics show that Japan's economy will maintain a modest growth rate in 2025, with inflation reaching around 1.5% by mid-2025 and rising to 2% later in the fiscal year.

"From the Japanese government's point of view, we are currently hoping to use Honda to keep Nissan's technology and jobs, but in the end, the market has the final say." Chen Yan said, "Under the leadership of the Ministry of Economy, Trade and Industry, if the future alliance's electric vehicles do not do well, it will not be able to compete with BYD and Tesla; If the fuel car is not good, it will not be able to compete with Toyota; If the hybrid can't do well, it can't compete with Toyota. It remains to be seen whether the new alliance will bring new effects to the Japanese economy. ”

Satoru Aoyama, senior director of corporate ratings for Asia Pacific at Fitch Ratings, told CBN that the possible "new alliance" between Honda-Nissan and Mitsubishi may integrate the entire electric vehicle business of the three parties, and its importance seems to be higher than that of the previous Renault-Nissan-Mitsubishi alliance, "These three companies need scale to launch the next generation of electric vehicles and maintain their market position and global market share." ”

In Chen Yan's view, judging from the development of Japan's steel, home appliances and semiconductor industries in recent years, Japan's manufacturing industry is on the road of contraction. According to public information, Nissan has had an in-depth cooperation with Renault of France for 25 years, and Honda and General Motors of the United States also have a capital partnership. But now the two Japanese companies have basically emptied their overseas equity investments and shrunk back to Japan.

"Past experience shows that we have not seen that Japan's manufacturing industry has become stronger and bigger because of the Japanese government's great support, capital investment or business mergers." Chen Yan said, "Without the emergence of technological innovation, it will not be able to drive the economy forward after all." ”

(This article is from Yicai)