Shares of Honda and Nissan climbed on Wednesday following a report that the Japanese automakers were considering calling off their high-profile merger discussions.
The Asahi Shimbun newspaper, citing sources, said the boards of both companies were preparing to formally terminate negotiations, which had been in progress since last year.
Following the report, Nissan shares rose as much as 7.4%, while Honda climbed 4.2%.
Disagreements between Honda and Nissan strain discussions
Honda and Nissan had initially framed the proposed merger as a strategic move to strengthen their position against rising competition from Chinese electric vehicle (EV) makers such as BYD.
However, according to sources familiar with the matter, the discussions had been increasingly strained by internal disagreements, reported Reuters.
One of the key points of contention was Honda’s proposal to make Nissan a subsidiary, a move the latter strongly opposed.
Honda, Japan’s second-largest carmaker, has a market value nearly five times greater than Nissan’s and has grown skeptical of its smaller rival’s turnaround efforts, sources said.
Nissan, which has struggled to fully recover since the 2018 scandal surrounding former Chairman Carlos Ghosn, has been particularly vulnerable to the accelerating shift to EVs.
Its operating profits fell by 90% in the first half of fiscal year 2024, while net income dropped 94% compared to the previous year.
Uncertainty over Trump Tariffs also complicate matters
The reported breakdown in merger talks comes at a time when both automakers face significant external challenges.
The global auto industry is in flux, with traditional players being forced to adapt to a new EV-driven landscape.
Additionally, uncertainty over potential tariffs from US President Donald Trump has added another layer of complexity.
Analysts note that tariffs on Mexican imports would disproportionately hurt Nissan, which has a larger manufacturing footprint in the country compared to Honda or Toyota.
Karl Brauer, executive analyst at iSeeCars, said the stock price rally following the news reflects short-term relief among investors.
“But the long-term path for both automakers remains uncertain, with multiple issues for each company to address,” he told CNBC.
The future remains uncertain
Honda and Nissan had originally aimed to finalise their discussions by June, with Nissan’s strategic partner, Mitsubishi, also being invited to participate.
However, Mitsubishi had yet to make a final decision, reportedly planning to do so later this month.
Analysts believe the proposed merger stemmed from Nissan’s financial difficulties and its efforts to restructure its long-standing alliance with France’s Renault.
The company had previously announced plans to cut 9,000 jobs and reduce global production capacity by 20%.
Both Honda and Nissan declined to comment on the report.
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