Japanese automakers Honda and Nissan are in merger talks

Honda and Nissan are understood to have held exploratory talks about a potential merger to help them compete with electric vehicle (EV) makers, particularly in China.

In March, the two Japanese automakers agreed to explore a strategic partnership for electric vehicles.

The firms responded to the BBC with identical statements, saying: “As announced in March this year, Honda and Nissan are exploring various opportunities for future collaboration, leveraging each other’s strengths.”

It comes as many car brands struggle with increasing competition as the industry shifts from petrol and diesel cars to electric cars, with manufacturing in China booming.

Honda and Nissan did not deny the story, which was first reported by Japanese business newspaper Nikkei, but said it was “not something that has been announced by either company”.

Discussions are believed to be at an early stage and there is no guarantee that a deal will be agreed.

“If there are any updates, we will inform our stakeholders at the appropriate time,” they added.

The two companies are expected to officially confirm that they have held talks as early as next week, according to Japanese television channel TBS.

Nissan declined to comment on a Bloomberg report that Foxconn had approached it about the iPhone maker acquiring a controlling stake in the automaker. Foxconn did not immediately respond to a BBC request for comment.

A potential merger between Japan’s number two and number three automakers could be complicated for several reasons.

Any deal is likely to be subject to intense political scrutiny in Japan as it could lead to major job cuts. Nissan is also likely to face dissolving its alliance with French carmaker Renault.

Honda and Nissan agreed in March to collaborate on their electric car businesses, and in August deepened their ties by agreeing to work together on batteries and other technologies.

In August, the two companies also announced an agreement with Mitsubishi Motors to discuss intelligence and electrification.

Nikkei also reported that Nissan and Honda could eventually bring Mitsubishi into any potential partnership. Nissan is Mitsubishi’s largest shareholder.

Nissan shares rose more than 23% in Tokyo on Wednesday. Honda shares fell about 3%, while Mitsubishi’s jumped almost 20%.

“The thought that some of these smaller players can survive and thrive becomes more of a challenge, especially when you add the complexity of all the additional Chinese manufacturers that have come in and are competing quite strongly,” Edmunds analyst Jessica Caldwell said.

“You just have to survive, not just survive, but just afford the future.”

Honda and Nissan are losing market share in China, which accounted for nearly 70% of global EV sales in November.

The two brands have combined global sales of 7.4 million vehicles in 2023, but are struggling to compete with cheaper electric car makers such as BYD, whose quarterly revenue jumped to beat Tesla’s for the first time in October.

Jesper Kohl of Japanese online trading platform operator Monex Group questioned whether the merger could make the companies more competitive.

“Is this really just re-arranging the deckchairs on the Titanic in the sense that neither Honda nor Nissan really have products or technologies that global consumers want?”

“From that perspective, it’s a nice rescue, but it doesn’t create a new national champion.”

Additional reporting by Peter Hoskins.