Honda, Nissan move to closer tie-up as competition intensifies, source says

By Maki Shiraki

TOKYO (Reuters) – Honda (NYSE:) and Nissan (OTC:) are moving towards a closer tie-up with talks of setting up a holding company, a source said, in the clearest sign yet of reorganisation in Japan’s auto industry in response to immense challenges posed by Tesla (NASDAQ:) and Chinese rivals.

The discussions, first reported by the newspaper, would allow the manufacturers to cooperate more closely on technology and help Japan’s No. 2 and No. 3 automakers to create a more formidable domestic rival to Toyota (NYSE:).

The talks between Honda and Nissan are aimed at setting up a holding company, said the source, who declined to be identified because the information had not been made public.

It was not immediately clear whether a new holding company was aimed at eventually establishing a full union between the two companies, although Nikkei said they were beginning merger talks.

Shares of Nissan surged more than 21% in Tokyo trade, while shares of Honda were down 1.6%.

Honda’s market capitalisation is about $44 billion, while Nissan’s is about $10 billion after price surge on Wednesday, meaning a full merger would be bigger than the giant $52 billion deal between Fiat (BIT:) Chrysler and PSA in 2021 to create Stellantis (NYSE:).

Honda and Nissan are also looking to bring in Mitsubishi Motors (OTC:), in which Nissan is the top shareholder with a 24% stake, under the holding company, the Nikkei report said.

Honda and Nissan have increased ties in recent months as they wrestle with the changing electric vehicle landscape. As well as heavy competition, automakers also face stalling demand in Europe and the U.S., intensifying the pressures on them.

Honda and Nissan on Tuesday issued identical statements saying no merger had been announced by either company.

“As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths,” the companies said in their separate statements, adding they will inform stakeholders of any updates at an appropriate time.

French automaker Renault (EPA:), a major Nissan shareholder, said it had no information and declined to comment.

Over the past year, an EV price war launched by Tesla and Chinese automaker BYD (SZ:) has intensified pressure on any companies losing money on the next-generation vehicles. That has put pressure on companies like Honda and Nissan to seek ways to cut costs and speed vehicle development, and mergers are a major step in that direction.