Honda and Nissan, two of Japan’s biggest car manufacturers—have announced plans to merge by 2026. This historic pivot aims to tackle the immense challenges posed by electric vehicle (EV) giants like Tesla and rapidly advancing Chinese automakers such as BYD.It is a potential turning point for the automotive sector, the Japanese economy, and even car buyers worldwide.
If successful, this merger would create the world’s third-largest auto group by sales, behind Toyota and Volkswagen, boasting combined revenues of ¥30 trillion ($191 billion) and an ambitious operating profit target of ¥3 trillion.
But why now, and what does it mean for the industry?
To understand why this merger is happening, you need to look at the shifting landscape of the automotive industry. Toshihiro Mibe, Honda’s CEO, explained it best at a joint press conference in Tokyo:
“The rise of Chinese automakers and new players has changed the car industry quite a lot. We have to build up capabilities to fight with them by 2030; otherwise, we’ll be beaten.”
Honda and Nissan are under mounting pressure from both Tesla’s innovative edge and the sheer scale of Chinese EV manufacturers like BYD, which overtook Tesla as the world’s biggest EV seller last year with over 3 million vehicles sold.
Unlike Japan’s legacy automakers, BYD and its Chinese counterparts benefit from aggressive government subsidies, easier access to critical raw materials like rare earth metals, and state-backed supply chains that enable them to dominate global EV markets.
Nissan, for instance, had a head start in the EV race with its pioneering Leaf in the early 2010s. However, it failed to capitalize on that momentum, falling behind competitors as hybrids and advanced EVs flooded the market.
Now, Nissan faces dwindling profits and a 20% cut in global production capacity. Meanwhile, Honda is grappling with its own struggles, including declining sales in China and an underwhelming performance in the EV sector.
What the experts say
The proposed merger isn’t without controversy. Experts quoted by Reuters have weighed in, highlighting the benefits and potential pitfalls of the deal:
Koji Endo, Senior Analyst at SBI Securities, believes the partnership could help all involved:
“If Honda’s hybrid cars are supplied to Nissan and Mitsubishi Motors and they can sell them, all three companies would be better off by expanding their sales channels. However, a holding company structure may be better than a full merger to minimize risks.”
Sanshiro Fukao of the Itochu Research Institute warns that the stakes are high:
“The speed of Chinese automakers is totally different. If Honda and Nissan think they can manage this by simply combining resources, they won’t survive. Radical change is needed, not just economies of scale.”
Seiji Sugiura, Analyst at Tokai Tokyo Intelligence Laboratory, sees long-term benefits for Japan’s auto industry:
“This creates a second competitive axis against Toyota, which could energize Japan’s stagnant car market. Constructive rivalry is needed to take on Chinese automakers and Tesla.”
Despite the bold announcement, the merger faces significant challenges, starting with cultural differences between the two automakers. Honda has long prided itself on a technology-driven, independent approach, excelling in motorcycles and hybrid technology.
Nissan, on the other hand, has been reeling from financial difficulties and leadership turmoil, especially after its messy split with Renault following the Carlos Ghosn scandal.
As Tang Jin, a senior researcher at Mizuho Bank, puts it:
“Honda has a unique, technology-centric culture, and there will be internal resistance to merging with Nissan, which is now faltering. For this to work, they need to execute decisions at speed—a challenge for both companies.”
Adding to the complexity is Nissan’s alliance with Renault, which holds a 15% stake in the company. Renault’s potential exit from the partnership raises questions about how smoothly the merger could proceed.
If Renault sells its stake, it could pave the way for Honda to take the lead, but untangling this relationship won’t be easy.
Why now? The China factor
One word explains the urgency of this merger: China. Chinese automakers have emerged as formidable competitors, reshaping the global auto market with state-backed resources and cutting-edge technology.
BYD, for instance, not only leads in EV sales but also controls key parts of the battery supply chain, giving it a significant cost advantage.
Japan’s once-dominant car industry has been slow to adapt to this new reality. While Toyota continues to thrive, thanks to its hybrid dominance, other players like Nissan and Honda have struggled to find their footing in the EV era.
A merger offers a chance to pool resources, share platforms, and reduce costs in areas like battery production and software development.
Industry observers often draw parallels between this merger and the creation of Stellantis, which combined Fiat Chrysler and PSA in 2021.
While Stellantis has managed to streamline operations, it also serves as a cautionary tale. Overlapping brands and conflicting corporate cultures can hinder progress if not carefully managed.
Nils Pratley of The Guardian echoes this sentiment: “A merger isn’t always a slam dunk. Nissan and Honda must focus on producing vehicles customers want at competitive prices. Otherwise, they risk repeating the mistakes of other failed alliances.”
For consumers, a Honda-Nissan merger could bring some changes to the cars they drive. By sharing research and development resources, the two companies might roll out more affordable, feature-rich EVs faster.
However, experts predict the two brands will maintain distinct identities and dealership networks to preserve customer loyalty.
There’s also talk of Honda potentially using Nissan’s Sunderland plant in the UK to produce vehicles, a move that could reinvigorate British car manufacturing after years of decline.
But there’s a catch: stricter EV quotas in the UK and Europe could still pose challenges for manufacturers trying to balance affordability with sustainability targets.
The Honda-Nissan merger is a bold, high-stakes gamble. If successful, it could provide a much-needed lifeline for two struggling automakers and serve as a wake-up call for the Japanese auto industry to modernize and compete in a rapidly changing world.
But the road ahead is fraught with challenges, from cultural integration to staying ahead in the relentless EV race.
As Toshihiro Mibe succinctly put it: “The car industry is undergoing rapid changes. If we don’t act decisively now, we risk being left behind.”
With 2026 on the horizon, the world will be watching to see if these Japanese titans can steer their way into a brighter, electrified future—or if they’ll find themselves stalled on the roadside.
