Nissan-Honda Merger Marks Gasoline Car Era's Decline

In the rapidly evolving automotive industry, major players like Nissan, Honda, and Mitsubishi are considering a merger to form a formidable automotive allianceThis strategic move isn’t without reason, especially given the challenges posed by the surge in electric vehicles (EVs) propelled by countries like China and the United StatesCurrently, Nissan holds a significant 34% stake in Mitsubishi, creating a unique synergy in a potential merger that could position them better in the competitive global market. Mitsubishi has been struggling in terms of sales, leading to its exit from the Chinese marketWith Nissan and Honda pressing forward and Mitsubishi faltering, integrating Mitsubishi into the alliance may be necessary to prevent its exit from the automotive scene altogether.

The trauma that traditional automakers are facing due to the rise of EVs is not exclusive to Japan; automakers in Germany and France are also grappling with similar challenges

In 2023, Nissan recorded a global sales figure of 3.37 million vehicles, while Honda surpassed that with 3.98 millionHowever, Mitsubishi’s sales plummeted to just 780,000 unitsWhile Nissan and Honda's numbers may appear robust, the underlying trends suggest a troubling decrease that could be difficult to reverse.

As 2024 unfolds, Nissan's global sales dwindled to only 2.5 million units over the first three quartersMeanwhile, Honda has managed to achieve growth, with 4.26 million units sold, supported largely by a significant increase in the American marketThe success of its CR-V model, for instance, saw 300,000 units sold, making it the fifth best-selling vehicle in the U.SThis growth narrative is shadowed by Honda's challenges in the Chinese market, which has suffered a steep decline of over 40% for three consecutive months.

Nissan's own plight in China is disheartening, as the company suffered losses amounting to 9.3 billion yen in the third quarter of this year alone

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Between January and November, Nissan's total sales in China fell to 740,000 units, a staggering drop of 30%. These dismal figures occurred despite aggressive discounting strategies that have now depleted any pricing leverage they might have had.

The situation has become alarming; Nissan’s management is reportedly seeking external financing to avert a potential bankruptcy within the next 12 to 14 monthsThe significant question arises: How can one of Japan's leading automakers, Nissan, find itself on the brink of such a fate? Observations reveal that profits previously generated in the lucrative Chinese market have been insufficiently reinvested into the company. Instead, profits have been siphoned off to shareholders and employees, leaving the company vulnerable when it truly needs capital.

The proposed merger of Nissan, Honda, and Mitsubishi thus emerges as a potential lifeline

What advantages does a merger present? First, creating a coalition allows these brands to consolidate resources and pool their strengths to combat emerging competition, particularly in the EV sector.

The combination of Nissan, Honda, and Mitsubishi would yield a combined annual sales volume exceeding 8 million units, positioning them as the third largest automotive group globally, trailing only behind giants like Toyota and Volkswagen.

Moreover, this merger could lead to substantial reductions in research and development costsMitsubishi’s current offerings are unable to keep pace with the new demands of the EV marketplace

If it were to remain independent, it might face inevitable failureHowever, joining forces with Honda and Nissan could provide Mitsubishi with a vital opportunity for survival.

In uniting, these companies can create a shared technological ecosystem that minimizes redundancy of efforts in developing a new framework for EV technologiesFurthermore, the synergistic relationship can manifest in shared dealership networks, allowing for reduced operational costs across the board.

Considering the declining sales trajectory of Volkswagen, the Nissan-Honda-Mitsubishi alliance could potentially surpass Volkswagen and secure a second-place position in the global automotive market.

The urgency for a decision looms large, as by 2025, the Chinese EV market is expected to expand dramatically, with vehicles priced between 100,000 and 150,000 Yuan becoming commonplace

Traditionally, this segment has seen hybrid vehicles like the BYD Qin dominate, but this dynamic is quickly shifting as fully electric vehicles are gaining traction.

Brands like Xiaopeng are already achieving significant success in the affordable EV market with models like the Mona 03, while companies such as NIO are entering this price segment with new offeringsThe wave of electric vehicles is bound to grow exponentially by 2025, marking a critical juncture for traditional fuel-powered vehicles.

In essence, this pivot toward a fully electric paradigm represents the decline of traditional sedan models, particularly those produced through joint ventures.

The potential union of Nissan, Honda, and Mitsubishi serves as a reflection of the struggles within the Japanese automotive industry—a move borne out of necessity rather than competitive strategy