India cannot be immune to the churn in the global auto industry as legacy car makers confront the challenge of new mobility solutions. Alliances and mergers are taking place — Nissan Motor Company along with Mitsubishi Motors signed a memorandum of understanding with Honda Motor Company to begin discussions on a potential merger — as sales of their combustion engine vehicles are sharply falling and they have to navigate the transition to electric vehicles. This year, Nissan expects to sell three million vehicles, sharply down from 4.9 million in 2013. Nissan and Honda’s business integration includes establishing a joint holding company, forming the world’s third largest automaker by sales. It is likely to be operational by August 2026. Both carmakers are already exploring possibilities of collaborating on electrification and software this year. There will definitely be co-investment and co-development of electric vehicles with the merger. Nissan’s current travails include a slump in its value as it has suffered in the US due to a lack of hybrid models, and losing out to Chinese rivals not only in the mainland but also in Southeast Asia. The US president-elect’s plans to slap a 25% tariff on vehicles exported from Mexico to America hit both Nissan and Honda.
But what is that both partners bring to the table? Leadership of the potential merger will see significant influence from Honda. For starters, both will invest billions of dollars in electric vehicles. The massive investments involved have even led Honda to partner with Sony and General Motors. This is true for not just Japanese companies but also US and European firms. Volkswagen entered into a joint venture with electric vehicle maker Rivian which is a Californian start-up. Honda is known for its strengths in hybrid powertrains and it has a strong portfolio of fuel-efficient vehicles. The car giant aims to double hybrid car sales by 2030 providing a “bridge” until fully electric vehicles become more widespread. This is advantageous for Nissan as it cannot meet the demand for hybrid gas-electric vehicles in the US. Nissan had a head start with electric vehicles like the Leaf but could not build on that advantage. But it has innovative battery technologies that can help Honda build a global supply chain for batteries. Nissan aims to launch an electric vehicle with all-solid-state batteries developed in-house, which is expected to be a game changer for the popularity of electric vehicles, including pick-up trucks.
While the potential Nissan-Honda merger — despite their sharply different cultures and management styles — has global implications, both also have operations in India. Their share of the domestic car market, however, is low. Honda and Nissan had shares of 1.4% and 0.7% respectively in November in a highly competitive market dominated by Maruti Suzuki, which is expected to outsell the second, third, and fourth largest carmakers combined this year. In sharp contrast, Honda and Nissan are languishing as they rely on limited product portfolios like the Honda City, Amaze, and Elevate, and Nissan’s Magnite and X-Trail. So if there is to be an upside to their market share, they need to bring a much broader range of product offerings, including hybrids that can take on Maruti. Till the time it rolls out electric vehicles, Maruti is currently selling hybrids in partnership with the global auto giant, Toyota. The potential merger could also help them address regulatory challenges like complying with corporate average fuel economy norms.