Japan’s iconic auto industry is going through a rough patch, and now two of its most important companies are considering merging as they fight for survival.
Nissan and Honda are set to negotiate a possible merger, according to multiple reports on Tuesday, as they mull combining forces to stave off the growing threat of Tesla and China’s electric vehicle makers.
It comes after both companies and main rival Toyota reported lower profits in their latest results, as they deal with a fierce festival in China and a difficult transition to electric vehicles.
Nissan said it would cut 9,000 jobs amid falling sales, while Honda reported a 15% drop in second-quarter operating profit.
Toyota, the world’s largest automaker, saw its profit fall in the quarter ended in September to 573. 7 billion yen ($3. 7 billion), from about 1. 28 trillion yen ($8. 3 billion). dollars) for the same time last year.
All three companies face a similar problem; they are failing to sell enough cars in China.
Toyota’s sales in China were down just over 10% in the first nine months of the year, with the company blaming “severe market conditions” such as “intensifying price competition.”
Still, a Toyota spokesperson told Business Insider that its declining profits were not only attributable to China; it also saw weakness in Japan and North America.
Honda reported a decline in sales in China in its latest quarter, leading to a decline in its group’s overall sales. While Nissan reported a more than 5% decline in retail sales in China in the first part of the fiscal year, the biggest drop in any of its regions.
Like other foreign automakers, Japanese auto giants are being crushed in China by their local rivals. This competition has temporarily gained market share by providing a diversity of high-tech electric and hybrid vehicles.
BYD, Zeekr and Nio announced extraordinary sales, as European automakers such as Mercedes-Benz and BMW are squeezed into this region.
Many of China’s EV champions are now expanding abroad, Felipe Muñoz, automotive analyst at JATO Dynamics, told BI, putting corporations like Toyota and Honda under increasing pressure.
“The real war is taking positions in emerging markets. And that’s precisely where Japanese automakers are suffering the most,” Munoz said, pointing to the immediate expansion of corporations like BYD in Southeast Asia and Latin America.
“Japanese carmakers have a strong presence in Southeast Asia. And Southeast Asia right now is a hot market for Chinese cars,” he said.
Japanese automakers have adopted an overall cautious strategy in the transition to electric vehicles, focusing on hybrid vehicles.
That approach has mostly paid off as EV demand has slowed, with Toyota reporting bumper profits on the back of strong hybrid sales in the US earlier this year.
However, Muñoz said that while the strategy of prioritizing hybrids likely would have worked in the United States and Europe, it has created disruption for Japanese automakers in China, leaving them without a strong lineup of electric cars that can compete with local offerings. They can charge less. . $10,000.
“China is definitely going all-electric. And that leaves out all the automakers that compete with their electric cars,” Muñoz said.
He added that Toyota, Honda and Nissan risk becoming too reliant on the U. S. and European markets, which are experiencing stagnant expansion while wasting ground in expanding markets like China.
“In the end, the hybrid strategy worked in Japan, the United States and Europe, but this is the case in China,” he added.
There are signs that the Japanese auto giants are changing their strategy.
Nissan has pledged to boost the arrival of new electric vehicles in China and hybrid vehicles in the United States, while Toyota is reportedly expanding production in China as part of its attempts to compete with local companies.
A Nissan spokesperson told BI that the company is taking steps to meet the needs of the market and visitors, adding the introduction of new products.
They added that the United States remains a priority market for Nissan and the company expects sales of new models to increase.
Shares of the automaker rose following the announcement of a possible merger with Honda, rising as much as 24% in early trading on Wednesday. Nissan shares have fallen only about 25% this year.
Japanese automakers will likely face new challenges in the coming years, especially in the wake of Donald Trump winning the US presidential election.
In a conference call in November, Honda Executive Vice President Shinji Aoyama warned that Trump’s proposed price lists for cars imported from Mexico could have a big impact on Japanese automakers, many of which have plants in the country.
Honda did not respond to a request for comment, sent outside during general business hours.
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