Japan’s iconic automotive industry is going through a rough patch and two of its biggest companies are now merging to fight for survival.
Nissan and Honda are close to negotiating a potential merger, according to multiple reports Tuesday, as they consider joining forces to avoid growing risk from Tesla and Chinese electric vehicle makers.
It comes after the two companies and major rival Toyota reported slumping profits in their most recent earnings, as they grapple with ferocious competition in China and a bumpy 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 in the quarter ended in September fall 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 corporations face a similar problem; They can’t sell enough cars in China.
Toyota’s sales in China fell just over 10% in the first nine months of the year, with the company blaming “challenging market conditions” such as “intensifying price competition. “
Still, a Toyota spokesperson told Business Insider that its profit decline is not just attributable to China; It has also experienced weakness in Japan and North America.
Honda flagged a decline in sales in China in its most recent quarter, dragging down its total group sales. While Nissan reported a drop of over 5% in retail sales in China in the first half of the fiscal year — the largest drop of 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 through offering a variety of high-quality electric and hybrid vehicles. technology.
BYD, Zeekr and Nio have recently reported bumper sales, while European automakers such as Mercedes-Benz and BMW are making inroads into the region.
Many of China’s EV champions are now expanding overseas, something Felipe Munoz, auto analyst at JATO Dynamics, told BI was putting the likes of Toyota and Honda under growing 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 automakers have a presence in Southeast Asia. And Southeast Asia is lately a trendy market for Chinese cars,” he said.
Japanese automakers have adopted an overall cautious strategy in the transition to electric vehicles, focusing on hybrid vehicles.
This strategy has largely paid off as demand for electric vehicles has slowed, and Toyota reported bumper profits thanks to strong hybrid sales in the US earlier this year.
However, Munoz said that while the hybrids-first strategy may have worked out in the US and Europe, it has created problems for Japanese automakers in China, leaving them without a strong lineup of EVs that can compete with local offerings that can cost less than $10,000.
“China is definitely going all-electric. And that leaves out all the automakers competing 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.
“At the end of the day, the hybrid strategy worked in Japan, worked in the US, and worked very well in Europe, but that’s not 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 measures to meet the market’s and customers’ needs, including introducing 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.
Speaking on an earnings call in November, Honda executive vice president Shinji Aoyama warned that Trump’s proposed tariffs on vehicles imported from Mexico could have a huge impact on Japanese automakers, many of whom have factories in the country.
Honda did not respond to a request for comment, sent outside normal working hours.
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