Nissan and Honda want to merge to compete with Chinese electric vehicle company Tesla

Nissan engine (NSANY-0.87%) and Honda engine (HMC+1.03%) have officially begun negotiations for a merger by 2026 as Japan’s automakers seek a leg up on tough Chinese rivals and Tesla (TSLA-1.20%).

On Monday, automakers said they would explore bringing Nissan and Honda under a common holding company, creating the world’s third-largest auto group by vehicle sales. Toyota engine only (TM+2.58%)Japan’s leading automobile manufacturer, and Volkswagen (VWAGY+3.61%)the market leader in Europe, would outperform the group in terms of sales.

The merger of Japan’s second and third largest automakers would mark the biggest shakeup in the industry since 2021, when Fiat Chrysler Automobiles was founded (STLA+0.58%) and the PSA group combined to launch Stellantis, which operates over a dozen brands.

“If this is implemented, I believe that by combining the strengths of both companies, we can deliver unprecedented value to customers around the world who value our respective brands,” Nissan CEO Makoto Uchida said in a statement. “Together we can offer them a unique way to enjoy cars that no company could achieve alone.”

Nissan and Honda are unlikely to be alone in this endeavor either. You are also thinking about Mitsubishi Motor (MMTOF0.00%) as a potential third partner in the project; Nissan is the company’s largest shareholder. Whether Mitsubishi will join will be announced by the end of next month, the companies said.

Nissan and Honda plan to complete discussions around June 2025 before forming a holding company about a year later, with shares delisting around that time. Honda will appoint the majority of the future company’s board of directors.

“In this period of change in the automotive industry, which is said to occur once every 100 years, we hope that Mitsubishi Motors’ participation in the business integration discussions of Nissan and Honda will lead to further social changes and that we will be able to do so “We want to become a leader in creating new value in mobility through business integration,” Honda CEO Toshiro Mibe said in a statement.

At a press conference Mibe said in Tokyo on Monday that “the rise of Chinese automakers and new players has changed the automotive industry quite a bit,” adding that companies need to strengthen their offerings by 2030, “otherwise we will be beaten.”

Honda and Nissan started looking for partnerships in March, although the companies said at the time that they would focus on collaboration on electric vehicles and related components to better compete with Tesla and Chinese automakers. In August they agreed to work together and added Mitsubishi as a potential third cooperation partner.

In response to weak sales, Nissan announced last month that it planned to do so Reduction of 9,000 jobs and a fifth of its production capacity after sales fell in China and the US. Honda saw a 15% increase Waste in last quarter’s operating profit, along with a decline in sales, particularly in the Chinese market, over the past nine months. Honda and Nissan brought some production in China earlier this year, with the former scaling back its partnerships with local partners as its once largest market has become more competitive.