Honda and Nissan, two of Japan’s largest car manufacturers, have announced their intention to merge, forming a giant that will claim the third spot globally in terms of sales.

The two companies have signed a memorandum of understanding, which also includes Mitsubishi Motors, a member of the Nissan Alliance, in discussions to finalize the merger.

This move comes at a time when Japanese automakers are struggling to compete with the major players in the electric vehicle (EV) market. The new technologies demand massive investments, and the merger aims to reduce costs and enhance competitiveness.

Once the merger is complete, the new entity’s value will exceed $50 billion, based on the current market capitalization of the three companies, with the goal of creating one of the world’s top three automotive groups, behind Toyota and Volkswagen. The proposed group will sell approximately 7 million vehicles annually.

Honda President Toshihiro Mibe stated that Honda will initially lead the new management, while the brands and principles of the three companies will be retained. Mibe added that the goal is to complete the merger by August 2026, emphasizing that this new partnership will enable the companies to better meet market demands and strengthen their position in the industry.

This strategic move is expected to reshape the global automotive market, creating a powerful new player capable of competing with the largest automakers in innovation and sales.

Electric Vehicles Are Changing the Market
Honda and Nissan are following the trend set by major automakers like General Motors and Volkswagen, which are pursuing synergies to address the high costs of developing next-generation vehicles. Producing electric cars, with their advanced batteries and sophisticated software, requires enormous investments, which have so far been primarily funded by profits from traditional gasoline and hybrid models.

Challenges for EV Development Intensify
The pressure to develop EVs is growing, particularly following statements from the newly elected U.S. President Donald Trump, who plans to eliminate tax incentives for electric cars. This makes investments in both traditional and electric vehicles less sustainable, according to Takaki Nakanishi, head of the Nakanishi Research Institute.

An Alliance Under Strain
Despite the size and potential of the new entity, challenges remain. Tesla and BYD have already gained a significant lead in electric vehicles, and history shows that automaker mergers often fail. For instance, DaimlerChrysler dissolved after nine years, and Nissan recently pulled out of its long-standing alliance with Renault.

Nissan’s financial situation is particularly critical, with a 90% drop in operating profits during the first half of the fiscal year. Job and production cuts, combined with declining sales in China, have made the merger essential for the company’s survival.

In contrast, Honda is showing a more stable financial picture, reporting $1.8 billion in profits in the last quarter. However, increased spending on research and development, as well as weak performance in China, underscore the need for synergies.

The success of the merger will depend on the ability of the two companies to collaborate effectively and create new value, according to Tang Jin, a senior researcher at Mizuho Bank. Without such innovations, the new group risks becoming “a sum of the weak.”

The Chinese market, the largest in the world, remains a particularly competitive arena, with local manufacturers gaining significant ground. The loss of sales for both Japanese companies in China makes their future even more uncertain.