BriefCASE: Honda-Nissan merger: A potential game changer

By Amit Panday

In a turbulent automotive industry, Japanese automakers Honda and Nissan have embarked on a bold merger. If executed well, the deal will allow the merged entity to harness synergies and fortify its market position, but the path is fraught with challenges. The march toward electrification and software-defined vehicles — intensified by mainland Chinese original equipment manufacturers with their high-tech yet competitively priced models — demands substantial investment from legacy OEMs in cutting-edge battery technology, next-generation vehicle platforms and smart production facilities.

Merger could boost electrification efforts

The merger is expected to enable increased production of hybrid electric vehicles — driven by Honda's existing hybrid propulsion systems — and battery-electric vehicles by 2030. S&P Global Mobility estimates that Honda-Nissan's total battery-cell requirement could reach 1 billion cells by 2036 from less than 200 million cells in 2024. The data suggests this would translate into a combined battery capacity of about 128 GWh by 2030 and 325 GWh by 2036.

In North America, Nissan stands to benefit from Honda's relatively mature battery supply chains. For example, Honda has partnered with LG Energy Solution to establish a 40 GWh gigafactory in Ohio, set to begin production in 2025. Honda has also formed strategic alliances with recycling firms such as Ascend Elements and Cirba Solutions. In Europe, a new Nissan battery factory in Sunderland, UK, operated by Envision AESC, is also scheduled to start operations this year. It will have a capacity of 12 GWh and produce enough batteries to power 100,000 electric vehicles annually. Nissan also plans to introduce cobalt-free technology to lower the cost of EV batteries by 65% by fiscal year 2028.

In China, Honda brought together its joint venture partners, Dongfeng Motor Group and GAC Motor, to establish HDG (Beijing) Trading Service for sourcing batteries and exploring battery recycling. The three-way joint venture aims to bulk-source batteries from CATL, driving down costs and improving its sourcing strategy. Notably, CATL is building a 50 GWh battery plant in Yichun, China, to supply batteries to HDG (Beijing) Trading Service.

In its home market of Japan, Nissan last year secured a certification from the Ministry of Economy, Trade and Industry to develop and mass-produce lithium-iron-phosphate batteries. These batteries will be installed in electric minivehicles from fiscal year 2028.

Honda and Nissan are also advancing solid-state battery technology independently, which could lead to valuable synergies and accelerate the commercialization of this promising technology.

Supply chain consolidation and challenges

In a merger of this size, a supply chain shake-up is to be expected. Honda-Nissan intends to streamline purchasing operations and source common parts from the same supply chain. Suppliers foresee increased pressure to meet this higher volume because of vehicle platform standardization across various product segments. Both OEMs have thousands of suppliers in their individual supply chains globally, most of them in tier 2 and tier 3. Common tier 1 suppliers such as Denso, Toyoda Gosei and Bosch are expected to benefit from increased order volumes, streamlined operations and standardized processes.

On paper, Honda-Nissan looks like a relatively straightforward merger due to product and geographical overlap. However, a complex web of relationships and technology partnerships have to be disentangled and understood and solution pathways must be chosen before any synergistic benefits will materialize.

Economies of scale can be difficult to realize in a supply base as well. High-volume platforms may offer tantalizing prospects for cost savings, but the reality may be different. Regional suppliers that have forged relationships with predecessor entities often find they lack the capacity to support a higher-volume or more geographically diverse approach.

That said, the automotive sector is entering a new era, with the old hegemony weakened and threatened like never before. In markets where total industry volume is flatlining and still has not recovered to pre-COVID-19 levels, structural tensions abound. In this light, the timing of the merger seems right.

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.