On December 23, 2024, the boards of directors of Honda and Nissan decided to initiate negotiations for a business merger.

At a joint press conference, Honda President Toshihiro Mibe and Nissan CEO Makoto Uchida stated that the two companies aim to reach a final agreement by June 2025. If the business integration is successful, the two companies will delist in August 2025 and transition into a joint holding company. At that time, the president of this newly merged entity will be appointed by Honda, and the majority of the board will also be decided by Honda, with Honda leading the management integration. It is believed that Mitsubishi Motors also plans to participate in negotiations for business integration. Before the press conference, the presidents of the three companies had reported to the Ministry of Economy, Trade, and Industry and the Ministry of Land, Infrastructure, Transport, and Tourism on the preliminary framework of the integration plan.

Earlier, on December 18, 2024, the Nihon Keizai Shimbun was the first to report that Honda and Nissan were negotiating a business integration, causing a strong market reaction. The Tokyo Stock Exchange temporarily suspended trading of Nissan shares. On the same day, the two companies stated in a statement that they were "exploring multiple possibilities for future cooperation" and promised to inform stakeholders of any updates in due course. This statement pushed Nissan's share price up by 24%, setting a record for the highest single-day gain in history; Mitsubishi's share price also climbed by 20%; however, Honda's share price fell by 3.4% due to mixed market sentiment. Clearly, in the capital market, there are both happy and worried parties, reflecting a sharp divide in reactions.

For the Renault-Nissan alliance, this is undoubtedly an important historical juncture, signaling a new choice to turn left or right.

A Pragmatic Deal?

'Nissan didn't want a Frenchman telling them what to do, so they decided to expel me.'

These were the words of Carlos Ghosn, the former chairman of the Renault-Nissan alliance, at a press conference in Lebanon in early 2020. At that time, he had just fled Japan a week earlier, following four arrests by Japanese prosecutors on suspicion of financial crimes.

Getting rid of Ghosn was the breaking point for the accumulated conflicts within the alliance, with foreshadowing dating back to 2017. At that time, the French government reached an agreement with Ghosn to support his re-election in exchange for promoting the merger plan between Renault and Nissan. This news caused a strong backlash in Japan, where Ghosn was viewed as an 'invader' of the Japanese automotive industry. In the same year, the Renault-Nissan alliance launched the 'Alliance 2022' strategic plan, attempting to achieve the ultimate merger of Renault and Nissan, but internal conflicts within the alliance became increasingly apparent.

After the Ghosn incident, the merger was never mentioned again, deepening the rift within the alliance and bringing their cooperation to the brink of collapse. It was not until 2023 that the alliance temporarily resolved their differences through a new cooperation agreement to 'rebalance the cross-shareholding mechanism to strengthen governance.'

Looking back, Nissan has not enjoyed more joy in returning to 'autonomy' in the post-Ghosn era, with strategic stagnation and a sluggish market forcing it to explore cooperation opportunities beyond the old alliance.

Since 2024, news of Nissan's cooperation with Honda has frequently appeared in reports, with remarkable progress. In March, the two parties initiated a feasibility study for a strategic partnership in electric vehicle production and software technology, with Mitsubishi Motors joining the negotiations in August. Honda President Toshihiro Mibe stated at the time, 'Honda, Nissan (and Mitsubishi) need to abandon old development concepts and quickly embrace competitors.'

Market interpretations of the merger negotiations between Honda and Nissan vary. One view is that this reflects the intention of the Ministry of Economy, Trade, and Industry to strengthen its control over Nissan, to prevent the possibility of Nissan, with its previous performance setbacks and low share prices, being acquired by foreign capital. Notably, the term 'capital acquisition' in this view specifically refers to the approximately 28.4% excess shares of Nissan held by Renault, which were transferred to a French trust after balancing the shareholding mechanism. Although Nissan or its designated third party has a right of first refusal, it is rumored that Foxconn's parent company, Hon Hai Precision Industry Co., Ltd., has noticed these deposited shares. Clearly, this development is unfavorable to the Japanese government's intention to promote the creation of a Japanese automotive industry trust. According to the envisioned plan, Honda, Nissan, and Mitsubishi will integrate technology, production lines, and sales channels in the future, reducing duplicate investments, cutting management and R&D costs, and maintaining higher profit margins to cope with increasingly fierce global competition.

Another view is that this move is more like a self-rescue strategy for Nissan. Since the 'Ghosn escape saga,' Nissan has been plagued by internal strife and continuous declines in sales and profits over just a few years. At the same time, missteps in market decisions, especially the lag in its hybrid product line and market layout, have left it comprehensively behind Toyota and Honda in the North American market, forcing it to seek new cooperation for a breakthrough.

However, the issue of power balance and operational decision-making, i.e., who will take the lead and who will support, still needs careful consideration behind the merger. Referring to the example of Stellantis, the intervention of shareholder families like Agnelli and Peugeot, as well as the French and Italian governments, in decision-making, and the constraints on products, brands, and markets, were to some extent factors that prompted its former CEO Carlos Tavares to retire early. It is difficult to predict whether such issues will also arise in the merged entity of Nissan and Honda. Bloomberg interviewed Ghosn, who remains stranded in Lebanon, and in his view, 'This is not a pragmatic deal because, frankly, it's difficult to find synergies between (Nissan and Honda).'

Meanwhile, from a technical perspective, Nissan started earlier in pure electric technology, while Honda has more advantages in the hybrid field; in terms of product lines, Nissan has a more comprehensive layout, while Honda lacks experience in medium and large rear-wheel-drive vehicles and off-road vehicles. When viewed separately, both have their unique styles and characteristics, but after the merger, how to coordinate strengths and weaknesses, clarify research and development directions, and whether the relationship between traditional Japanese enterprises and their supply chains will be destabilized due to the merger are all complex issues that need to be clarified urgently.

Renault is Determined to Forge a New Path of Competitiveness

Renault has expressed an 'open attitude in principle' towards Nissan's latest moves, but its cautious stance is also evident, stating that it will thoroughly study all the impacts of the cooperation.

One of these impacts may be the potential impact on some of the original intentions of the newly agreed 15-year Renault-Nissan alliance. According to the agreement, as part of the cross-investment within the alliance, 'Nissan plans to invest approximately €600 million to acquire a 15% stake in Renault's electric vehicle and software company Ampere' to ensure a seat on the Ampere board, thereby supplementing Nissan's technological reserves for electrification development. For Nissan, the short-term goal of this move at the time was to reduce costs through alliance synergies, meet regulatory requirements, and obtain a wider range of electric vehicle technology resources.

However, at that time, there were already reports indicating that Nissan's expectations for this investment were more inclined towards the form of technical safeguard clauses, ensuring smooth access to Ampere's core technology patents in the future through shareholding. As a potential countermeasure, Renault is clearly more interested in spinning off Ampere through an IPO, not only to obtain new financial support for the company but also to gradually free itself from dependence on Nissan in terms of finance and strategy.

From this perspective, the technology sharing structure involved in the agreement is facing the risk of loosening. Now, after Nissan and Honda negotiate business integration, how will the interests and scope of technology sharing be redrawn within the old alliance? These unclear and complex boundaries undoubtedly lay the groundwork for potential frictions in the future.

Nevertheless, Nissan is determined to find a way forward with Mitsubishi, and Renault also has its own plans. It is also exploring new external cooperation, albeit with similar setbacks.

At the end of 2023, Renault and Volkswagen attempted to jointly develop the electric version of the Renault Twingo and launch the Volkswagen ID.1 model based on it, hoping to achieve a win-win situation by sharing production costs and supply chain resources. However, due to differences in production form and location - Volkswagen insisted on using its European production network, while Renault insisted on producing in its own factories - the negotiations eventually broke down.

On the other hand, Renault has achieved important cooperation breakthroughs in its 'internal combustion engine and hybrid engine assets,' one of its five major businesses. At the end of May 2024, it announced the establishment of a joint venture with Geely Group's powertrain company, HORSE Powertrain Limited. According to the announcement of its establishment, the company is committed to providing a complete set of advanced powertrain technology products to global partners, including improving high-efficiency internal combustion engines, realizing vehicle electrification through hybrid and modular solutions, using low-carbon dioxide fuels such as biofuels and synthetic fuels, and developing hydrogen engines.

Upon the establishment of HORSE, Renault CEO Luca de Meo said in an interview with the French newspaper Le Figaro, 'Chinese manufacturers have achieved a generation of product and technological leadership through a comprehensive development strategy. The entire Chinese ecosystem is contributing to the development of the automotive industry, providing opportunities for a large number of enterprises to participate. I believe that we cannot give up the opportunity to cooperate with the ecosystem, including battery gigafactories, top engineers, and raw material refining capabilities.'

Now, Renault is determined to forge a new path of competitiveness by returning to China to recruit a technical team. Since October 2024, Renault, under the name of its subsidiary Ampere, has been establishing a new R&D team, the 'Advanced China Development Center (ACDC),' in China, recruiting high-voltage battery experts, steering system leaders, motor experts, and other related positions for new energy vehicle R&D. At the same time, news has also emerged about outsourcing vehicle design projects to Chinese automotive design companies and reaching battery supply cooperation with Contemporary Amperex Technology Co. Limited (CATL).

Renault China Chairman and CEO Weiming Su said that ACDC aims to promote the future development of Ampere and the Renault Group by integrating and learning from China's electric ecosystem during the development stage. 'In the wave of electrification, the three-electric system has replaced the traditional powertrain system as the core area of competition. In this competition, China has taken the lead globally with its first-mover advantage, cost advantage, and engineer dividend, leading by 4 to 5 years in raw materials and battery R&D.' Recently, he also emphasized at the International Automotive & Supply Chain (Hong Kong) Summit, 'As one of the European automakers that has been most committed to the electric transformation in the past four years, Renault will continue to strengthen its connection and integration with China's industrial ecosystem to shape a new 'co-opetition' relationship.'

Whether it's spinning off Ampere or returning to the forefront of Chinese technology, Renault's strategic adjustments are both an active response to the global electrification trend and a repositioning of traditional alliance relationships. In the future, finding a balance between technology sharing and interest games will be an important issue for Renault to face.

Images: From the Internet

Article: Auto Review

Typesetting: Auto Review