To The Moon

December 23, 2024 Nissan and Honda Sign Memorandum of Understanding .At a time of profound changes in the global automobile industry, the merger plan of $Nissan Motor Co., Ltd.(NSANY)$ and $Honda(HMC)$ has attracted widespread attention.

I. Development status of Nissan and Honda

(I) Overview of Nissan

Nissan has a hundred years of history, with a rich product line covering cars, SUVs and other fields, and once occupied an important position in the global market, with remarkable technological innovations, such as e-Power hybrid technology.However, in recent years, Nissan is facing a lot of difficulties, the first half of the fiscal year 2024 financial report shows that although the operating income has a certain scale, but the decline in profits is obvious, the market share in some regions is shrinking trend, the credit rating is also affected.

Nissan's operating income for the first half of fiscal year 2024 fell 1.3% year-on-year to 5.98 trillion yen, while consolidated operating profit plunged 90.2% to 32.9 billion yen, and consolidated net income plummeted 93.5% to 19.2 billion yen.This was mainly attributable to lower new car sales and pricing pressure due to increased competition in the market.In addition, Nissan is facing a debt burden, and rating agencies such as Moody's and Fitch have downgraded its outlook to "negative," which has adversely affected its financing costs and liquidity.

(ii) Overview of Honda Motor

Honda is famous for its engine technology and its products have many fans around the world, especially in the motorcycle and automobile fields.However, Honda has also encountered challenges in the current transition of the automotive industry to new energy sources, and is lagging behind in the research and development of pure electric technology and market promotion.

Honda's financial report for the first half of fiscal year 2024 showed that revenue rose 12.4% year-on-year to 10.7976 trillion yen, and operating profit increased 6.6% year-on-year to 742.6 billion yen, but the operating profit margin fell from 7.2% to 6.9%, and pre-tax profit fell 15.6% year-on-year to 741.9 billion yen.Honda Motor has invested heavily in R&D and is committed to improving its technology and product competitiveness, but this has also affected its short-term profit to a certain extent.

II. Details of the merger plan

On December 23, 2024, Nissan and Honda signed a Memorandum of Understanding (MOU), and $Mitsubishi Motors(MMTOF)$ is also involved in business integration talks.The plan is to create a joint holding company, with Honda leading the new management team, while retaining the independence of each brand.A formal merger agreement is targeted for June 2026, with the deal closing and going public in August.

IV. Analysis of the reasons for the merger

(i) Market competition pressure

Competition in the global automobile market is white-hot, with emerging automobile enterprises such as China's BYD and the U.S.'s Tesla rising rapidly and seizing a large market share.The traditional advantages of Japanese automobile enterprises have been impacted, and the merger of Nissan and Honda can integrate resources, enhance the scale effect, improve the right to speak in the global market, and better cope with the challenges of competitors.

(ii) Demand for technological innovation

The automotive industry is accelerating towards electrification, intelligence and internet connectivity, with huge investment in technology research and development.Nissan and Honda have their own strengths and weaknesses in the fields of new energy technology and automated driving, etc. The merger will enable them to focus their resources on overcoming key technological challenges, share the results of their research and development, accelerate the speed of technological iteration, and narrow the gap with the industry leaders.

(iii) Cost control and efficiency improvement

Factors such as rising raw material prices and fluctuating market demand make cost control critical.After the merger, synergies can be achieved in procurement, production, R&D and other links to reduce costs, improve operational efficiency, optimize supply chain management, and enhance the profitability and anti-risk ability of the enterprise.

V. Merger Impact Analysis

(I) Impact on the pattern of Japanese automobile industry

The merger will reshape the pattern of Japan's automobile industry, form a more competitive enterprise group, enhance the overall competitiveness of Japan's automobile industry in the world, optimize the allocation of industrial resources, drive the synergistic development of upstream and downstream enterprises, and solidify the position of Japan's automobile industry in the global supply chain.

(ii) Impact on the competitive situation of the global automobile market

The global automobile market share will be redistributed, and the new Nissan-Honda Group will become an important player in the market, intensifying competition with other automobile groups.At the same time, its technological innovations and development strategies will also influence the technological direction and development trend of the whole industry, and promote the accelerated change of the global automobile industry.

Potential Challenges and Risks

There are differences between the two parties in terms of technology research and development paths and technology platforms, and the two parties may face compatibility issues in the process of technology integration, which will require the investment of a large amount of resources for technology integration and optimization to ensure the smooth promotion of technological innovation after the merger.

The global economic situation, changes in market demand and adjustments in policies and regulations of various countries are difficult to predict, which may adversely affect the development of the merged enterprise, such as changes in subsidy policies for new energy vehicles and the rise of trade protectionism.