The decision, announced in a joint statement, comes after issues over leadership structure and financial instability, particularly on Nissan’s end.

Why the Deal Fell Apart

Honda, which has maintained stronger financial footing than Nissan, pushed to revise the original agreement. The initial plan was to establish a joint holding company, but Honda later proposed a new structure that would make it the parent company while Nissan became a subsidiary through a share exchange. 

Nissan, fighting with declining sales and a shrinking market capitalisation, was hesitant to accept this change in power dynamics.

According to Japan’s Asahi Shimbun, Honda executives grew more frustrated with Nissan’s sluggish progress in restructuring discussions. 

Nissan’s internal challenges, including weak financial performance and management instability, further complicated negotiations. 

While the deal was initially seen as a strategic move to counter rising competition from Chinese electric vehicle (EV) makers, the inability to align on a clear integration plan proved to be a stumbling block.

Beyond corporate disagreements, market volatility and the transition to electrification also impacted the decision to abandon the merger. Honda and Nissan have been losing market share in China, where competition from lower-cost EV manufacturers like BYD has increased. 

The merger was intended to bolster both companies’ ability to compete, but without a solid foundation of internal stability, the risks outweighed the potential benefits.

Nissan has been facing financial stress for years, with its market valuation now only a fraction of Honda’s. As part of its restructuring plan, the company recently announced a reduction in global production capacity by approximately 20% by the end of the 2026 fiscal year. 

This includes plans to cut its workforce by around 6,500 employees and scale down operations at several plants, including those in the U.S.

Even with the collapse of the merger, Nissan is not ruling out future partnerships. The company confirmed that it is seeking strategic alliances, with Taiwanese electronics giant Foxconn already in discussions about potential collaboration. 

Added to these, there is speculation that Nissan may partner with a tech firm to strengthen its EV development, mirroring Honda’s joint venture with Sony.

Limited Collaboration Moving Forward

While the full-scale merger has been abandoned, Honda and Nissan have confirmed that they will continue working together in a limited capacity.

The two automakers had already agreed to collaborate on software and electrified vehicles earlier this year, and this partnership will proceed despite the failed merger talks.

Sources suggest that this collaboration could enhance their ability to compete with major industry players like Toyota, as well as EV giants such as Tesla and BYD.

The merger is still in its early discussion stages, and one possibility is that a new holding company could be formed to manage the merged operations.

In March, the two Japanese automakers agreed to explore a strategic partnership for electric vehicles.

Both firms responded to the BBC with identical statements, which said: “As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths.”

Many car brands are facing increasing competition as the industry transitions from petrol and diesel vehicles to electric ones, with production in China experiencing significant growth.

Honda and Nissan, Japan’s second and third largest car manufacturers behind Toyota, have been losing market share in China, which accounted for nearly 70% of global electric vehicle (EV) sales in November.

In 2023, the two brands combined for global sales of 7.4 million vehicles, but they are finding it difficult to compete with more affordable EV makers like BYD, which experienced a surge in quarterly revenues, surpassing Tesla’s for the first time in October.

Honda and Nissan have not denied the story, which was first reported by Japanese business newspaper The Nikkei, but said it was “not something that has been announced by either company”.

“If there are any updates, we will inform our stakeholders at the appropriate time.”

The two companies agreed in March to cooperate in their EV businesses, and in August deepened their ties, agreeing to work together on batteries and other technology.

In August, the two companies also announced an agreement with Mitsubishi to discuss intelligence and electrification.

“The thought that some of these smaller players can survive and thrive is getting more challenging, especially when you add on the complexity of all the additional Chinese manufacturers who have come in and are competing quite strongly,” said Edmunds analyst Jessica Caldwell.

“It’s just sort of necessary to survive, not only to survive, but also just to afford the future.”