The shares of Nissan Motors, a Japanese car manufacturer, had their best day on the Japanese stock market in 39 years this Wednesday, after it was reported about the possible merger with its competitor Honda Motor.
Nissan gained 23.7% to 417.6 yen per share ($2.7), marking its best day of trading since at least 1985, according to data from Factset, which does not have records of the company’s share price. back in 1985. However, Honda shares fell 3% on the Tokyo Stock Exchange.
Japan’s Nikkei news agency reported Tuesday that both automakers intend to form a larger entity that can compete and invest more in the growing electric vehicle market.
The companies’ plans come after Nissan in November posted disappointing results for its fiscal second quarter, which ended in September, while cutting its revenue and full-year operating forecasts.
The automaker also announced plans to cut 9,000 jobs and reduce global production capacity by a fifth amid fierce competition in its main markets.
Nikkei reported that Honda Motor and Nissan Motor are about to begin talks about a possible merger, with the aim of pooling resources to strengthen their position in the electric vehicle market.
The two Japanese automakers are contemplating the possibility of operating under a shared holding company, according to the report, adding that a memorandum of understanding is expected to be signed shortly, which will formally begin these negotiations.
Details regarding their respective stakes in the proposed new entity, along with other details, will be determined later, according to the report.
This move represents a strategic response to the rapid evolution of the automobile industry, especially in the electric vehicle segment.
Compete with Tesla
By joining forces, Honda and Nissan aim to better compete with Tesla and Chinese electric vehicle manufacturers, which currently hold significant market share.
So far this year, Honda shares have accumulated a loss of just over 15% and Nissan shares have fallen 24.6% in the same period.
A merger between Honda and Nissan would not bring quick benefits as both automakers would first have to align their strategies, while overlapping regional markets would limit sales benefits, S&P analysts said on Wednesday.
Although the potential deal would create a $54 billion auto company, the world’s third largest, any benefit to its credit outlook would come late, they wrote in a research note.
