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.