After prolonged discussions, Honda and Nissan, two major Japanese automakers, have introduced plans to merge, making them the third-largest car manufacturer globally by sales.The companies signed a memorandum of understanding on Monday.This merger is anticipated to play a crucial role in the industry's transformation as it moves away from fossil fuels and embraces electrification.

Mitsubishi Motors, a smaller partner within the Nissan alliance, has also entered discussions to merge its operations with Honda and Nissan. If the deal goes through, the resulting conglomerate would rank as the third-largest global automaker by sales, just behind Toyota and Volkswagen. This merger would strengthen their ability to compete against leading electric vehicle (EV) manufacturers, such as Tesla and emerging Chinese EV companies.

The proposed merger would create a combined entity valued at more than $50 billion, based on the current market capitalizations of the three companies. Honda, Japan’s second-largest automaker after Toyota, has a market capitalization of over $40 billion, while Nissan’s valuation stands at around $10 billion. The integration of Mitsubishi Motors could further enhance the group’s competitive edge, particularly in the rapidly growing electric vehicle market.

If combined the three companies would produce about 8 million vehicles annually. In comparison, Toyota, Japan's largest automaker, produced 11.5 million vehicles in 2023. Honda made 4 million, Nissan produced 3.4 million, and Mitsubishi Motors built just over 1 million vehicles last year.

The merger would provide financial strength and allow for shared resources in technology, giving the group a competitive advantage.

Partnership on Electric Vehicles and Software

Earlier this year, Honda, Nissan, and Mitsubishi announced plans to share EV parts, including batteries, and work together on autonomous driving software.This collaboration is part of the industry's shift toward electric vehicles and aims to compete with EV-focused companies.

"A key goal of these merger talks is to adapt to a changing market," said a Honda spokesperson. "Together, we can better tackle challenges like electrification and autonomous driving."

This merger will help the Honda-Nissan-Mitsubishi group to challenge major global automobile giants like Toyota, Volkswagen, and Tesla. 

Experts believe that this collaboration would be a major hit for the Japanese automakers leaving behind the other competitors in the EV market. Toyota, which works with Mazda and Subaru, will still lead in Japan after the merger. However, the new alliance will provide important competition as the industry rapidly changes.