Japan's Nissan (OTC:NSANY) and Honda (NYSE:HMC) ended talks to create an auto group worth $60 billion on Thursday, pitching Nissan into greater uncertainty although the automakers promised to continue to collaborate on electric vehicles.
The talks had been complicated by growing differences, in particular by a proposal from Honda that Nissan become a subsidiary, sources have said.
The two had sought to join forces to better combat the disruption now being wrought by fast-rising Chinese electric vehicle makers.
Nissan, Japan's third-largest automaker is in many ways the most troubled of legacy carmakers, having never fully recovered from the years of crisis and management turmoil sparked by the 2018 arrest and ouster of former chairman Carlos Ghosn.
"Honda is pretty confident and has a lot in their favour, whereas Nissan is in a bad place. They don't have a dance partner right now," said Christopher Richter, Japan autos analyst at brokerage CLSA.
"They probably need to think about doing something different."
The merger would have created the world's fourth-biggest by vehicle sales after Toyota (NYSE:TM), Volkswagen (ETR:VOWG_p) and Hyundai (OTC:HYMTF).
Nissan's junior partner Mitsubishi Motors (OTC:MMTOF) had also been part of the merger discussions although sources had previously said it was unlikely to participate. It also bowed out of the talks on Thursday.
"Going forward, the three companies will collaborate within the framework of a strategic partnership aimed at the era of intelligence and electrified vehicles," the three said in a statement.
In addition to the rapid rise of Chinese electric vehicle makers such as BYD (SZ:002594), Japanese automakers are also facing the prospect of tariffs in the United States, another major market.
Nissan is pushing ahead with a restructuring plan announced in November that includes cutting 9,000 jobs and reducing global capacity by 20%. It has yet to disclose details such as which locations will be affected.
Sources said in December that Nissan will need to further reduce its capacity in China, where it operates eight factories through its joint venture with Dongfeng Motor. It has already suspended production at its Changzhou plant as part of efforts to optimise operations.
Before announcing the merger discussions in December, Nissan and Honda had been holding separate talks on a technology collaboration, which they could outline the scope of on Thursday.
Nissan is now open to working with new partners, with Taiwan's Foxconn (SS:601138) seen as one candidate, sources told Reuters last week.
Foxconn Chairman Young Liu said on Wednesday that it would consider taking a stake in Nissan but that its main aim was cooperation.
Nissan shares soared more than 60% and Honda's jumped around 26% in late December after the merger talks were first reported on Dec. 17. Those gains have since been pared to 21% for Nissan and 11% for Honda.
Nissan's market capitalisation is now nearly five times smaller than that of Honda, which is about 7.5 trillion yen ($48.6 billion). A decade ago, the pair were both worth around 4.6 trillion yen.
