Baku, December 18, AZERTAC

Nissan and Honda are in exploratory talks about a merger of the two carmakers that would create a $52bn Japanese behemoth, according to Financial Times.

The two companies are studying a way to combine that would help them better compete at a time when traditional carmakers are grappling with fast-growing Chinese electric-vehicle manufacturers, and slower than expected consumer demand for EVs.

Shares in Nissan closed up 23.7 per cent in Tokyo on Wednesday, on expectations that a deal would put a healthy premium on the company. Honda’s stock closed down just over 3 per cent.

The talks are at an early stage, and there are concerns about a possible political backlash in Japan because a merger of two of the country’s most storied car brands could result in significant job cuts, one of the people with knowledge of the discussions said.

Nissan and Honda announced in March they would team up to develop EVs and have deepened their talks amid uncertainty about what Donald Trump’s return as US president will mean for the car industry.

Before Wednesday shares in Nissan, which has a cross-shareholding structure with Renault, had fallen 40 per cent this year, cutting its market capitalisation to $8.2bn. Honda has a market value of $44bn.

The combined company would rank as the world’s third-largest carmaker behind Toyota and Volkswagen based on last year’s sales volumes, giving it the scale to make investments to compete with Tesla and China’s BYD.

Nissan in November unveiled an emergency turnaround plan that included 9,000 job losses, saying it would cut global production capacity by 20 per cent. The company downgraded its profit guidance for the second time this year after falling to a loss in the July to September quarter. Nissan has been searching for an anchor investor for several months, and the Financial Times last month reported “all options” were being considered, including a merger with Honda.

A tie-up would have consequences for Mitsubishi Motors, which Nissan has a near 27 per cent stake in, and could become part of the enlarged company. The three brands would have combined annual production of about 8mn vehicles.