Honda and Nissan Call Off Merger Plans Amid Industry Changes

A $50 billion merger between Honda Motor and Nissan Motor, which would have established one of the world's largest auto groups, has been called off.

In December, Japan's second- and third-largest automakers said they were exploring plans to combine their operations with the goal of sharing costs and jointly developing next-generation vehicles. Both companies said in a statement on Thursday that they were walking away from talks.

The swift reversal underscores a growing recognition in the industry that sprawling auto alliances, often relied upon in the past to build scale and increase market share, may not be the answer for automakers scrambling to catch up with rapid technological changes.

Traditional automakers in Japan, the United States, and Europe are facing mounting competition from newcomers like Tesla and China's BYD, which have established a commanding lead in electric vehicles and technologies that enable semiautonomous driving and remote updates.

As the auto industry shifts toward vehicles that resemble "robots on wheels," merging two giants to try and catch up was "just automakers going back to what they know, rather than embracing change," said Lucinda Guthrie, the head of Mergermarket, a data provider.

Ford Motor and Volkswagen, for instance, teamed up a few years ago to work on electric vehicles and autonomous driving. The companies ultimately shut down their self-driving car initiative and have derived few benefits from collaborating on electric vehicles.

Honda had a partnership with General Motors and currently sells two electric sport utility vehicles, the Honda Prologue and Acura ZDX, that are manufactured by G.M. But in 2023, the companies said they would not extend their partnership beyond those two models.

Even at the outset of its talks with Nissan, Honda's top executives faced internal resistance to merging with another automaker. Nissan is restructuring its operations after a significant profit decline, and Honda's managers were concerned about Nissan's financial health. They also questioned the potential benefits of a deal.

Honda eventually proposed a take-it-or-leave-it plan to make Nissan its subsidiary. Nissan rejected the offer, as it diverged from earlier ideas of creating a holding company with both brands as subsidiaries. Nissan's leadership felt the proposal undervalued the company.

Ms. Guthrie of Mergermarket said she thought that Nissan could benefit from seeking a new partner, potentially outside the traditional automotive realm.

For both Nissan and Honda, "the pressures they face wouldn't have changed with the merger," Ms. Guthrie said. "You either embrace the future, or you stick with what you know," she added. "Maybe the breakup will be what it takes."

One possible suitor for Nissan is the Taiwanese electronics giant Foxconn. Young Liu, the chairman of Foxconn, said on Wednesday that the company would consider buying a stake in Nissan, though the preference would be to simply partner with the automaker.