“Cooperation Endures Despite Merger Collapse” Honda and Nissan Double Down on SDV Strategy by Bringing Parts Affiliates Into the Fold

Honda and Nissan to share next-generation automotive technologies
Expanding joint development and standardization efforts to include component subsidiaries
Pursuing economies of scale to strengthen competitiveness in the era of software-defined vehicles

Honda Motor Co. and Nissan Motor Co., whose management integration plan ultimately collapsed, have forged a new technology alliance that extends to their core component subsidiaries as they seek to secure a dominant position in the next-generation automotive market. Although the merger failed to materialize, the enormous investment required to develop next-generation vehicles has renewed the imperative for collaboration, shifting the focus toward joint development and component standardization. The strategy is widely viewed as an effort to reduce development costs and enhance competitiveness in an automotive industry increasingly driven by software, enabling the two Japanese automakers to better compete with rivals in the United States and China.

Honda and Nissan Push to Standardize Core Components for Next-Generation Vehicles

According to Kyodo News on July 10, Astemo, a Honda-affiliated company, and JATCO, a Nissan subsidiary, have begun discussions on jointly developing next-generation vehicles using digital technologies. Honda is expected to raise its ownership stake in Astemo to 61% in the near future, making it an official subsidiary, while Nissan owns a 75% stake in JATCO, one of its key component suppliers. The two companies aim to jointly conduct research and development (R&D) on advanced technologies capable of simulating and analyzing autonomous driving functions and other vehicle systems in virtual digital environments.

Honda and Nissan headquarters are also continuing broad-based negotiations aimed at reaching a final agreement this summer. In particular, the two companies are conducting in-depth reviews of standardizing the electronic control unit (ECU) used in next-generation software-defined vehicles (SDVs). Industry observers believe the automakers have adopted a pragmatic approach by strengthening cooperation across their corporate groups in development areas requiring substantial capital investment and lengthy development timelines.

An SDV is a next-generation vehicle whose performance can be enhanced through software updates or by adding features such as autonomous driving capabilities and navigation applications via the internet. Because software updates, autonomous driving functions, and vehicle information system enhancements can all be delivered online, SDVs are expected to become the mainstream format in advanced automotive markets. The ECU serves as the "brain" of an SDV. Comprising numerous semiconductors and electronic components, it controls virtually all vehicle functions through electronic signals.

Conventional automobiles typically incorporate dozens to around 100 ECUs dedicated to individual functions such as the engine and braking systems. In contrast, SDVs require high-performance ECUs capable of managing a wide range of software updates and functions in an integrated manner. However, developing SDV-grade ECUs is highly complex and requires enormous investment. Honda and Nissan plan to leverage standardized components to achieve economies of scale, reduce development costs, and strengthen their global competitiveness. Beyond ECUs, the companies are also considering standardizing the automotive operating system (OS) underpinning SDVs. They are additionally exploring supplying jointly developed components to Mitsubishi Motors, in which Nissan holds a 26% stake.

Dream of a 'Merger of the Century' Ends in Collapse

Honda and Nissan had initially pursued merger negotiations, but the talks officially collapsed after both companies agreed to terminate discussions in February last year. Earlier, on Dec. 23, 2024, the companies announced plans to establish a holding company in August 2026, under which both automakers would become subsidiaries as part of a management integration plan. Had the proposal been realized, it would have created the world's third-largest automaker by 2023 sales volume, surpassing Hyundai Motor Group, earning it the label of a "merger of the century." Some analysts also suggested Mitsubishi Motors, where Nissan is the largest shareholder, could eventually have joined the combined group.

However, negotiations between Honda and Nissan quickly encountered significant obstacles. According to industry sources, discussions were hampered from the outset by the substantial disparity in corporate value and financial conditions between the two companies. Honda maintained that its stronger market capitalization and more stable cash-generating capability justified securing managerial control of the combined entity. Nissan, meanwhile, sought to preserve a degree of equality under a jointly owned holding company. Within Honda, however, resistance grew toward granting equal authority to Nissan, whose management restructuring had been significantly delayed.

The pace of Nissan's restructuring also emerged as a key point of contention. Reuters reported that Honda demanded aggressive self-help measures from Nissan, including workforce reductions, production capacity cuts, and factory closures. Nissan, however, was said to have taken a cautious stance toward consolidating production sites due to political and labor-related sensitivities. As Nissan continued insisting on equal integration terms despite deteriorating financial performance, distrust within Honda reportedly intensified. During the later stages of negotiations, Honda revised its proposal, suggesting that Nissan become its subsidiary through a share exchange rather than proceeding with the originally envisioned joint holding company. Honda executives argued that a governance structure with clearly defined control was necessary to facilitate swift decision-making and restructuring execution. Nissan's board, however, rejected the proposal, citing concerns over corporate independence and brand continuity. The companies ultimately terminated integration discussions in February last year, simultaneously abandoning plans for a three-way alliance that would also have included Mitsubishi Motors.

Growing Need for Technological Cooperation Amid Losses

The collapse of the merger cannot be explained solely by differences in corporate culture. Honda questioned Nissan's decision-making structure and its ability to execute structural reforms, while Nissan feared that accepting Honda's proposed subordinate governance structure would undermine its independent turnaround strategy. Although both companies agreed on the necessity of technological collaboration, they ultimately failed to reconcile conflicting interests when attempting to combine development cost sharing with ownership integration.

Honda's financial position, which had been relatively stronger during merger negotiations, also deteriorated rapidly. In fiscal 2025, the company posted a net loss of approximately USD 2.7 billion, marking its first annual net loss since listing in 1957. The losses stemmed largely from substantial impairment charges and restructuring costs incurred while reassessing its North American electric vehicle operations and related assets in response to slowing EV demand. Honda had aggressively expanded investment plans for dedicated EV manufacturing facilities, battery production, and new vehicle platforms, but weaker-than-expected market growth disrupted projected investment returns. In China, domestic EV manufacturers intensified price competition while accelerating product launch cycles, while in North America, policy shifts and charging infrastructure constraints heightened demand uncertainty.

Nissan's financial situation has become even more pressing. After recording a net loss of approximately USD 4.3 billion in fiscal 2024, the company launched its "Re:Nissan" restructuring initiative, which includes closing seven factories, reducing its workforce by 20,000 employees, and scaling back global production capacity. Although Nissan secured operating profit of approximately USD 370 million in fiscal 2025, restructuring expenses and factory closure-related losses resulted in another net loss of approximately USD 3.4 billion.

While both automakers posted losses, the underlying causes differed. Nissan's profitability suffered from weak vehicle sales, excess production capacity, and an aging product lineup, whereas Honda incurred substantial accounting charges while revising its EV investment strategy. Nevertheless, both companies now face the common challenge of independently financing investments required for electrification and SDVs while simultaneously protecting profitability in their existing businesses. This explains why the companies have maintained channels of cooperation despite the collapse of merger negotiations. Honda requires broader procurement scale and shared development costs, while Nissan needs a partner capable of sustaining next-generation technology development without significantly increasing cash outflows. Although political obstacles ultimately prevented capital integration, the economic incentives for reducing costs through joint development have become even more compelling as both companies' financial performance has weakened.

Even before beginning management integration talks, Honda and Nissan had been discussing a strategic partnership in electrification and vehicle intelligence since March 2024. In August of the same year, they agreed to jointly research core technologies for a next-generation SDV platform while evaluating potential collaboration in battery standards, electric powertrains, and charging and energy services. Those discussions have recently evolved into concrete negotiations on jointly developing and standardizing ECUs, automotive operating systems, and other key electronic components. The companies have deliberately chosen to expand cooperation beginning with development areas carrying the highest cost burdens. In particular, the benefits of their current joint component procurement strategy will increase as production volumes grow. If Honda, Nissan, and Mitsubishi Motors all adopt the same family of ECUs and semiconductors, they will gain stronger bargaining power with suppliers while reducing the certification and validation costs previously incurred by designing separate components for each individual vehicle model. Greater compatibility across components during supply chain disruptions will also provide increased flexibility in sourcing alternatives, reducing both inventory burdens and the risk of production interruptions.

However, negotiations between Honda and Nissan quickly encountered significant obstacles. According to industry sources, discussions were hampered from the outset by the substantial disparity in corporate value and financial conditions between the two companies. Honda maintained that its stronger market capitalization and more stable cash-generating capability justified securing managerial control of the combined entity. Nissan, meanwhile, sought to preserve a degree of equality under a jointly owned holding company. Within Honda, however, resistance grew toward granting equal authority to Nissan, whose management restructuring had been significantly delayed.

The pace of Nissan's restructuring also emerged as a key point of contention. Reuters reported that Honda demanded aggressive self-help measures from Nissan, including workforce reductions, production capacity cuts, and factory closures. Nissan, however, was said to have taken a cautious stance toward consolidating production sites due to political and labor-related sensitivities. As Nissan continued insisting on equal integration terms despite deteriorating financial performance, distrust within Honda reportedly intensified. During the later stages of negotiations, Honda revised its proposal, suggesting that Nissan become its subsidiary through a share exchange rather than proceeding with the originally envisioned joint holding company. Honda executives argued that a governance structure with clearly defined control was necessary to facilitate swift decision-making and restructuring execution. Nissan's board, however, rejected the proposal, citing concerns over corporate independence and brand continuity. The companies ultimately terminated integration discussions in February last year, simultaneously abandoning plans for a three-way alliance that would also have included Mitsubishi Motors.