TL:DR

Framed as a strategic partnership to tackle electrification and software-defined vehicle (SDV) platforms, Nissan and Honda, recently announced a potential merger. It doesn’t look like a calculated business strategy to me. It does look like a desperation deal where these two companies are incorrectly assuming that there’s safety in larger numbers and dubious synergies. Nope, not this time, time has run out for legacy car makers.

Both companies, once revered industry shoguns, are struggling to compete in a profoundly disrupted automotive landscape dominated by Tesla—which reinvented the automobile from the ground up— and the proposed marriage under a new top hat company (details to follow 😉) is being contemplated purely out of desperation and in light of a strong dollar and opaque supply chain ripples that Trump 2.0 is already causing.

Bad M&A hardly ever works.

Playing catch-up and failing badly

Tesla’s approach—designing vehicles around a battery-first architecture with far fewer moving parts—has revolutionised the industry and in the process built a massive data driven human mobility company.

Meanwhile, legacy automakers like Nissan and Honda have been burdened by their existing internal combustion engine (ICE) infrastructure, as has VW (which is shutting down all of its factories in Germany) and many other transitioning ICE car companies—with their competitive responses so far being defensive/incremental rather than offensive/reinventive.

That said, transitioning to electric vehicles (EVs) requires fundamental retooling and repositioning which runs into the billions in R&D, automation, robotic factories of the future, gigafactories and overhauling supply chains—particularly in light of Trump 2.0.

For companies like Honda and Nissan, whose resources are already stretched like a rubber band about to snap, these efforts are exponentially harder to sustain and likely to be futile. But at least they will save the next acquirer having to mop up these brands one by one. Two by two would be quicker and more efficient! And so it begins.

Cost of transitioning on and uneven Playing field

The cost of transitioning to EVs disproportionately affects legacy automakers compared to their EV-native counterparts. Companies like Tesla have already achieved economies of scale and lean operations by minimising parts and focusing on vertical integration. In contrast, Honda and Nissan face the dual burden of maintaining their ICE vehicle operations while investing heavily in EV technologies.

This merger seems to be driven by the realisation that neither company has the scale, resources, or technological edge to compete effectively on their own. But even that won’t help much.

Phrases like “synergies” and “integration” are often corporate speak for cost-cutting and survival tactics. Is there safety in numbers in this case? Nope! These two companies are minnows and frankly don’t even blip as a small fraction of Tesla’s market cap.

An ICE pioneers, they are struggling to transition—and while they make high quality value for money ICE vehicles, will they retain any brand value in this EV world if they cannot viably transition?

External challenges from Dollar Vader and Trump 2.0 tariffs

The challenges don’t stop at industry disruption and internal inefficiencies. The strong USD significantly increases the cost of exporting vehicles and parts from Japan, eroding profit margins. Additionally, tariffs on imported vehicles and components further complicate the economics of global operations for Nissan and Honda, especially as they aim to sell competitively priced EVs in major markets like the U.S. and Europe.

Why the deal may not deliver

While the MOU highlights potential synergy benefits such as shared platforms, R&D integration, and optimised supply chains, the reality is that mergers of this scale often lead to integration headaches rather than immediate success, with very few ever realising the rump of the often-trumpeted synergies.

Merging two distinct corporate cultures, legacy systems, and product lines is a monumental task that will most likely distract both companies from their real objective, i.e., catching up in the EV race.

Good luck fellas.

Desperation eats strategy for breakfast and innovation eats legacy for lunch

This potential merger reflects a broader issue facing legacy car makers, namely the inability to pivot swiftly and viably in a profoundly disrupted market.

Tesla and other EV-first players started with a blank slate, while Nissan, Honda, VW and others are hopelessly saddled with outdated infrastructure and glacial decision-making processes.

If desperation continues to overshadow long-term strategy, this merger may serve as a band-aid, and when added to the recent VW experience risks becoming a case study in how traditional automakers failed to adapt to the new era of electrification—even though the writing had been on the windscreen for years. If I could smell it would not smell nice.

The question isn’t whether Nissan and Honda can achieve the promised synergies—it’s whether any merger benefit will come fast enough to stave off irrelevance in a profoundly disrupted market where desperation tries to eat strategy for breakfast while innovation eats legacy for lunch.

I won’t see you in the market until January—so, happy holidays campers!

Mike