Photo: NEV

Merger talks between Japanese carmakers Nissan and Honda reflect their "desperate" need to catch up with the fast-developing electric vehicle (EV) industry in China, their important overseas market, a senior Chinese industry insider said on Monday.

The remarks came as the two Japanese carmakers signed a memorandum of understanding on Monday to start discussions and considerations toward a business integration between the two companies through the establishment of a joint holding company, according to Honda's website. 

Meanwhile, Mitsubishi Motors, another Japanese company, aims to reach a conclusion by the end of January 2025 on the participation or involvement in the business integration between Nissan and Honda, a separate statement said on Monday.

"The rise of Chinese automakers and new players has changed the car industry quite a lot," Honda CEO Toshihiro Mibe told a press conference on Monday. "We have to build up capabilities to fight with them by 2030, otherwise we'll be beaten," he said.

The merger talks reflect a "desperate" need to catch up with the booming EV trend in China, Cui Dongshu, secretary-general of the China Passenger Car Association, told the Global Times on Monday.

One of the main reasons behind the merger talks between these two Japanese automakers is their declining performance in the Chinese market and their inability to compete with Chinese brands like BYD in the EV transformation, Cui said.

They have failed to keep pace with the global market trend toward EV transformation due to their relatively low innovation capabilities in the field, Cui said, noting that their overall industry chain development is also lagging behind, which hinders them from competing with Chinese carmakers in production and innovation.

Moreover, relatively insufficient policy guidance on EVs in Japan is another reason why Japanese brands are falling behind in the EV race, Cui said. 

The news hit the headlines of multiple media outlets, with some media such as Bloomberg and Wall Street Journal linking the merger talks to China, claiming the competitiveness of Chinese EV manufacturers such as BYD as the reason behind the merger.

In the Bloomberg report, it claimed that "the surging popularity of electric and hybrid vehicles made by BYD Co and others has erased the leading position that Japan's automakers once enjoyed."

The Wall Street Journal reported that "the rise of Chinese carmakers is reconfiguring the global auto industry, with merger talks between Honda and Nissan the latest example of companies trying to respond to the competitive threat."

Cui said that the so-called "major threat" comes not from other industry players but from the slow responsiveness to market changes by Japanese companies themselves, which is reflected on their market performances.

Judging from cumulative sales in China from January to November 2024, Honda fell by 30.7 percent and Nissan fell by 10.5 percent, Nikkei reported.

In stark contrast, BYD has shown robust growth. In the first 11 months of this year, BYD's cumulative sales reached 3.758 million vehicles, a year-on-year increase of 40.0 percent. Its annual sales are steadily moving toward the 4-million mark, thepaper.cn reported.

Honda is making new moves to catch up. On Monday, as part of efforts to expand into the Chinese EV market, a new Honda EV plant has started operations, which marks that the company has entered a new development stage of electrification and intelligence, according to Honda's website. 

The new factory, located in the Guangzhou Economic and Technological Development District in Guangzhou, South China's Guangdong Province, has a designed production capacity of 120,000 vehicles per year and integrates multiple advanced technologies.

The Chinese market is important for Japanese car brands, but in order to compete in the open market they need to put more efforts into innovation and investment in the EV field, Xiang Haoyu, a research fellow at the China Institute of International Studies, told the Global Times on Monday.

"The competitive landscape of the global automobile market is changing, with the rapid development of EVs… Japanese car companies need to adapt to this new development pattern and make timely adjustments," Xiang added.