Nissan Needs To 3x Profits To Merge With Honda

Nissan needs to triple its profits by 2026 to be eligible for a merger with Honda.

At a joint press conference announcing the memorandum of understanding for the merger, Honda CEO Toshihiro Mibe made it clear, that Nissan needs to stand on solid financial ground before the partnership can proceed.

“The integration will not be realized unless Nissan and Honda execute it as two companies that are able to stand on their own feet,” Mibe stated.

Easier said than done. Nikkei Asia reports Nissan’s operating profit for the six months through September 2024 plummeted by 90% compared to the same period the previous year, forcing the company to downgrade its full-year forecast to 150 billion yen ($950 million)—a 74% decline from fiscal 2023.

Meanwhile, Honda is on track to post 1.42 trillion yen ($9.1 billion) in operating profit during the same fiscal year, leaving Nissan contributing just 10% of the potential combined entity’s earnings.

Nissan has outlined plans to reduce annual fixed costs by 300 billion yen and variable costs by 100 billion yen. These measures include cutting 9,000 positions and shrinking production capacity by 20%, or approximately 1 million vehicles.

Even with these cost-cutting measures, questions remain about Nissan’s ability to boost sales and maintain competitiveness in a challenging global market.

To meet Honda’s expectations, Nissan needs to achieve an operating profit of 400 billion yen ($2.6 billion) by fiscal 2026. Historically, Nissan has achieved an operating profit of 400 billion yen 16 times in the past 25 years, including a record 871.8 billion yen in fiscal 2005. While the target is not unprecedented, the path to achieving it requires a comprehensive overhaul of its management structure and operational efficiency.

Nissan’s production strategy hinges on achieving profitability at a volume of 3.5 million units annually, down from its full capacity of 4 million. However, the company is projected to sell just 3.4 million vehicles this fiscal year, even with sales incentives.

Analysts warn that reducing these incentives to cut variable costs could further hinder sales, but increasing the incentives to move more metal would create further financial pressure.

The final terms of the merger, including the share transfer ratio, are expected to be determined in June 2025.

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