Nissan-Renault Alliance Can Be Replaced By Honda

Nissan is in a bit of a pickle that is going to occupy CEO Makoto Uchida for some time to come. The company’s shares are under pressure, its operating margin is zero, and it has not one but two major alliances to manage without the company drowning in complexity.

Nissan’s operating profit for the first quarter of fiscal year 2024 dropped significantly to just ¥1 billion ($68 million) , a stark contrast from ¥128.6 billion ($876 million) in the same period of the previous year. This decline resulted in an operating margin of 0%, which is significantly lower compared to competitors like Toyota and Honda, who have maintained healthier profit margins in same period.

Nissan’s global sales in the first quarter of 2024 remained stagnant at 787,000 units, with profitability taking a hit because of increased sales incentives and marketing expenditures to move that metal.

Its global alliance with Renault, in terms of Renault’s equity stake, has been greatly reduced this year, raising speculation that it will become far less significant in the future. But the void is probably going to be filled with its new alliance with Honda.

Renault has sold multiple blocks of Nissan stock, totaling 195,473,600 shares. This reduced Renault's ownership in Nissan from about 43.4% to 15%. Renault needed the cash infusion to improve its financial stability and support strategic objectives. The funds were used to enhance its automotive net cash position, reduce debt and help restore its investment-grade credit rating.

The Nissan-Renault alliance was fraught from the beginning when it was formed 25 years ago. Tensions between Nissan and Renault increased over the years from issues of control, influence and equity stakes. Renault has historically held a larger share in Nissan (43.4% at its peak), giving it more voting rights and control, while Nissan only held a 15% non-voting stake in Renault. This imbalance led to storied friction over decision-making power and strategy alignment. Tensions reached a high when former Alliance CEO Carlos Ghosn was arrested in November 2018 and multiple media outlets reported applause breaking out throughout Nissan’s Tokyo headquarters after the internal announcement.

Trading the French for Japanese

Despite both companies having a 15% stake in each other, the future of that Alliance has a big question mark on it now. But Nissan wasted no time filling the void created by Renault’s move.

Honda does not hold an equity stake in Nissan, but Honda CEO Toshihiro Mibe says it is a possibility. The Honda-Nissan alliance is focused on collaborating in areas like vehicle electrification, software-defined vehicles and next-generation technology development. The partnership aims to accelerate the transition to carbon neutrality and improve safety through shared R&D, software integration, and electric vehicle components. Both companies will leverage their expertise in different fields to co-develop platforms and reduce costs. Honda and Nissan are also exploring potential joint ventures in battery technology and autonomous driving systems, while maintaining their separate corporate identities and product lines.

In short, all the stuff Nissan wanted from the Renault alliance it can now do with Honda.

The Japanese government has favored intra-Japanese alliances and investments. The new alliance comes after Toyota acquired stakes in Subaru, Suzuki and Mazda, helping them navigate a fraught era for legacy car companies.

“This is coordinated by the government to build a competitive automaking industry,” James Hong, analyst at Macquarie Securities Korea, told The Japan Times, adding that most automakers in Japan are too small to be able to invest in EVs individually. “It feels like a politically driven alliance.”

Nissan, Honda and Mitsubishi have lagged in what automakers increasingly refer to as software-defined vehicles, which run on code as much or more than cars of the past were powered by combustion engines. Sharing capital expenses should help the three Japanese automakers catch up.

In addition to working together in software fields including automated driving, connectivity and artificial intelligence, the CEOs of both automakers say they may also share battery specifications and supply. Honda and Nissan also are considering re-badging one another’s cars, with both combustion-engine and battery-powered vehicles. One obvious place impacting U.S. lineups would be a consolidation of pickup models, as well as low-profit entry-priced vehicles.

It would be easy for Honda and Nissan to shed duplicative staff, as well.

Ghosn Speaks

Former Alliance CEO Carlos Ghosn, living in exile in Lebanon, recently sent out a video suggesting the Honda alliance with Nissan was the first step to a takeover. Honda taking an equity stake in Nissan would have to be approved by Renault. Speculation is forming that Renault would like to sell its remaining shares to Nissan or Honda.

Given the long-term friction between Renault and Nissan, Honda taking over producing dividends and benefits of an alliance with Nissan and Mitsubishi sounds like a good idea, especially in the light of the success of Toyota’s intra-Japan stable of alliances.