Nissan-Honda merger buzz sends Renault stocks climbing 5%

The European stock market displayed a mixed performance on Wednesday, influenced by U.K. inflation data and anticipation ahead of the U.S. Federal Reserve’s monetary policy decision. The pan-European Stoxx 600 index showed little change by 8:45 a.m. London time, with various sectors demonstrating divergent trends.

European stock market mixed amid U.K. inflation, Fed anticipation

U.K. inflation increased to 2.6% in November, aligning with market expectations. The Bank of England is expected to maintain interest rates at its final monetary policy meeting of the year scheduled for Thursday. Investors also await updates from the Fed, with a 95% probability of a quarter-point rate cut expected, as indicated by CME Group’s Fed Watch tool.

Investors are focused on the Fed’s Summary of Economic Projections and Chair Jerome Powell’s subsequent press conference for future economic guidance. In Europe, shares of French carmaker Renault surged over 5% by 8:42 a.m. London time, following reports that Nissan and Honda engaged in merger discussions, leading Nissan’s Tokyo-listed shares to spike over 20%—marking its most significant gain in nearly four decades. Italian lender Unicredit’s shares increased by 0.5% after the bank revealed plans to enhance its stake in Commerzbank from 21% to 28%.

Potential merger between Honda and Nissan

Both Honda and Nissan confirmed their ongoing discussions about a potential merger, which may involve Mitsubishi as a third partner. Preliminary talks aim to leverage each manufacturer’s strengths amid economic challenges, particularly in the shifting automobile market. Honda and Nissan disclosed that they are assessing various collaboration avenues since their agreement in March to partner on electric vehicles and battery technology.

Reportedly, both companies have faced difficulties in maintaining market share, especially in China, the world’s largest automotive market, where competition from domestic brands has intensified. The Chinese government’s increased support for local EV manufacturers has further complicated their position. Honda aims for a complete transition to selling zero-emission vehicles in major markets by 2040, yet progress has been slow due to moderate consumer demand in the U.S. and Europe, stemming from low fuel prices and insufficient charging infrastructure.

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Nissan, once a leader in EV technology, saw its operating income plummet by 90% from March to September compared to the previous year, raising concerns about its competitive stance against lower-cost brands like BYD, which surpassed Tesla’s quarterly revenue for the first time in October. Market analysts like Jessica Caldwell suggest that the changing dynamics make it increasingly challenging for smaller players to thrive, stressing the necessity of collaboration to remain competitive. “The thought that some of these smaller players can survive and thrive is getting more challenging, especially when you add on the complexity of all the additional Chinese manufacturers who have come in and are competing quite strongly,” said Edmunds analyst Jessica Caldwell according to a BBC report.

Shares of Nissan surged over 23% in Tokyo as news of the merger discussions emerged. Conversely, Honda’s stock fell approximately 3%, while Mitsubishi experienced a gain of nearly 20%. Analysts express skepticism regarding the potential merger’s effectiveness in enhancing competitiveness, questioning whether it merely represents a rearrangement without creating a truly resilient automotive powerhouse.

Nissan’s affiliation with Mitsubishi adds complexity to any merger discussions, given that it is the largest shareholder in the latter. The ongoing conversations come as the global automobile industry continues to pivot toward electrification, requiring manufacturers to adapt swiftly to a changing landscape. Honda and Nissan’s combined annual vehicle sales reached 7.4 million in 2023, but their ongoing struggles underscore the need for strategic partnerships to mitigate losses to emerging market players.

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Featured image credit: Renault