Hon Hai proposes cooperation intention to Honda

The Nikkei learned that Hon Hai Precision Industry, a large Taiwanese electronics company, proposed cooperation intention to Honda. Hon Hai is exploring cooperation with Nissan Motor to strengthen its pure electric vehicle (EV) business. It is seeking cooperation with four companies including Mitsubishi Motors, a subsidiary of Nissan.

The above news was revealed by a relevant person inside Hon Hai. Honda and Nissan terminated the consultation on management integration on February 13, but said that they will continue to cooperate in businesses such as pure electric vehicles and software development. Hon Hai hopes to establish a new camp in the EV field to compete with Chinese companies and Tesla in the United States through cooperation with Honda, which is in a competitive relationship with Nissan.

Hon Hai began to explore participating in Nissan’s management privately around the fall of 2024. It is negotiating with Renault, which holds about 36% of Nissan’s shares, including the trust part.

Hon Hai said in response to speculation about the acquisition of Nissan that it is not an acquisition but a cooperation. It hopes to cooperate with Japanese automakers through the new EV design and OEM business.

Although Hon Hai has advantages in EV chassis and software, it is struggling to acquire customers. Hon Hai believes that it can contribute to the efficiency of the development of next-generation cars. If it cooperates with three companies including Honda and Nissan, it will build a strong EV supply chain in Asia and become a foothold for global business.

Nissan’s performance is weak due to the sluggish sales in the North American market. In North America, the EV market faces headwinds, hybrid vehicles (HV) are selling well, but Nissan has failed to launch a hybrid vehicle. Hon Hai hopes to promote Nissan’s business reconstruction by building a partnership including Honda, which has hybrid vehicle technology.

In the future, Honda’s response to Hon Hai’s proposal and Nissan’s attitude will become the focus. Hon Hai has been seeking to participate in Nissan’s management, but some Japanese people are wary of foreign acquisitions, so direct negotiations have been shelved.

Honda’s public relations director said in response to Hon Hai’s cooperation proposal, “It is not the content released by our company, and we will not comment.”

Hon Hai has not given up participating in Nissan’s management

Hon Hai proposed a cooperation plan to Honda, with the goal of joining the cooperation framework of three companies including Nissan Motor and Mitsubishi Motors. Hon Hai will first explore business-level cooperation centered on EV. If the cooperation among the four companies can be realized, it will be expected to develop into capital cooperation in the future.

Hon Hai proposed a cooperation plan to Honda because it has not given up its plan to participate in Nissan’s management. Before Honda and Nissan began to negotiate on management integration, Hon Hai had already begun to take actions to participate in Nissan’s management in secret.

Hon Hai hopes to provide assistance in Nissan’s global promotion of EV. Hon Hai entered the EV field in 2019 and regarded it as a growth pillar after smartphone OEM. Through the business model of entrusted design and manufacturing of EV, it launched buses and passenger cars in the Taiwan market, but it was in a difficult struggle in global promotion.

Emerging EV manufacturers in the United States that were expected to become Hon Hai’s customers have gone bankrupt one after another, and Hon Hai has made continuous misjudgments, which has led to concerns about the original goal of achieving a 5% market share in EV production by 2025.

Nissan’s strategy is to prioritize EV in the United States. Honda is promoting hybrid vehicles (HV) in the United States. If Hon Hai can join the cooperation framework including Mitsubishi Motors, which has its own plug-in hybrid vehicle (PHV) technology, it will be expected to accelerate the pace of global business expansion again.

Although the management integration plan of Honda and Nissan has been aborted, cooperation will continue in EV development and other aspects, including Mitsubishi Motors. For the three companies, Hon Hai’s joining is also beneficial.

Honda and Nissan not only overlap in major markets such as the United States and China, but also have similar main models, so it is considered difficult to improve synergy by complementing each other. How to effectively use Nissan’s excess factory equipment and land is also a major issue.

After Hon Hai joins, it is believed that it will be easier to invest in the latest technologies, including automotive digitalization. Hon Hai is good at using excess equipment and land. The company intends to transform the old site of Sharp’s panel factory, which it acquired in 2016, into a data center.

Nissan downgraded

Nissan’s financial restructuring is imminent. Moody’s downgraded Nissan’s rating to “Ba1” (equivalent to BB+) on February 21. This is one level lower than “Baa3” (equivalent to BBB-), which is considered the lower limit of “investment grade”, and becomes “speculative grade”. The rating outlook remains “negative”.

Regarding the reason for downgrading Nissan, Moody’s explained that “it reflects the decline in profitability caused by reduced demand due to the decline in commodity competitiveness”. It is expected that the final profit and loss will be a loss of 80 billion yen in fiscal 2024 (ending March 2025) (profit of 426.6 billion yen in the previous fiscal year). The net cash income and expenditure of the automotive business is expected to be -506.7 billion yen from April to December 2024.

S&P Global of the United States also downgraded Nissan’s rating to “BB+” in 2023. Nissan’s corporate bonds for the automotive business will mature and need to be repaid by fiscal 2025 (ending March 2026). Repayment will enter the peak period starting with the US$1.5 billion (about 230 billion yen) five-year bond in September 2025. Even if the “speculative grade” can borrow new to repay old, the interest burden will increase.

In the automotive industry, emerging companies in the EV field such as BYD are also rising, and it is becoming increasingly difficult for existing manufacturers to survive alone. Nissan President Makoto Uchida also said at the February earnings conference: “We will actively explore opportunities for new partnerships.”

Honda also needs a new partner. Although the cooperation with Nissan continues, the two sides have left a gap because they failed to reach a consensus in the integration consultation. If Hon Hai joins the cooperation framework, Honda executives said: “If the good relationship with Nissan continues, the cooperation will continue.”

If the three-party cooperation is realized, it is possible to develop into capital-level cooperation. French Renault, including trusts, holds about 36% of Nissan’s shares. Hon Hai Chairman Liu Yangwei emphasized that cooperation is the main goal, but also admitted that Renault discussed Renault’s Nissan shares with Renault.

Tesla also surfaced

The Financial Times (FT) reported on February 21 that a group including former Japanese Prime Minister Yoshihide Suga formulated a plan for Tesla to invest in Nissan. The news came after the breakdown of the management integration negotiations between Nissan and Honda. Influenced by this news, Nissan’s stock rose by about 13% from the previous trading day on the Tokyo Stock Exchange on February 21.

Tesla CEO Elon Musk wrote in response to the FT report: “Tesla’s factory is the product. The production line of (the unmanned taxi being developed) Cybercab is unparalleled in the automotive industry.”