The Merger of Honda And Nissan To Better Address The Chinese EV Threat Would Likely Be Better Served With A Well-Funded Joint Venture Than A Merger

Honda and Nissan are considering a merger because the Chinese EV makers are pushing both companies out of the market. Honda and Nissan are Japan's second and third most prominent car makers. But the big problem with a merger of this scale is it will take up to 2 years to settle the merger and begin acting as one company. They could cut down on this time by aggressively beginning the merger process before the merger is approved, as Dell did with their EMC merger, but that runs the risk of having to place the merger team on paid leave for at least a year should the merger fail.

A far faster path would be to create a joint venture and start an EV company from scratch that wouldn't have to work through the existing ICE (Internal Combustion Engine) groups to get anything done. Time is not these companies' friends, and I doubt they have enough time to pull the merger off, build up EV manufacturing capacity, ground-up the design a new blended EV, get it through government approval, create or modify their dealer networks, and bring the resulting cars to market.

The Problem With Mergers

Mergers typically take 2 to 3 years to settle after approval, and companies can begin combining their resources. There are redundant departments to eliminate, leadership structures to revise, and, in this case, given the company's plan to pivot hard to EV technology, a lot of talent to hire and integrate with the existing organizations, which will also be changing.

This would be a very hard merger because they aren't blending the companies' lines; they are creating new lines while merging with the companies. When creating a viable strategy to go forward, you need a relatively steady state to know what resources you can depend on to make your plans.

However, organizations are in flux in a merger, and their actual capabilities will not be known until the merger settles and the teams are fully defined and performant. That'll take time, suggesting that the first well-thought-through joint vehicle could be 3-5 years off. That would be too long in this market, where both companies are already losing shares to China.

A faster path would be to create a joint venture between the two companies staffed with EV specialists with the mission to create a car that would be able to compete well with China and set a strategy that might include partnering with other struggling companies to create something uniquely EV focused with enough resources, near term, to take on companies like BYD who are growing extremely powerful. 

Learning From Polestar

Polestar, a joint venture between PDS Investments, Geely Holding, Volvo Cars, and public shareholders, is similar to what I'm suggesting. However, Polestar made some mistakes that this new Honda/Nissan joint venture could avoid, thus avoiding the problems forcing Volvo out of the Polestar venture.

The biggest mistake was not allowing Volvo dealerships to service Polestars. EVs don't need much service, mostly software updates, tire changes, and warranty work for defective components. But Polestar dealers are few and far between, making the Polestar owner experience painful. If it weren't for this dealer problem, I'd likely be driving a Polestar myself; they have a decent line of vehicles.

Driving a long distance to a dealer for service in a gas car can be painful, but in the current generation of EVs, it can be scary, given range anxiety. But if the cars could be serviced at Volvo dealers, they would be far more attractive, and the same could be said for this Nissan-Honda Joint venture.

Wrapping Up: Bigger Isn't Always Better

The EV market is very similar to the tech market in that things are moving far faster than they typically have with automobiles. EVs are generally the most technically advanced cars on the road, and they are competing for technology leadership. This suggests rather than merging two legacy companies that individually can't move as fast as a Chinese EV company would end badly, and it would be better to create a new company that was leaner, organizationally flatter, and designed more similarly to Tesla than Honda or Nissan to be able to move fast enough to compete.

The merger route takes too long, introduces too much complexity, and would likely result in a massive firm with hard-to-sell, non-competitive EVs. Going the Polestar route better than Polestar did should be a far better way to ensure a positive outcome, which is both companies' goal.

Rob Enderle is a technology analyst at Torque News who covers automotive technology and battery development. You can learn more about Rob on Wikipedia and follow his articles on Forbes, X, and LinkedIn.