Honda and Nissan cannot handle the EV transition, says Helios Capital's Samir Arora as Japanese auto giants hold merger talks

Honda and Nissan cannot handle the EV transition, says Helios Capital's Samir Arora as Japanese auto giants hold merger talks

Samir Arora, market veteran and founder of Helios Capital, on December 18 weighed on the merger talks between Japanese auto giants Honda and Nissan.

Honda and Nissan are moving towards a closer tie-up with talks of setting up a holding company, a source told Reuters, in the clearest sign yet of reorganisation in Japan's auto industry in response to immense challenges posed by Tesla and Chinese rivals.

The discussions, first reported by the Nikkei newspaper, would allow the manufacturers to cooperate more closely on technology and help Japan's No. 2 and No. 3 automakers to create a more formidable domestic rival to Toyota.

On X platform (formerly Twitter), Arora said the auto majors are considering a merger because they aren't able to do the electric vehicle transition and are looking to save costs.

Arora also explained why Helios has avoided original equipment manufacturers since long.

"Honda and Nissan cannot handle the EV transition and considering merging to save costs etc. One more example of why our team has not liked the auto OEMs for long: EV is not an opportunity for these legacy companies, it is a capital guzzling threat and akin to running on a treadmill," said Arora in his X post.

""Protection" cannot protect you forever and in any case "protected" earnings cannot/should not get the same multiples as free market, sustainable earnings," Arora added.

The two firms already forged a strategic partnership in March to cooperate in electric vehicle development, but Nissan's deepening financial and strategic trouble in recent months has added more urgency for closer cooperation with larger rival Honda.

Nissan announced a $2.6 billion cost savings plan last month that includes cutting 9,000 jobs and 20% of its global production capacity, as slumping sales in China and the United States led to an 85% plunge in second-quarter profit.

The automakers have been grappling with challenges from EV makers, particularly in China, where BYD, and others have surged ahead.

Over the past year, an EV price war launched by Tesla and BYD has intensified pressure on any automakers losing money on the next-generation vehicles. That has put pushed companies like Honda and Nissan to seek ways to cut costs and speed vehicle development, and mergers are a major step in that direction.

With inputs from Reuters