Nissan must triple profits to merge with Honda. In 2024, its

Without clear profitability, Nissan’s dream of transforming the auto industry looks increasingly fragile

A proposed merger between Nissan, Honda and Mitsubishi has the potential to reshape the auto industry. However, the road ahead is far from easy for Nissan. The company is under intense pressure to significantly increase profits, an important step to ensure Honda delivers on its deal promises. Without a clear financial shift, the merger may never materialize.

At a joint news conference last month, the two automakers released a chart showing Nissan’s ambitious goal of significantly increasing its operating profit by August 2026, the tentative timeline for the merger. To achieve this goal, Nissan will need to raise about 400 billion yen in fiscal 2026 – about $2.6 billion at current exchange rates.

READ: Ex-Nissan boss warns there will be ‘carnage’ if Honda takes over

It’s a tall order, especially considering Nissan’s operating profit plummeted 90.2%, from 336.7 billion yen to 32.9 billion yen (equivalent to $2.3 billion to $225 million at today’s exchange rates). Only 0.5%. At the same time, net profit fell even more sharply in the first half of fiscal 2024, falling by 93.5% from 296.2 billion yen to 19.2 billion yen ($2.02 billion to $131 million) compared with the same period last year.

Nissan’s Financial Everest

according to Nikkei AsiaThe combined group aims to achieve annual revenue of 3 trillion yen ($19 billion) while creating synergies worth 1 trillion yen ($6.4 billion). For Nissan, this means long-term profit contribution of about 600 billion yen ($3.8 billion). However, if Nissan cannot come up with a solid strategy to triple profits by fiscal 2026, the merger could collapse before it even gets started.

These details come after Honda President and CEO Toshihiro Mibe bluntly stated, “Unless Nissan and Honda execute as two self-reliant companies, integration will not happen.”

Honda is in a better position to do its part. Operating profit is expected to be approximately 1.42 trillion yen ($9.1 billion) in fiscal 2024. In contrast, Nissan recently lowered its full-year forecast to a measly 150 billion yen (approximately $950 million). That’s a massive 74% decline from fiscal 2023, which doesn’t paint a rosy picture for the struggling Japanese automaker.

Production woes and the long road ahead

After planning to cut production capacity, Nissan will be able to produce about 4 million vehicles per year. Company boss Makoto Uchida said Nissan could make a profit if it sold 3.5 million vehicles a year and factored in shareholder returns and investment in growth. Unfortunately for the brand, only 3.4 million cars are expected to be sold this fiscal year.

Many terms of the merger still need to be finalized. Nissan and Honda will finalize the share transfer ratio in June, taking into account the average share price before the signing of the memorandum of understanding. Honda’s stock price took a hit after the merger announcement amid concerns that Nissan could block Honda’s planned merger.