News outlets reported Tuesday that Nissan Motor Corp. and Honda Motor Co. had begun merger talks. However, according to the Associated Press, the companies confirmed they are considering closer collaboration and denied a future merger.

“Nissan’s share price soared nearly 24% in Tokyo after reports citing unnamed sources said it might merge with Honda to form the world’s third-largest automaking group,” the AP reports. “Honda’s share price fell as much as 3%. Nissan alliance member Mitsubishi Motors Corp. is also part of the talks. Trading in Nissan’s shares was suspended but then resumed after the companies jointly issued a statement saying they were ‘considering various possibilities for future collaboration but no decisions have been made.'”

The AP noted that the news comes at a time when relatively inexpensive electric vehicles (EVs) from China’s BYD, Great Wall, and Nio are “eating into the market shares of U.S. and Japanese car companies in China and elsewhere.”

“Japanese automakers have lagged behind big rivals in EVs and are now trying to cut costs and make up for lost time,” the article says.

“Nissan, Honda, and Mitsubishi announced in August that they will share components for electric vehicles like batteries and jointly research software for autonomous driving to adapt better to dramatic changes in the auto industry centered around electrification. A preliminary agreement between Honda, Japan’s second-largest automaker, and Nissan, third-largest, was announced in March.”

Bloomberg reported in June that new research from Scott Kennedy, a China specialist at the Center for Strategic and International Studies,  found China’s EV industry received at least $231 billion in government subsidies and aid from 2009 through the end of last year, even as the amount of support per vehicle had declined.

“Slightly more than half the total amount of support was in the form of sales tax exemptions, and the rest is made up of nationally approved buyer rebates, government funding for infrastructure such as charging stations, government procurement of EVs as well as R&D support programs, he wrote in a blog post,” the Bloomberg article says.

The findings came just after the European Union announced it would hike tariffs to as high as 48% on vehicles imported from China to compensate for subsidies, which followed the decision by the U.S. to quadruple tariffs on the cars.

A 100% tariff rate on Chinese EVs, first announced by President Joe Biden in May, went into effect in September.

The tariff also puts a 25% on EV batteries, critical minerals, steel, aluminum, and ship-to-shore cranes among other items, according to documents filed by the U.S. Trade Representative.

Multiple media sources claimed the tariff on EVs is meant to ease concerns about China’s low-cost EVs.

Former Stellantis CEO Carlos Tavares made headlines after telling Reuters the tariffs were a “trap.” He told the news outlet it hurts automakers to shield them from the reality that Chinese rivals make EVs for about a third less.

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) also published a notice of proposed rulemaking (NPRM) on Sept. 23 outlining rules to address national security risks associated with connected vehicles coming out of China and Russia.

The draft rules identify significant cybersecurity and national security risks in the connected vehicle supply chain from design and development to supplies and manufacturing by persons owned by, controlled by, or subject to the jurisdiction or direction of China and Russia.

A report released earlier this week by Ducker Carlisle examines Chinese automakers’ moves into the North American market via Mexico.

“Chinese automakers in Mexico have captured nearly 10% of light vehicle sales in only six years,” the report states. “Although they remain far from legacy OEMs from Europe, United States, Japan, and South Korea, they have shown an unprecedented growth in the Mexican market. Among the Chinese OEMs selling in Mexico, SAIC MG, Chery Group (including Chirey and Omoda), JAC Motors sold a total of almost 120,000 vehicles in 2023, representing 8.9% of the total light vehicle sales last year.

“Mexico is the world’s seventh-largest in terms of light vehicles production, and the fifth-largest for components. According to the USMCA [United States-Mexico-Canada] Agreement, companies with factories in Mexico that are sourcing a minimum of 75% of vehicle components in North America can export to the United States duty-free. This positions Mexico as a key entry point for North American automotive investments.”

Ducker Carlisle and iResearch have found that Chinese automakers typically make it into the other markets via:

• • Whole vehicle export — Used in the early stages of global expansion;
  • Knocked down export — preassembled or partially preassembled vehicles are broken down to be reassembled in the target country with a minimal amount of components sourced locally “to get around tariffs and quotas;”
  • Brand mergers and acquisitions — Acquire overseas car brands, including their technology and equipment; or
  • Greenfield investment — Build entirely new production facilities in overseas countries, oftentimes with support from local governments.

According to Ducker Carlisle, as Chinese suppliers join North American and European Tier 1 suppliers for production in Mexico, local Mexican suppliers and U.S., European, Japanese, Korean, and other legacy suppliers are threatened with competition from the Chinese suppliers.

“In addition to the traditional whole vehicle export model, several Chinese automakers are now exploring the possibility of building factories in Mexico,” Ducker Carlisle wrote. “With Chinese suppliers growing in Mexico, several Chinese OEMs now have local partners to invest in local production.”

For example, one production plant will open soon in Mexico to produce gasoline-powered and electric vehicles within the next three years. Another company plans to build a plant in the country with an annual production capacity of 400,000 vehicles, mainly to produce new energy vehicles, Ducker Carlisle wrote. And three other OEMs are considering building factories in Mexico.

“Looking further ahead, the U.S. and Mexican governments are expected to set up additional barriers for Chinese companies which generates a lot more uncertainty for them to fully enter the North American at large and the U.S. market in particular,” Ducker Carlisle wrote. “The U.S. Congress may adjust the rules at any time if Chinese OEMs take a stand toward a stronger presence and competitiveness in the USMCA economic area.

“Li Bin, CEO of Chinese electric car company NIO, called on the U.S. government to provide equal opportunities for Chinese electric car companies to enter the U.S. market, stressing that automakers should not be involved in the political tensions between superpowers. Li Bin noted the current global political climate is very different from when the company was founded in 2015, after the COVID pandemic caused division and confrontation… Thus far, Chinese OEMs such as GAC have unsuccessfully attempted to enter the US market. The new strategy is much more structured with a gradual entry through Mexico and benefitting from a locally based supply-chain with Chinese suppliers.”

Images

Featured stock image: kool99/iStock