This Nissan-Honda team will struggle to match EV rivals

Nissan and Honda have been bitter rivals for decades. As Japan’s second- and third-largest carmakers behind Toyota, both have benefited from having a loyal local fan base. But now, the gap with Toyota is set to widen.

The duo face a common threat from Chinese rivals. Affordable Chinese electric vehicles entered the Japanese market in 2022. In the past year, the potential for disruption has grown with makers such as BYD expanding rapidly. It is on track for more than 100 dealerships in the country by next year. Localised features for the Japanese market, including access to new apps such as Amazon Music, internet search functions and even karaoke, are making Chinese cars a more attractive option for the once relatively closed local market.

Toyota is as much of a laggard in battery-powered EVs as its local peers but the market leader has clear advantages. An unexpected resurgence in global hybrid cars is pushing sales to record highs. That gives it more resources to catch up on electric offerings, with strong hybrid sales bridging the transition.

Nissan had a head start at home, as the top EV seller among Japanese makers with 54,800 EVs sold last year. But that pales beside the millions being sold annually by global rivals in their respective home markets. Honda is falling further behind in the battery EV race after scrapping a $5bn plan to develop affordable battery-powered cars with General Motors last year. Its smaller hybrid sales volume cannot compete with Toyota’s.

The pair need all the help they can get. A collaboration makes sense to cut costs, with the potential to share spending on developing software and batteries and possibly even sharing a common power train.

Share prices reflect the differing positions of the carmakers. Shares of Toyota have doubled in the past year and trade at 11 times forward earnings, about double that of Nissan. Shares of Honda are up 60 per cent while Nissan is up a quarter.

For now, Japanese automakers still have a stranglehold on the local market, with a combined share of more than 90 per cent. The sales share of battery EVs in Japan is slim at about 2 per cent last year.

But that leaves ample room for growth for lower-priced Chinese vehicles. Chinese EV exports have been up eight-fold globally over the past three years. Nissan and Honda have a very small window to come up with a viable alternative for the local market.

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Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore