Honda and Nissan merger talks: what's at stake

At the same time, Taiwanese electronics behemoth Foxconn has approached France's Renault to buy its large stake in Nissan, according to Taiwan's Central News Agency.

Lacklustre consumer spending and tough competition in several markets is making life hard for many automakers.

Business has been especially tough for foreign brands in China, where electric vehicle manufacturers such as BYD are leading the way as demand grows for less polluting vehicles.

Last year China overtook Japan as the biggest vehicle exporter, helped by government support for EVs -- a sector where Japanese firms have lost ground by focusing on hybrids.

Germany's Volkswagen and the Stellantis group are also among those suffering, but Nissan in November warned of a "severe situation" as it announced 9,000 job cuts.

Nissan has weathered a turbulent decade, including the 2018 arrest of former boss Carlos Ghosn, who later jumped bail and fled Japan concealed in a music equipment box.

However, it last month reported a 93 percent plunge in first-half net profit. It is also saddled with billions of dollars of debt that will reportedly mature over the next two years.

So a merger with Honda could be welcome news for Nissan -- but other companies have also sensed an opportunity.

Foxconn, which builds devices for tech companies including Apple's iPhones, unsuccessfully approached the firm with a bid to acquire a majority stake, according to Bloomberg News.

Now, it has emerged in a Taiwanese report that Foxconn's Jun Seki -- a former Nissan executive -- visited France to ask Renault to sell its 35 percent stake in Nissan.

A Honda spokesman told AFP that a merger with Nissan was one of the "possibilities for cooperation" between them.

The pair could get down to the merger talks as early as Monday, according to Japanese media.

Japan's number two and three automakers behind Toyota had already agreed in March to explore a strategic partnership on software and components for EVs.

In August Mitsubishi Motors, of which Nissan is a majority shareholder, joined the initiative.

"The escalating costs of EV and battery development, coupled with the recycling of used batteries, highlight the necessity of collaboration to manage risks and reduce the financial burden," Tatsuo Yoshida, of Bloomberg Intelligence, told AFP.

A merger will help Honda "benefit from scale of economy in terms of slashing costs and expanding lineups", said Seiji Sugiura at Tokai Tokyo Intelligence Laboratory.

The mega-merger would create the world's third biggest automaker after Toyota and Volkswagen.

Together, Honda, Nissan and Mitsubishi sold four million vehicles in the first half, compared with nearly 5.2 million for Toyota.

Honda does not yet sell EVs but the company is aiming to be 100 percent electrified by 2040.

Technology has been a challenge for Honda: its negotiations with US automaker General Motors to develop a joint vehicle failed, and the Afeela brand it launched with Sony two years ago has not put any cars on the market.

Nissan launched the world's first mass-market electric car, the Leaf, in 2010 but hasn't become a top name for EVs.

A merger between Honda and Nissan would not be a marriage of equals. Honda's market capitalisation is around $41.2 billion, while Nissan's is around $10.5 billion.

"Given Nissan's weaker financial position, Honda might seek a greater say in the new entity's governance," Yoshida said, warning that negotiations would be "very difficult".

A merger could also accelerate the unwinding of the decades-old and sometimes rocky tie-up between Nissan and Renault, with the French firm last year announcing it would slash its stake in its Japanese partner to rebalance the alliance.

"Unlike the friction-filled relationship with Renault, Honda's financial stability and technological focus present a more compatible partnership for Nissan," Yoshida said.