What happened? The Nikkei reports in its Wednesday edition that Nissan and Honda are exploring merger talks aimed at helping them compete with new competitor EV makers. According to the report, the two firms may operate under a single holding company and could soon sign an MoU. The report also adds that Mitsubishi could also be part of the holding company - Nissan is currently Mitsubishi Motors'' top shareholder with a 24.5% stake. Nissan and Honda had already said in March that they would explore a strategic partnership in EVs and other areas. In response to the reports, Nissan and Honda have stated simply that ''The reported content was not released by our company. As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other''s strengths. We will inform our stakeholders of any updates at an appropriate time.'' Separately we also note that Stellantis'' COO of Europe, Jean-Philippe Imparato, stated today that Stellantis ''has no plans to merge with Renault'' (Bloomberg). BNPP Exane View: This comes on the back of reports in the FT in late November that Nissan is looking for a strategic investor, and that Nissan had not ruled out Honda buying a stake. Nissan announced a major restructuring program in early November after a collapse in fiscal H1 profits, and suspended its dividend. Activist investors Effissimo Capital and Oasis Management were reported to have taken stakes in Nissan earlier this year (Reuters). Any tie-up between Honda and Nissan would effectively serve to consolidate the Japanese auto industry into two distinct clusters, the other of course being led by Toyota. Together, Honda and Nissan would have c.7m units in annual volume (based on a depressed 2024e), with a very closely aligned geographic mix (see charts below). As such, Honda would be a more rational strategic partner for Nissan than Renault, whose geographic mix - and hence to a certain degree product...