Honda and Nissan say plans to merge are over

Just hours before the arrival of Valentine's Day, Japan's Nissan and Honda called off their planned marriage, which otherwise could have created the world's fourth-largest car group after Toyota, Volkswagen and Hyundai.

The carmakers announced on Thursday the termination of their memorandum of understanding on a merger, which was signed a day before Christmas Eve.

Many had hoped the deal would give troubled Nissan a future. Its shares soared more than 60 percent and Honda's jumped around 26 percent in late December after the merger talks were first reported on Dec 17.

But the rosy prospects soon proved to be nothing but a short-lived dream that ended abruptly to the surprise of many still in the grip of winter's chill.

The talks were complicated by growing differences, in particular by a proposal from Honda that Nissan to become a subsidiary, sources have told Reuters.

"Honda is pretty confident and has a lot in their favor, whereas Nissan is in a bad place. They don't have a dance partner right now," Christopher Richter, Japan autos analyst at brokerage CLSA, said. "They probably need to think about doing something different."

The two's preliminary idea was to join forces to better handle the fast-rising trend of electrification, represented by Chinese electric vehicle makers.

Some analysts were not optimistic when the idea emerged. "Both companies lack compelling EV offerings and the combined entity would still face the challenge of a new EV model pipeline and R&D in technology," said Vincent Sun, a senior analyst at Morningstar.

Nissan, Japan's third-largest automaker, is in many ways the most troubled of the legacy carmakers. It never fully recovered from the years of crisis and management turmoil sparked by the 2018 arrest and ouster of former chairman Carlos Ghosn.

Nissan's market capitalization is now nearly five times smaller than that of Honda, which is about 7.5 trillion yen ($48.6 billion). A decade ago, the pair were both worth around 4.6 trillion yen.

In December, sources said that Nissan will need to reduce its capacity in China, where it operates eight factories in a joint venture with State-owned Dongfeng Motor. It has suspended production at its Changzhou plant in Jiangsu province as part of efforts to optimize operations.

Yet a Nissan China executive in January reiterated the Japanese carmaker's commitment to the Chinese market, saying it is renewing its lineup in the country. Eight NEVs are to be rolled out by 2026, of which five will bear the Nissan badge.

Nissan's January sales in China fell 30.79 percent year-on-year to 45,400 units. Honda was no better; it delivered 68,890 units in January in China, a 31.7 percent slump.