This Nissan-Honda team will struggle to match its EV rivals

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Nissan and Honda have been bitter rivals for decades. As the second and third largest Japanese automakers after Toyota, both have benefited from a loyal local fan base. But now the gap with Toyota is set to widen.

The two face a common threat from Chinese rivals. Affordable Chinese electric vehicles entered the Japanese market in 2022. Over the past year, the potential for disruption has grown with manufacturers like BYD expanding rapidly. It is on track for more than 100 dealerships in the country by next year. Localized features for the Japanese market, including access to new apps like 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 just as much of a laggard in the field of battery electric vehicles as its local competitors, but the market leader has clear advantages. An unexpected resurgence in hybrid cars globally is pushing sales to record levels. That gives it more resources to catch up with electric offerings, with strong hybrid sales bridging the transition.

Nissan had an advantage at home, being the best-selling EV among Japanese manufacturers with 54,800 EVs sold last year. But this pales in comparison to the millions sold each year by global rivals in their home markets. Honda is further behind in the battery-electric vehicle race after scrapping a $5 billion plan to develop affordable battery-electric cars with General Motors last year. Its lower hybrid sales volume can’t compete with Toyota’s.

The couple needs all the help they can get. A collaboration makes sense to reduce costs, with the possibility of sharing the expense of developing software and batteries and possibly even sharing a common powertrain.

Stock prices reflect the different positions of automakers. Toyota’s stock has doubled in the past year and trades at 11 times forward earnings, about double that of Nissan. Honda shares rose 60% while Nissan shares rose a quarter.

For now, Japanese automakers still have a stranglehold on the local market, with a combined share of more than 90%. The share of battery electric vehicle sales in Japan shrunk to about 2% last year.

But that leaves plenty of room for growth for low-priced Chinese vehicles. China’s electric vehicle exports have increased eightfold globally over the past three years. Nissan and Honda have a very small time window to find a viable alternative for the local market.

june.yoon@ft.com