On August 29, Reuters reported that Honda Motor Co. Ltd. (NYSE:HMC) and Nissan Motor could reach an agreement as soon as the following Monday to jointly develop a vehicle operating system and onboard computer, according to Japan’s Nikkei newspaper. The tie-up would target new models arriving as early as 2029 and marks the clearest sign yet that the two Japanese automakers are rebuilding cooperation more than a year after their $60 billion merger talks fell apart. Honda has plenty riding on getting both the technology and the timing right.
Two Rivals Finding Common Ground
Honda told Reuters it is discussing “potential areas of collaboration” with Nissan and Mitsubishi Motors under their existing strategic partnership, though it stressed no deal has been finalized. A Nissan spokesperson said the company is exploring “various possibilities” and would share details once something is confirmed. Nissan CEO Ivan Espinosa said earlier this month that talks with Honda over software collaboration were underway, and on Honda’s own fiscal first-quarter earnings call, management confirmed it is exploring cooperation with Nissan on software-defined vehicles, batteries and shared vehicle platforms to pool volume across both companies. A shared computing platform could let Honda spread the cost of software development across a far larger base of vehicles, an advantage smaller automakers rarely get on their own.
That potential collaboration comes as Honda’s core business is performing better than expected. Operating profit for the fiscal first quarter, reported August 5, reached a record JPY530.7 billion, powered by an all-time high JPY233.9 billion motorcycle profit on strong demand in India and Brazil. Automobile operating profit held at JPY192.1 billion despite a rough patch in China, a 5% margin management attributed partly to a JPY78.1 billion positive tariff impact. In the United States, high gasoline prices pushed buyers toward Honda’s hybrids, and the company captured a 10% share of the market in April and May, its best showing in five years. Management responded by raising full-year operating profit guidance to JPY650 billion and adjusted operating profit, which excludes EV-related losses, to JPY1.17 trillion, while holding the dividend at JPY70 per share and keeping a JPY3.3 trillion net cash position.
Where the Story Gets Complicated
China remains the biggest drag. Management said the country’s combustion-engine and hybrid market shrank by about 40% in the quarter, and Honda’s retail units there fell 50% year over year, even after the company moved early to extend its joint venture with GAC through 2028 to calm dealers. Honda is also still absorbing the cost of its shifted EV strategy, forecasting JPY520 billion in EV-related losses for the full year, a figure it revised to reflect foreign exchange effects on compensation talks with North American suppliers that remain unresolved.
A July 28 earthquake in Kumamoto forced a nine-day production halt at Honda’s plant there, with Saitama and Suzuka also losing several days each after supplier damage, and CFO Masao Kawaguchi said the company still does not know how much the disruption will affect unit sales. Management is also holding conservative assumptions on Middle East-driven raw material costs given the uncertainty there. And the Nissan software deal itself is not yet real. Both companies have publicly declined to confirm the Nikkei report, and the same two automakers walked away from a $60 billion merger less than two years ago, a reminder that talks between them do not always end in an agreement.
What the Market Is Weighing
Hedge fund ownership held steady at 21 funds in the most recent quarter, unchanged from the prior one. That flat count suggests institutional investors are not rushing in or out on the Nissan news. Shares carry a short interest of just 0.20% of float, a level so low it signals almost no organized bet against the stock. Honda trades at 24.27 times forward earnings as of August 28. That multiple leaves room for the software partnership and the raised guidance to matter if either develops further, without pricing in much growth already.
Where This Leaves Investors
Honda’s fiscal first quarter showed a company that can post record profit even while China unravels and EV losses mount, and the prospect of sharing software costs with Nissan adds a longer-term reason to pay attention. But the deal Nikkei described is still just a report, and Honda and Nissan have a recent history of talks that ended without a transaction. For the software alliance to matter, it needs to move from “potential areas of collaboration” to a signed agreement with real cost savings attached.
READ NEXT: 10 Best Future Stocks to Buy Under $10 and 12 Best Performing Semiconductor Stocks to Invest In.
Disclosure: None. Follow Insider Monkey on Google News.
