Gasgoo Munich-By 2026, Honda may find itself lacking the leverage it once held when it rejected a merger with Nissan.Back then, Honda's confidence stemmed from its relatively solid financial footing. To Honda, Nissan was in "emergency mode," making a merger look more like a bailout than a partnership of equals. Yet in little over a year, the tables have turned for the two Japanese giants: Nissan, once mired in crisis, is showing signs of a bottoming out, while Honda, seemingly unflappable before, has slipped into trouble.This divergence plays out against a backdrop of uncertainty across Japan's auto industry. Hit by turmoil in the Middle East and rising raw material costs, the combined net profit of Japan's seven major automakers is expected to fall to roughly 3.9 trillion yen in fiscal 2026 — a drop of nearly 50% from the historical high of 7.54 trillion yen in fiscal 2023.Amid these same headwinds, Nissan's recovery carries more weight.Diverging Performance: One Up, One DownFiscal 2025 results marked a watershed moment for the two companies.First, consider Nissan. In fiscal 2025, it sold 3.15 million vehicles globally, posted 12 trillion yen in consolidated net revenue, and recorded an operating profit of 58 billion yen — a margin of just 0.5%. For the full year, it swung to a net loss of 533.1 billion yen. Still, operational performance improved compared to the previous year. Notably in the second half of 2025, the automotive business turned cash-flow positive, reaching 112 billion yen.For fiscal 2026, Nissan has issued a clear recovery forecast: consolidated net revenue of 13 trillion yen, operating profit of 200 billion yen, and net profit of 20 billion yen. That would mark Nissan's first annual profit in three years.Nissan domestic sales, Jan 2025 – Apr 2026Nissan CEO Ivan Espinosa put it this way: "Fiscal 2025 was a year of steady progress under our 'Re:Nissan' plan. We have crossed the recovery phase and are entering a growth phase."Then there is Honda. In fiscal 2025, Honda reported a full-year net loss of 414.3 billion yen — its first annual net deficit since going public in 1957.The direct hit came from a misstep in its electrification strategy. Honda disclosed that reassessing its EV strategy and canceling three electric models in North America generated 2.5 trillion yen in costs and losses. Of that, 1.45 trillion yen already invested in electrification was written down. The canceled models include the 0 Series SUV, the 0 Series Sedan, and the Acura RSX."Fundamentally, the responsibility is mine," President Toshihiro Mibe said bluntly at an earnings briefing. Honda expects EV-related losses to narrow to 500 billion yen in fiscal 2026, but operating profit excluding those electric losses would reach 1 trillion yen.Their performance in key global markets also tells slightly different stories.In China, Nissan is warming up. Sales in the country rose 4.5% year-on-year in the second half of 2025; by the first quarter of 2026, growth accelerated to 7.2%, reversing a streak of previous declines.Nissan China Chairman Ma Zhixin said the company aims to restore domestic sales to 1 million units by the end of 2030. "I remember the joint venture sold 1.55 million vehicles in 2018, with about 1.2 million being Nissan-badged. We've done it before, so it's feasible."Underpinning this recovery is the rollout of Nissan's N-series new-energy lineup. Models like the N6, N7, and NX8 have been launched, covering multiple powertrain technologies including pure electric, plug-in hybrid, and range-extended electric.Honda faces a different reality in China. Public data shows its 2025 sales in the country fell 60% from their 2020 peak. Entering 2026, there was no improvement; April sales alone plunged 48.3% year-on-year, shrinking to just 20,000 units. The e:N series of EVs has drawn a lukewarm market response, failing to gain traction.Honda domestic sales, Jan 2025 – Apr 2026In North America, however, both Nissan and Honda saw sales slip in the first quarter of 2026, though the declines were relatively mild. Yet Honda took a heavy hit to its performance due to a stumbling electrification transition. It canceled plans to produce three EVs in the U.S. in 2026, converted a battery joint venture with LG Energy Solution in Ohio to produce hybrid batteries instead, and indefinitely paused a project in Canada.In their home market of Japan, Honda still holds a sales edge, but Nissan is closing the gap. Nissan plans to focus on the mini-vehicle segment, targeting annual sales of 550,000 units in fiscal 2030.In emerging markets, Nissan has found a new path. It is positioning China as an export hub, planning to ship Chinese-made models to Canada, Latin America, Southeast Asia, and the Middle East. Bloomberg recently reported that Nissan is considering exporting joint-venture models produced in China to Canada. Nissan China's initial annual export target is 100,000 vehicles, with a long-term goal of raising that to 300,000.Honda, meanwhile, faces the impact of Chinese brands in Southeast Asia and Latin America. In Southeast Asia, for example, the combined market share of Japanese brands represented by Toyota, Suzuki, and Honda has fallen below 70%.Why Is It Honda's Turn Now?The divergent paths of Nissan and Honda boil down to the intensity of their reforms and their strategic choices.Nissan's turnaround began with a form of surgery. Facing an aging model lineup, heavy debt, and management turmoil, Nissan launched the "Re:Nissan" business restructuring plan in 2025. This included cutting 20,000 jobs and closing or consolidating assembly plants, reducing global production facilities from 17 to 10. The consolidation of seven plants is currently underway, including the transfer of production capacity.Nissan says that by the end of fiscal 2025, it made substantial progress toward its 500 billion yen cost-cutting target: fixed costs were cut by 200 billion yen, and variable costs by 55 billion yen. In R&D, costs per man-hour dropped 18%, moving toward a 20% goal without delaying project schedules.The company also plans to streamline its global model lineup from 56 nameplates to 45.Image Source: NissanNissan also adjusted its positioning and tactics in China. In the past, multinationals typically adapted global models for local markets. Now, foreign automakers are breaking that mold — and Nissan is doing the same.From the N7 to the NX8, Nissan's new-energy products are deeply integrated with the local Chinese supply chain. Take the NX8: it comes standard with Dongfeng Nissan's Cloud Shield 2.0 battery, with its best-selling version using CATL cells. Its advanced driver-assistance system was developed in deep collaboration with Momenta, based on a reinforcement learning large model.The pure-electric version features an 800-volt silicon carbide platform and 5C ultra-fast charging technology, gaining 300 kilometers of range in six minutes and charging from 10% to 80% in just 12 minutes. The range-extended version uses a 1.5-liter turbo four-cylinder range extender, offering a CLTC pure-electric range of 310 kilometers and a total range of 1,450 kilometers.These specs fully benchmark mainstream Chinese new-energy models. In other words, Nissan is no longer trying to "educate" Chinese consumers; it has chosen to keep pace with the rhythm of the Chinese market.More importantly, Nissan has elevated China to a global innovation and export hub. Relying on the local R&D and supply chain systems of Dongfeng Nissan and Zhengzhou Nissan, the company has built a complete loop in China spanning R&D, production, and export. The first models bound for Latin America include the N7 electric sedan and the Frontier Pro electric pickup. Future models like the NX8 will also join the export list.Image Source: NissanOn the technology front, Nissan is also avoiding putting all its eggs in one basket. In April 2026, Nissan unveiled a long-term vision, "Intelligent Mobility Illuminates Life," establishing an "AI-defined car" direction while adopting a multi-pronged strategy that includes pure electric, e-POWER, plug-in hybrid, range-extended, and internal combustion powertrains. While this spreads resources thin, it provides a buffer if pure-electric market growth slows.By contrast, Honda's predicament stems largely from strategic wavering and sluggish execution. As mentioned, Honda oscillated between aggressive electrification and retreat, incurring 2.5 trillion yen in costs and losses. But that is not the whole story.In hybrids, Honda should have been a leader but became a follower. It launched the Insight in the U.S. in 1999, seven months ahead of the Toyota Prius. Yet today, Honda offers only four hybrid models in the American market, while Toyota offers 29.Toyota offers hybrid versions of most of its lineup, including core models like the Camry and Sienna, seizing the hybrid market early and preserving share. Ford also carved out new territory with the compact Maverick hybrid pickup, where the F-150 Hybrid now accounts for roughly one-third of total sales.Image Source: HondaHonda, for its part, didn't announce until 2025 that it would launch 15 new hybrid models by 2029. But it is worth noting that the window of opportunity for hybrids has already narrowed.In China, Honda's response was equally slow, and it failed to fully pivot to a localized operational mindset. Its e:N series EVs, developed specifically for China, made a big splash in investment but a small one in results, criticized as "unable to compete with local Chinese rivals that are more technologically advanced and cost-effective."The cumulative result of these missteps: Honda made heavier early bets on pure-electric projects, writing down 1.45 trillion yen in fiscal 2025 alone. That level of sunk cost means even as Honda begins to retrench, its financial recovery could take much longer.The Road to Restructuring: What Comes NextFaced with massive losses, Honda is now walking the path Nissan already started down: contraction, cost-cutting, and focus.In 2026, Honda defined the next three years as a "critical period for four-wheeled business restructuring." Core measures include optimizing the global cost structure and consolidating inefficient capacity; abandoning aggressive pure-electric targets to shift resources to hybrids; and concentrating management resources on key regions like North America, Japan, and India.Regarding hybrids, Honda plans to launch next-generation models featuring a new hybrid system starting in 2027, aiming for 15 global models by 2029. Under Honda's plan, the new system's cost will drop by more than 30% compared to 2023 models, while fuel efficiency will improve by around 10%.Image Source: Honda ChinaTo make up for lost time, Honda is cracking down on R&D efficiency. It set a goal to halve development costs, cycle times, and hours across the board compared to a 2025 baseline. Leveraging digital tools and AI, the development cycle for minor and mid-cycle updates will be cut in half starting this year, and full model changes launched after 2028 will follow the same pace.Additionally, Honda aims to boost cost competitiveness by leveraging the cost advantages of China and India and standardizing components.While the priority of pure-electric vehicles has been lowered, Honda hasn't abandoned them entirely. Research on all-solid-state batteries continues, and the electrical/electronic architecture will shift to a domain-controlled structure for flexible adjustments across markets. Its in-house "ASIMO OS" will also expand from EVs to hybrid models.In Japan, Honda plans to launch a mini electric vehicle in 2028 to hold its ground in the home market.On the production front, Honda aims to boost efficiency by about 20% over the next five years, primarily by optimizing the investment rhythm for new models and equipment.These measures echo Nissan's "Re:Nissan" plan. The difference is that Nissan's reforms are entering the harvest phase, while Honda's adjustments are just beginning. Only time will tell how effective they will be.Image Source: NissanTurning back to China, despite their differing situations, Nissan and Honda are converging on how they position the market: China is no longer just a sales destination.Like Nissan, Honda is also leveraging the Chinese supply chain to support other markets. One notable shift: Honda has repackaged the China-made e:NS2 crossover as the fourth-generation Insight for import into Japan, with an initial limited run of 3,000 units. This makes it the first Japanese automaker to sell its own-brand, Chinese-made vehicles in the domestic Japanese market.This trend is not unique to Nissan and Honda. Volkswagen plans to re-export Chinese-made models to Europe to cut costs and boost competitiveness; BMW and Tesla have long been selling domestically produced vehicles overseas. Renault is deeply integrating China's new-energy supply chain to support its European electric vehicle business.The core logic for these foreign automakers is consistent: China possesses the world's most complete electrification and intelligentization supply chain, one of the fastest R&D iteration speeds, and the fiercest competitive environment. Products and technologies tested in the Chinese market generally possess global competitiveness.For Nissan and Honda, reaching this consensus took different amounts of time and came at different costs. Nissan made the choice proactively after experiencing management turmoil and declining sales; Honda followed suit under the pressure of losses. But in the end, both companies have moved in the same direction: to survive in China, one must play by Chinese rules. To grow globally, one must leverage "Chinese strength."Conclusion:No automaker can stay on top forever. General Motors went through bankruptcy and restructuring; Ford made painful cuts to survive the financial crisis. Losses, adjustments, and restructuring are the norm in the auto industry cycle and the necessary path for companies to ride out the storm.The electrification transition is reshaping the global automotive landscape. Traditional automakers face multiple pressures — choosing technology paths, shifting market dynamics, restructuring organizations — and growing pains are inevitable. Nissan's case shows that proactive reform, focus on core strengths, and deep localization can offer a chance to bounce back even from dire straits. Honda's case serves as a warning: strategic wavering, slow reaction, and ignoring market shifts can put even a deeply rooted company on the back foot.For Nissan, returning to profitability in fiscal 2026 is just the first step. As the "Re:Nissan" plan enters its final phase, whether its China export hub can sustain momentum and whether its new-energy lineup can remain competitive will determine if it can truly return to the global first tier.For Honda, the next three years of restructuring will be fraught with challenges. Whether cost-cutting pays off, how the electrification strategy is rebalanced, and whether it can catch up on localization in China — every step is critical to survival.There are no eternal winners in the auto industry, only those who continually reinvent themselves. At the crossroads of electrification and intelligence, respecting the market, embracing change, and acting decisively are the only ways to navigate the cycle. And often, the timing of reform and the determination to execute matter far more for a company's fate than its resource endowment.
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