WSJ What’s News - Honda and Nissan Explore Merger

Episode Date: December 18, 2024

A.M. Edition for Dec. 18. Two of Japan’s biggest automakers - Honda and Nissan - are in talks over a tie-up that could create one of the world’s largest car companies. WSJ editor Peter Landers say...s the historical rivals are seeking to further share development costs, amid struggles for both companies in the vital Chinese market. Plus, U.S. authorities are considering a ban on the sale of internet routers from Chinese firm TP-Link, which have been linked to cyberattacks. And hedge funds are piling into utilities stocks, banking on the energy demand that’s powering the AI boom. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Starting point is 00:00:00 Amazon Q Business is the generative AI assistant from AWS because business can be slow, like wading through mud. But Amazon Q helps streamline work so tasks like summarizing monthly results can be done in no time. Learn what Amazon Q Business can do for you at AWS.com slash learn more. Merger talks between Honda and Nissan. We've got the latest. Plus Canada tries to dodge looming U.S. tariffs by pledging a border crackdown. And AI demand helps solidify Wall Street's bet on utility stocks. It's pretty remarkable that investors that we think of as betting on the next generation
Starting point is 00:00:40 technology are looking at owners and operators of nuclear power plants and gas plants and stuff that's been around since the late 1800s. It's Wednesday, December 18th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. We begin with major news out of the auto industry, as Honda and Nissan say they're exploring a merger that would combine the two Japanese firms into what could be the world's third largest carmaker by sales. Both companies said no final decision had been made, but markets are already moving in response to the possibility of a deal.
Starting point is 00:01:22 And here with more is Wall Street Journal Asia Business Editor Peter Landers. Peter, this isn't official yet, we should be very clear, but when both Honda and Nissan are confirming that they are in fact in talks, I think it's fair to assume there's a reason this tie-up might be attractive to both of them. Walk us through that potential rationale, if you could. The motivation is probably stronger on Nissan's side because the company has been in real trouble. The stock price has been way down this year and they've never really recovered from the
Starting point is 00:01:51 arrest of Carlos Ghosn in 2018. We all recall how Ghosn escaped Japan on a private jet, but that was part of broader turmoil at Nissan over their relationship with Renault. Renault had been controlling shareholder at Nissan over their relationship with Renault. And Renault had been controlling shareholder at Nissan for many years. But finally, Nissan won its independence from Renault last year. And no sooner had that happened than they ran into big troubles in China and also in the US. Their total auto sales are down, profits are way down, and the company is once again facing the type of management crisis that they had 25 years
Starting point is 00:02:25 ago when Brunel's whooped in for the rescue. Right. Undergoing a major restructuring as we speak, basically. That's right. Just in November, they said they were planning to reduce global production by about one-fifth and cutting 9,000 jobs. So they have a lot of problems, but Honda has problems too. They both have had sales in China fall to roughly
Starting point is 00:02:45 half of the peak level, and that's a huge blow for companies that had been relying on China for growth. Yeah, Chinese competition, particularly on EVs, really reconfiguring the global car market, in addition to Japanese carmakers getting squeezed there. So too are German and American companies, but there are some Japan-specific dynamics at play with this potential deal too, right? Right, Japan has a lot of car makers, but they have increasingly been coalescing into two groups. One of them is led by Toyota, and Toyota is the world's biggest car maker by sales,
Starting point is 00:03:18 but they also have kind of loose alliance with companies like Subaru and Suzuki, and that's one group. The second group that is now emerging is Honda and Nissan. And Nissan also has a stake in Mitsubishi Motors. So those three companies form the second axis around which the Japanese auto industry now revolves. Could that have anything to do with Japanese companies as they increasingly attract global
Starting point is 00:03:42 investors being pushed to try and return more value back to shareholders or is this mostly to do with just needing to band together to take on Chinese competition? I think it's mainly about the cost of developing new technologies in the auto business. There has been something of a slowdown in EV sales in the US and Europe or at least a slowdown in growth, but there's a lot coming ahead, electrification, new battery technologies, and of course, artificial intelligence and autonomous driving are areas that require a huge amount of investment. And for companies of the size of Honda and Nissan to do that separately, maybe beyond their resources. So far, Peter, Nissan
Starting point is 00:04:22 investors seem to be cheering on this news at stock up north of 20% today while Honda shares are trading a bit lower. Can we read anything into that? Well, I think investors were really worried about what is the future of Nissan if they can't find a stronger partner to lean on. It's not the first time they had another crisis a quarter century ago and then Renault swooped in to rescue them and they kind of need somebody to do something and that somebody could be Honda as today's news reveals and that was a big relief I think to Nissan investors that's why the
Starting point is 00:04:53 stock closed up 23.7 percent in Tokyo and there are potential positives for both companies if they do have synergies and R&D. Honda had bigger hopes for its tie-up with GM that didn't out, and so I think they are looking for another partner to share those development costs. And they would be the stronger party, and in theory, the power balance should favor them. On the other hand, Nissan is a proud company with a long history that extends beyond 85 years,
Starting point is 00:05:24 and they have been a leader in Japanese industry, a leader in auto technology for many of those decades. The company's name means Japan industry, and so even if they look on paper like the much weaker party in this alliance, that doesn't mean that they would agree to simply submit to whatever Honda wants to do in this merged company if that gets that far. Peter Landers is the Wall Street Journal's Asia Business Editor. Peter, thank you so much.
Starting point is 00:05:50 Sure thing. Coming up, we've got the rest of the day's news, including a potential government funding deal in Washington and a new probe into Chinese-made Internet routers. We've got those stories and more after the break. details at phys.ca. Canada has announced a fresh effort to tighten border controls in response to Donald Trump's threat to slap 25% tariffs on Canadian imports until Ottawa stems the flow of migrants and illegal drugs between the two countries. Prime Minister Justin Trudeau's government said it would spend $900 million over a six-year period to improve border security, acquiring new drones, helicopters, and dogs, and adding
Starting point is 00:06:52 hundreds of new border agents. Reporter Paul Vieira covers Canada for the journal and says that averting tariffs is crucial for the Canadian economy. The stakes are high, as trade with the U.S. is the lifeblood of Canada's economy. Nearly three-quarters of all of the country's exports are U.S.-bound. Opposition parties in Canada worry the additional money might fall short. To appease Mr. Trump. To Washington now, where congressional leaders yesterday reached a bipartisan deal to fund
Starting point is 00:07:24 the government through mid-March. However, the more than 1,500-page Continuing Resolution, or CR, ignited a firestorm among some Republicans who criticized its inclusion of what they called wasteful provisions, as well as the limited time that they have to review it before a Friday deadline to avoid a partial government shutdown. House Speaker Mike Johnson said he was aware of grumbling from his Republican colleagues about measures added to the bill, but said his hand had been forced. It was intended to be, and it was until recent days, a very simple, very clean CR, stopgap
Starting point is 00:08:00 funding measure to get us into next year when we have unified government under Republican under Republican Party. But a couple of intervening things have occurred. Among the measures added to the bill is roughly $110 billion in disaster assistance in the wake of recent hurricanes and other natural disasters, as well as aid for farmers. Expected Republican defections will likely force Johnson to rely heavily on Democratic support to pass the package. We are exclusively reporting that U.S. authorities are weighing whether Chinese company TP-Link, the maker of the best-selling internet router on Amazon, poses a national security risk
Starting point is 00:08:44 and if sales of its routers should be banned in the U.S. starting next year. According to our reporting, investigators at the Commerce, Defense, and Justice Departments have opened probes into the company, which has a roughly 65 percent share of the U.S. market for home and small business routers. An October analysis from Microsoft found that a Chinese hacking entity maintains a large network of compromised network devices, including thousands of TP-Link routers, that has been used to launch cyber attacks against government entities, defense contractors, and NGOs.
Starting point is 00:09:17 A spokesman for TP-Link's California-based business unit said the company assesses potential security risks and takes action to address them, while a spokesman for China's embassy in Washington accused the U.S. of using the guise of national security to suppress Chinese companies and said that Beijing would defend the rights and interests of Chinese firms. Hedge funds known for their love of tech companies are now piling into a sleepier sector, utility stocks. That's as old-school power companies such as Vistra and Constellation Energy are attracting
Starting point is 00:09:52 attention thanks to the role they play in powering the data center's key to the AI boom. And the play is paying off, as power generators are some of the best performing stocks in the S&P 500 this year, with shares of Vistra more than tripling in price. And Journal Hedge Funds reporter Peter Rutiguer says that big funds, including Third Point and CO2, are betting that trend will continue. A lot of their portfolio is invested in tech.
Starting point is 00:10:19 CO2, it's well over 50%. Compared with utility stocks, it's around 8% at the end of the third quarter. That might sound small, but you have to remember for the past 20 years or so, that exposure to utility stocks has been zero or pretty close to it. So it's pretty remarkable that investors that we think of
Starting point is 00:10:35 as betting on the next generation technology are looking at owners and operators of nuclear power plants and gas plants and stuff that's been around since the late 1800s. And we should also say it's not just tech hedge funds that are doing this. Some global macro hedge funds like Discovery Capital Management and Castle Hook Partners are also participating in the trade. So this is kind of becoming a, to use a word in the industry, a consensus long.
Starting point is 00:10:58 And in other market news, U.S. stock futures are edging higher after nine consecutive days of declines for the Dow Jones Industrial Average, its longest losing streak in nearly 47 years. Analysts have attributed the slide to traders reconsidering the path of borrowing costs ahead of the Fed's interest rate decision today, and namely the possibility that rates could stay higher for longer. The Fed's rate announcement is due at 2 p.m. Eastern with a quarter point cut seen as a given. And that's it for What's News for Wednesday morning.
Starting point is 00:11:29 Today's show was produced by Kate Bulevent. Our supervising producer was Daniel Bach and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.

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