China's Coal Cars Are Disrupting the Automobile Industry by Appealing to Green Virtue Signalers

Guest Post from the Institute for Energy Research.

The Japanese automakers Honda and Nissan are discussing a merger to compete with China’s burgeoning EV industry. If the merger occurs, it will create the world’s third-largest carmaker in terms of vehicle sales after Toyota and Volkswagen.

According to the Japanese automakers, their businesses would be combined under a holding company, to complete a full merger in August 2026, possibly including smaller rival Mitsubishi Motors. A deal would bolster their efforts in electric vehicles and new technology. Japan’s once seemingly unbeatable auto industry is being reshaped by challenges from Tesla and Chinese rivals such as BYD. As Tesla and BYD gain market share, legacy companies are forced to forge new alliances such as the one Honda and Nissan are considering.

China’s BYD EVs Are Made with Cheap Energy from Coal

The companies joined forces to develop electric vehicles in March. They said they would collaborate on battery technology in August. Still, sales continued to decline, forcing Nissan to recently announce that it would cut 9,000 jobs and reduce global manufacturing capacity by 20%, cutting costs by $2.6 billion.

The merger would result in combined annual global sales exceeding 7 million units, which could help cut costs through economies of scale and facilitate growth. It would create a $54 billioncompany. The French carmaker Renault, which is Nissan’s largest shareholder, is said to be open to the merger discussion.

North America remains the primary market for most automakers. In 2023, the United States represented roughly one-third of Honda’s vehicle sales. When including Canada and Mexico, North America made up 37% of Honda’s total sales, compared to 31% from China and 15% from Japan. Europe, on the other hand, contributed a mere 2% of Honda’s sales. For Nissan, North America accounted for 37% of its 2023 vehicle sales as well, with the U.S. market alone representing 27%. Other regions included China at 23%, Japan at 14%, and Europe at 10%.

Both Honda and Nissan are committed to expanding their electrification and technology initiatives. Honda has set a target to produce over 2 million electric vehicles annually by 2030. By that year, it also plans for 40% of its new vehicle sales to consist of electric and fuel-cell cars, with the goal of achieving 100% by 2040. In addition, Honda plans to sell 1.3 million hybrid vehicles per year by 2030—doubling its 2023 hybrid sales—reflecting the strong demand for gasoline-electric hybrids in North America.

Nissan, which pioneered the mass-market electric vehicle with the Leaf in 2010, aims for electric and hybrid vehicles to account for 60% of its global sales by 2030. Nissan is also working to introduce 16 electrified models by 2026, as part of a total of 30 models, with the remaining vehicles continuing to rely on internal combustion engines. Currently, Nissan’s only all-electric offerings are the Ariya SUV and the Leaf.

Both automakers manufacture cars in Mexico for export to the U.S. and have expressed concerns over the potential impact of President-elect Donald Trump’s proposed 25% tariffs on vehicles imported from Canada and Mexico. Honda also operates a plant in Canada, while both companies have manufacturing facilities in the United States—Honda has 12 plants producing cars, power equipment, and aircraft engines, and Nissan has three.

Despite their global reach, both Honda and Nissan have faced challenges in China, the world’s largest car market. Initially, Chinese consumers favored foreign brands, but a shift toward domestic brands has occurred, as these offer better value for money. The Chinese government has also introduced generous incentives to boost the adoption of electric and plug-in hybrid vehicles.

Domestic manufacturers like BYD can offer more affordable prices, benefiting from China’s low labor costs, cheap energy from coal plants, and its dominant position in global battery production. Additionally, Chinese automakers have gained traction with innovative in-car software, some of which is internet-connected, raising concerns in the U.S. and other countries over national security. China has also surpassed Japan to become the world’s largest auto exporter.

Conclusion

The Japanese automakers, Honda and Nissan, are discussing a merger to compete with China’s EV industry. A deal could also eventually include Mitsubishi Motors, as Nissan is Mitsubishi’s largest shareholder with a 24% stake. Their merger would create the third largest automaker after Toyota and Volkswagen, which is undertaking the closing of plants for the first time in its history to cut costs as it moves to EV production.

Once-dominant carmakers are being forced to rethink how they operate as legacy companies are seeing rivals like Tesla and BYD of China gain market share, forcing some of them to forge new alliances. China is now the world’s largest auto exporter, making cheap electric vehicles that foreign companies are having difficulty competing with.

While Western nations push for more and more “green” energy, China stands ready to produce it, and Western industries are scrambling to adjust to the new realities created by their own government’s policies.

China has taken its national security weakness in oil, natural gas, and coal resources and turned it into a strength in “clean” and “green” manufacturing, which capitalizes upon Western nations’ fixations upon reducing carbon dioxide emissions and adhering to the UN’s Paris Accords.

Editor’s Note: Missing from this story is the fact Nissan is being forced into a merger to avoid bankruptcy as a consequence of its foolish concentration on EVs. Toyota (and now Honda), by contrast, have wisely focused on hybrids instead and never bought into the EV fantasy. Moreover, we’re those PR statements about going all electric by certain dates be pulled back by one company after another. Also, China’s BYD vehicles are manufactured using what is often described as slave labor and are heavily subsidized by the Communist China government. The lesson here is that automakers going woke with EVs are going broke with them as well.

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