Introduction
The global automotive industry is characterized by high levels of competition and innovation. The innovation is mainly because many automotive companies continue to manufacture high-quality and diversified car models. All the companies in this industry are in search of high customer satisfaction, which leads to a rise in the market share of the individual companies. Honda and Nissan are some of the major automotive companies based in Japan. The companies entered into an agreement in 2024 to collaborate in software development and the manufacturing of electric vehicles (SD 1). The companies had also proposed a merger, but it was called off after Nissan disagreed with the proposal to become a subsidiary of Honda. Another agreement was signed in August 2024 for the companies to conduct joint research in technologies. In relation to the sustainability concept, this assessment focuses on the extent to which the collaboration between the companies will help Nissan improve its profitability. The rationale is that Nissan made a loss of 670.9 billion Yen, from a profit of 426.6 billion Yen in 2023 (SD 4). The main reason for the loss is the collapse of the alliance between Nissan and Renault. This essay, therefore, focuses on answering the research question "To what extent will the collaboration between Nissan and Honda in electric vehicle and Software development help Nissan improve its profitability?"
The research will use secondary data obtained from journal articles, news articles, and company reports published by Nissan and Honda. The rationale for the use of this secondary data is that it provides enough resources on the collaboration between these companies and how the collaboration is beneficial to both organizations. Therefore, these sources will be selected on the basis that they are recent and published by reliable sources. In addition, the report will use various business management tools that will help analyze the collected data. Some of the selected tools include Porter's five forces analysis, BCG matrix, and profitability ratio analysis.
Analysis and Discussion
Porter's Five Forces
Porter's Five Forces framework analyzes the competitive forces that shape an industry and their implications for a company's profitability. The tool focuses on how the collaboration between Honda and Nissan in software development and the making of electric vehicles will impact the levels of competitiveness in the global automotive industry. The tool also majors on how this collaboration will influence the financial sustainability of Nissan.
Threat of New Entrants (low)
This force focuses on the ease with which other automotive companies are joining the industry. This force is low due to the high capital requirements and technology that new companies need to venture into the industry. However, technology companies that are entering the EV space pose long-term threats (SD 3). The impact of the collaboration is that Nissan will attain financial sustainability in the long run. Resource sharing will also ensure that Nissan and Honda continue to benefit from high entry barriers due to economies of scale.
Bargaining Power of Suppliers (High)
The force focuses on the ability of suppliers to dictate the prices and the quality of products and services in the automotive industry. The force is high since major suppliers such as battery suppliers, chip manufacturers, and software firms hold high power in the market (SD 1).
However, the collaboration between Nissan and Honda ensures that they engage in a combined purchase of products without depending on a single supplier. This method increases bargaining power and saves costs. Lower costs influence higher financial sustainability levels.
Bargaining Power of Buyers (High)
This force focuses on the ability of buyers to influence the prices of products sold by Nissan. The force is high since buyers are seeking more feature-rich, low-cost EVs with rapid charging and smart connectivity. The collaboration is beneficial since the shared software and platform technology allow Nissan to meet consumer needs fully. The continued ability to meet customer needs will enable the company to improve its revenues and profits after the end of the partnership with Renault. Higher revenues and profits will influence Nissan's financial sustainability.
Threat of Substitutes (Moderate) This force focuses on the availability of substitute automotive products in the market. Substitute products are cars and software made by other companies that operate in the global automotive industry. This force is considered moderate since other companies manufacture similar cars and software. There are also alternative means of transport, including public transport and ride-sharing. The impact of the collaboration is that the partnership will enable Nissan to produce cutting-edge EVs with improved range and innovative features (SD 3). This mechanism will make EV ownership increasingly attractive and increase the number of units of these vehicles sold by Nissan. An increase in the units sold by Nissan will improve the profits and sustainability levels of the company.
Industry Rivalry (Very High) This force focuses on the competition levels in the automotive industry. The force is high since there are many existing competitors and others seeking to join. However, Honda and Nissan are Japan's second and third greatest automakers (SD 2). The impact of the collaboration on Nissan is that sharing development costs and accelerating innovation enables Nissan to gain a competitive strength without incurring full R&D expense alone. Lower expenses mean that Nissan is on the path towards higher levels of profitability and financial sustainability. In summary, this tool shows that the alliance between Nissan and Honda allows Nissan to counter some external forces that influence higher levels of financial performance. The alliance specifically allows Nissan to reduce the impact of supplier power and intense competition while enhancing its ability to differentiate and compete. These forces, in aggregate, result in improved profitability.
BCG Matrix
Fig 1: BCG Matrix The tool is used for strategic planning to manage a company's portfolio of products. It classifies products using market growth and market share. The products are classified into stars, question marks, cash cows, and pets. For car makers such as Nissan, the BCG Matrix is a useful tool for reviewing which segments have to be invested in further to improve the profitability and the sustainability of the company.
Current Product Portfolio of Nissan Cash Cows- These products have a high market share and a low rate of market growth. Nissan's aged internal combustion engine (ICE) models dominate mature markets like Europe and North America. These products provide consistent revenue and finance ongoing operations. However, there are low rates of market growth for these products. Stars-These products have a high rate of market growth and a high market share. One of the products in this category is the electric vehicles, such as the Nissan Ariya. There is a growing demand and regulatory pressure toward electric vehicles, and this pressure can become a long- term driver for profits for Nissan. Question Marks-These are products with a low market share and a high market growth rate. Some of Nissan's products that are question marks include new technologies such as autonomous driving systems and better software platforms. Dogs-These products have a low market share and a low market growth rate. Certain underperforming products that fit into this category include minivans or aging models with declining sales. They may not be worth further investment unless repositioned or renovated.
The Impact of Collaboration with Honda on Portfolio Dynamics
Several positive implications can be associated with the collaboration between Nissan and Honda.
EVs Turn Question Marks into Stars-The first positive implication is that the joint development accelerates innovation and shortens time-to-market for electric vehicles made by Nissan. The rationale is that the two companies are the second and third-largest in Japan (SD2). This move ensures that the EVs gain stronger market positions, leading to higher revenue for Nissan and higher profitability.
Cost Savings in Cash Cows-The collaboration between the companies helps in reducing the costs involved in the ICE vehicle cost of production. This move increases profitability and guarantees cash generation during the phase of electrification transition (SD 3). This move will increase the financial sustainability levels of Nissan.
Software as a Star-The software being developed by Nissan in collaboration with Honda unlocks a new, high-margin growth path. Subscription services and over-the-air updates can create recurring revenue streams, leading to higher sustainability.
The tool shows that this strategic partnership enables Nissan to rebalance its product mix by fueling EV and software expansion while maintaining profitability from core products. The partnership thus encourages a better-balanced and diversified portfolio. In addition, the realignment of the product portfolio will influence a higher financial performance by the company.
Profitability Ratios
Net profit Margin- This ratio focuses on the ability of Nissan and Honda to make profits separately. The analysis of the change in profitability will help evaluate how the collaboration may impact Nissan's profitability and sustainability.
Profitability Ratios
The provided data emphasizes Nissan's and Honda's 2023 and 2024 net profit margin calculations (SD 5). For Nissan, the calculation shows the dramatic decline in its net profit margin from 3.36% in 2023 to -5.31% in 2024 (SD 4). This drop represents the steep drop in its profitability. This negative margin shows that Nissan incurred losses in 2024, with its expenses exceeding its revenues. The computation shows that Honda made a more stable and positive performance. Its net profit margin increased modestly from 4.24% in 2023 to 5.78% in 2024,
Nissan (Billion
Yen)
Formula 2023 computation 2024 computation
Change between 2023 and 2024
Net profit margin (net profit/ sales)*100% (426.6/12685.7)*100% =3.36% (-670.9/12633.2)*100% =-5.31%
Negativ e
Honda (Millio n Yen)
Net profit margin (net profit/ sales)*100% (717909/16907725)*100 % =4.24% (1182590/20428802)*100 % =5.78%
Positive showing better cost management and revenue generation (SD 5). Honda's continued profitability underscores its healthier financial position compared to Nissan during this period. Therefore, the collaboration will enable Nissan to benefit from Honda's financial resources. This move will improve Nissan's profitability and sustainability.
Therefore, the Nissan-Honda alliance has the potential to be a profitability game-changer for Nissan. The sharing of resources will ensure that Nissan will reduce research and development expenditures. Sharing resources in EVs will enable Nissan to enjoy economies of scale. This will reduce the production costs.
Conclusion
This assessment shows that Nissan's strategic partnership with Honda presents a sound opportunity for Nissan to improve its profitability. The analysis used the key concept of sustainability to evaluate how this collaboration will improve the sustainability of Nissan. BCG matrix showed that the joint development can accelerate the transition of EVs and software from "Question Marks" to "Stars. This move will also maintain cash flow from legacy ICE vehicles as "Cash Cows." The Porter's Five Forces analysis highlights how shared resources reduce supplier power and strengthen the competitive positioning of Nissan in a highly contested market. In addition, profitability analysis shows that the collaboration will reduce the costs used by Nissan in its operations. This move will help Nissan reverse declining net profit margins. Therefore, the alliance with Honda can be Nissan's game-changer to reclaim competitiveness and boost growth. This move will therefore enable Nissan to achieve sustainable profitability in the evolving auto business.
