🧐 Why Nissan and Honda might merge
Vol 97
This newsletter aims to separate the signal from the noise for investment in all things sustainable transportation: Electrification, mode shift, active and public transit, and mobility aggregation, across both people and goods movement.
I’ll be at CES on January 8th. Send me a message if you’ll be there and want to meet up.
This week’s Deep Dive is all about why EVs are the driving force behind a potential marriage between Honda and Nissan.
🌱STARTUP WATCH: Sustainable mobility startups (pre-seed or seed) to keep an eye on
Amptrans (California, USA): Software to optimize charging for medium and heavy-duty vehicles
Applied Bioplastics (Texas, USA): Bio-based alternative to plastic
BlueGrid (Canada): Vehicle-to-grid solutions for electric boats
FlyNow Aviation (Austria): Manufacturer of eVTOL (air taxis)
Enakl (Morocco): Microtransit network operator
EVpin (New York, USA): Software to site and design EV charging stations
SolGraph (California, USA): Graphite anode for lithium-ion batteries
Quad-E (Australia): Manufacturer of 4-wheeled micromobility
Wayside Energy (California, USA): Battery packs made from recyclable material
XRoadz (Massachusetts, USA): Robotic traffic control systems
Fun fact: Newsletter subscribers live in 49 US states.
📰QUICK HITS: Notable news from the last two weeks
👩🏽⚖️Government, Policies & Cities
🤝 Paris and Berlin are now linked by a high-speed train route. At eight hours, this trip definitely falls outside the 2-3 hour trip sweet spot for high-speed rail, but the symbolism is nice.
⏲️ California is easing rules on mandatory emissions reporting…for the first year. See the Deep Dive in Vol 65 to see why California and the EU make emissions reporting mandatory, despite anything the SEC might want to do.
🚲 The US Congress passed a stopgap spending bill, which included setting national safety standards for batteries used in micromobility. Hats off to city and Congressional leaders from NYC who realized that scaling micromobility would require banning fire-prone low-quality batteries. This allows NYC to embrace micromobility again and saves other cities lots of regulatory headaches.
🇺🇸 The Trump Administration will likely roll back EV and emissions targets, but may be willing to support on-shoring of the battery supply chain. Savvy startup founders are already adjusting their pitch decks…
🤖 The US National Highway Traffic Safety Administration (NHTSA) released a framework that finally allows for robotaxis without pedals or steering wheels. Under the Trump administration, look for the federal government to usurp state guidance and to be much more lax on safety, allowing Tesla to deploy despite having significantly less safe technology than Waymo.
🐻 The US Supreme Court and the Biden administration both reinforced California’s ability to set auto emissions targets. Savor these wins for now, because the upcoming Presidential administration will likely try to undermine the California waiver.
🚁 The US Air Force (AFWERX program) is pivoting from all-electric eVTOLs (air taxis) to hybrid electric. Similar shifts in thinking are underway in short-haul airplanes.
Know someone who should be aware of what’s happening in this space?
🔬Markets & Research
🕋 PWC has published its annual State of Climate Tech study. Mobility remains the biggest climate tech sub-sector for investment.
✈️ The New York Times Wirecutter team did a consumer deep dive on why buying carbon offsets for a flight is mostly a sham. The team is similarly dubious about carbon-neutral shipping.
🚛 The International Council on Clean Transportation (ICCT) has great stats on the electrification of medium and heavy-duty trucks in Europe. Things are moving much faster in Europe than in the US.
🫠 Arizona State researchers have a new study showing high dissatisfaction with car dependency. Turns out people like having some access to a car but resent it when it’s their only option.
🏭 Corporates & Later Stage
🫳 GM announced it was abandoning its robotaxi unit, Cruise. This game is now Waymo’s to lose, at least on the people movement side. Waymo also announced testing in Tokyo next year, its first international market.
🏪 Amazon has officially started selling cars, in partnership with Hyundai. We’re about 25 years into e-commerce and the car shopping experience is still frighteningly manual.
🐣 Startups & Early Stage
🚁 Defense unicorn startup Anduril announced a partnership with eVTOL startup Archer. Might Anduril eventually supplant Boeing in the US aircraft market?
🚛 Nikola and Canoo are both perilously close to bankruptcy. Not a huge surprise here…
🛴 Lime will hit 175 million trips in 2024. That’s about a 12% increase over the prior year.
🏭 Lithium-sulfur battery startup Lyten secured a $650M LOI from the Export-Import Bank of the United States to expand its battery manufacturing footprint in the US. This is the kind of deal that both Republicans and Democrats can get behind.
Fun fact: Newsletter subscribers live in 86 countries. Holdout countries include Paraguay, Laos, Moldova, and Madagascar. Not yet a subscriber?
🧐 DEEP DIVE: Why Nissan and Honda might merge
Earlier this week, multiple press outlets reported that Nissan, the 9th biggest automaker globally, and Honda, the 8th biggest, are considering merging. Any union would be a marriage of necessity to stop massive losses at Nissan.
Nissan and Honda are far from alone. Most of 2024 has been an absolute disaster for legacy car companies like VW and Stellantis. While most are still earning meager profits, the path to insolvency became painfully clear for all of them this year.
The common thread for all of them starts in the center of the automotive industry: China. For years, legacy carmakers like Nissan, Honda, VW, Stellantis, and GM minted money in China, with privileged access to a large market and generally incapable domestic players. Chinese government policy, starting in the 1980s, mandated that foreign entities like GM and VW set up 50/50 joint ventures with upstart local players in exchange for market access. The thinking was that eventually the Chinese domestic players would learn from their foreign counterparts and become competent manufacturers in their own right. Alas, it wasn’t to be, at least not as it was originally conceived. After decades, Chinese state-owned car companies like FAW and Dongfeng were still mostly walking zombies. The limited number of success stories were isolated to provincial-owned car companies (e.g., Shanghai Automotive/SAIC) or privately-owned players (e.g., Geely).
In the internal combustion engine era, the big beneficiaries of this JV structure were the foreigners. In 2010, approximately 30% of GM’s global profits came from China. VW once earned about 50% of its profits from China. And it might have stayed that way if it hadn’t been for those pesky EVs. Several trends that were brewing before COVID have dramatically accelerated since the start of the pandemic.
The Chinese market has shifted dramatically towards EVs, much more so than Europe and the US. This has decimated the market share of foreign brands in China. While VW and Buick still have some cachet if you’re some old-school type who wants an ICE, the same isn’t true in EVs, where domestic brands like BYD, Xiaomi, and Xpeng are the reference names. And nobody can blame the Chinese consumer: Chinese EVs are, quite simply, years ahead of their foreign counterparts. Catching up to GM and VW on ICE was a fool’s errand, but tapping into China’s immense supply chain, digital capabilities, and battery know-how has created an EV ecosystem that has legacy players terrified.
This would potentially be manageable for the likes of Nissan and VW if the carnage was isolated to China. But it’s not. The Chinese domestic market has slowed down but new factories keep popping up. There’s only one solution to a problem like that: exports. Since the pandemic began, China has become an absolute export powerhouse, shipping EVs (and ICEs) to markets like Brazil, Europe, and Southeast Asia.
The result is the start of an absolute bloodbath for legacy players like Nissan, Honda, VW, Stellantis, and GM, as they contend with low-price, high-quality EVs in markets all over the world. In Southeast Asia, for example, Japanese car makers like Honda and Nissan used to own 90% of the market. But in Thailand, for example, Japanese car makers saw double-digit volume declines earlier this year as BYD and others swooped in.
The US market has been spared some bloodletting so far thanks to the structure of the Inflation Reduction Act and trade agreements. But tariffs can only take you so far. BYD and other Chinese makers are scouting factory locations in Mexico, just as they’re doing across Europe.
Rumors are flying that the Honda and Nissan marriage is being expedited, in part, because iPhone maker Foxconn is trying to take a stake in Nissan. That rumor ties back to “The Fox(conn) is Guarding the Henhouse” (Deep Dive, Vol 47) which noted that “Most OEMs are sleeping on the Foxconn risk like they slept on the Tesla risk a decade ago. And we all know how that one turned out. Time to wake up.”
Things are likely going to get worse in 2025 for legacy automakers. Whether they ever get better is far from clear.
Know someone who should be aware what’s happening in this space?