A $50 billion merger between Honda Motor and Nissan Motor, which aimed to create one of the world’s largest auto groups, has been called off. In December, Japan’s second- and third-largest automakers announced they were exploring a potential combination to share costs and co-develop next-generation vehicles. However, a statement on Thursday revealed both companies are terminating the merger talks.

This swift reversal underscores a growing realization in the automotive industry that sprawling alliances may not address the challenges automakers face in adapting to rapid technological advancements. Traditional automakers in Japan, the United States, and Europe are increasingly struggling to compete with innovative newcomers such as Tesla and China’s BYD, who have taken the lead in electric vehicles and advanced driver assistance systems.

The auto industry is undergoing a paradigm shift, with vehicles evolving into what resembles “robots on wheels.” Merging two giants like Honda and Nissan to catch up with these changes was seen as sticking to traditional strategies rather than embracing innovation. According to Lucinda Guthrie, head of Mergermarket, a data provider, merging was not the answer; automakers needed to adopt new technologies.

Honda and Nissan stated that they will continue to collaborate on software and electrified vehicles instead of merging. However, past partnerships in the industry have often struggled to deliver significant benefits. Ford Motor and Volkswagen, for example, collaborated on electric vehicles and self-driving cars but ceased the autonomous project and saw limited gains from their electric vehicle collaboration.

Honda has a history of partnerships, including one with General Motors. They currently produce two electric SUVs—the Honda Prologue and Acura ZDX—manufactured by GM. However, the two companies decided not to extend their partnership beyond these two models in 2023.

Honda faced internal resistance to merging with Nissan. Nissan was undergoing restructuring due to a significant profit decline, raising concerns about the company’s financial health. Additionally, Honda’s top executives questioned the potential benefits of the merger.

Initially, Honda proposed a take-it-or-leave-it plan that would make Nissan a subsidiary. Nissan rejected this offer, arguing that it undervalued the company’s worth. The previous negotiations had focused on creating a holding company with both brands as subsidiaries.

Guthrie of Mergermarket suggested that Nissan could benefit from seeking new partnerships, potentially with companies outside the traditional automotive sector. “The pressures these companies face wouldn’t change with the merger,” she noted. “They either embrace the future or stick with what they know. Maybe the breakup will be what it takes.”

Nissan’s future could involve partnerships with technology leaders. Foxconn, the Taiwanese electronics giant, expressed interest in potentially buying a stake in Nissan or simply partnering with the automaker. Young Liu, chairman of Foxconn, stated that his company would consider this option.