Japan’s Honda and Nissan are beginning merger talks, the Nikkei newspaper reported

(Reuters) – Japanese auto giants Honda Motor and Nissan Motor will begin merger negotiations as they face increasing competition from the world’s largest electric vehicle makers, the Nikkei newspaper reported on Tuesday.

The two companies have strengthened ties in recent months as they face intense competition from Chinese electric car makers, increasing pressure on legacy brands struggling to make enough profits from their electric car projects.

Honda and Nissan issued identical statements saying that the report on Nikkei’s merger talks had not been announced by either company. Reuters has not independently verified the report.

“As announced in March this year, Honda and Nissan are exploring various possibilities for future cooperation, leveraging each other’s strengths,” the two companies said in separate statements, adding that they would inform stakeholders of any updates in due course.

US-listed Honda shares rose 1.3% in afternoon trading.

Nissan and Honda, the third and second largest automakers in Japan after Toyota, are losing market share in China. This country accounted for nearly 70% of global electric vehicle sales in November, with more than 1.27 million purchases for the month.

The two companies achieved combined global sales of 7.4 million cars in 2023, but they face challenges from electric car makers, especially in China, where BYD and others have advanced.

Global automakers General Motors and Ford Motor Co. have also slowed investments in electric vehicles as high borrowing costs and weak charging infrastructure hamper their adoption despite government incentives.

In Europe, Volkswagen is locked in heated talks with its union about cutting costs as it suffers from falling demand and rising costs.

The global auto industry is also preparing for a possible rollback of EV-friendly policies by incoming US President Donald Trump, Reuters reported.

Honda and Nissan agreed in March to cooperate on their electric vehicle businesses, and in August they deepened their ties, agreeing to work together on batteries, electronic hubs and other technologies.

The automakers are looking to operate under a single holding company and are expected to soon sign a memorandum of understanding for the new combined entity, the Nikkei reported.

The report said that Honda and Nissan are also looking to include Mitsubishi Motors, in which Nissan is the largest shareholder with a 24% stake, under the umbrella of the holding company, to create one of the largest automobile groups in the world.

Nikkei said that the two companies’ shares in the new entity, along with other details, will be determined at a later date.

Any deal could be the largest in the industry since the $52 billion merger between Fiat Chrysler and PSA in 2021 to create Stellantis.

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