Honda and Nissan plan to merge as the two Japanese firms seek to fight back against competition from the Chinese car industry.
Joining forces would create one of the world’s biggest car producers alongside Toyota, Volkswagen, General Motors and Ford.
The potentially multibillion dollar deal to combat “the rise of Chinese power” was a key driver behind the plan, said Honda’s chief executive Toshihiro Mibe.
Mr Mibe said a plan to “fight back” needs to be in place by 2030, or they risk being “beaten” by rivals.
The merger, which would include Mitsubishi – of which Nissan is the biggest shareholder – would allow all three companies to share resources against other electric vehicle competitors such as Tesla.
The growing electric car market has been increasingly dominated by Chinese-made electric vehicles, including BYD, which have posed a threat to some of the world’s best known car firms.
“There is a rise of Chinese power and emerging forces and the structure of the automobile industry is changing,” Mr Mibe told reporters at a press conference announcing the merger talks.
Growing competition in China has left many car makers struggling to compete, as lower labour and manufacturing costs make local firms more nimble and able to price their goods lower than foreign counterparts, making them far more attractive to buyers.
It has led to China becoming the world’s biggest producer of electric vehicles.
In October, EU officials said the Chinese state was unfairly subsidising its EV makers and announced big taxes on imports of EVs from China to the EU, after the majority of member states backed the plans. The tariffs are set to rise from 10% to 45% for the next five years, but there are concerns it could raise EV prices higher for buyers.
The total sales of Nissan and Honda is more than $191bn (£152bn), said Nissan’s chief executive, Makoto Uchida.
In March, the two Japanese car makers agreed to explore a strategic partnership for electric vehicles (EVs).
“The talks started because we believe that we must build up capabilities to fight them, including the current emerging forces, by 2030. Otherwise we will be beaten”, said Mr Mibe.
He added that the deal was not a bailout of Nissan, which has been struggling with falling sales.
In November, Nissan said it will cut around 9,000 jobs as it slashes global production to tackle a drop in sales in China and the US. The cuts mean its global production will be reduced by a fifth.
Nissan, once a symbol of Japan’s car making strength, has spent the past few years trying to regain its footing after the arrest of longtime chief executive Carlos Ghosn.
Mr Ghosn faced charges of financial misconduct when he fled Japan in 2019, and is currently the subject of an Interpol Red Notice, which is a request to law enforcement worldwide to find and arrest a person.
Mr Ghosn, currently in Lebanon, told reporters in December that Nissan’s merger plans were an act of panic and desperation.
Mr Mibe said that any merger would be dependent on the turnaround of Nissan.
Honda and Nissan agreed in March to cooperate in their EV businesses, and in August deepened their ties, agreeing to work together on batteries and other technology.
However, any deal is likely to come under intense political scrutiny in Japan as it may result in job cuts, whilst Nissan is likely to unwind its alliance with French auto firm Renault.
