Honda and Nissan are investigating a merger that would enable them to better compete against Tesla and Chinese electric vehicle makers such as BYD, reports suggest.

Japanese business newspaper the Nikkei said sources had revealed the two carmakers are exploring operating under a holding company, rather than an all-out merger, and will soon sign a memorandum of understanding. Shares of Nissan and Honda rose by 8% and 1.5%, respectively, following the report.

The venture could be joined by Nissan alliance member Mitsubishi Motors, which saw its shares surge 17% after the news broke. Nissan has a 24% stake in Mitsubishi.

According to Japanese media, an announcement could be made by 23 December.

The possible ‘mega-merger’ would pool technological expertise and business resources, helping the carmakers fight off rising threats and building on existing work to reposition for electric cars, along with autonomous vehicles.

In March, the two Japanese carmakers announced a strategic partnership for EVs. This was deepened in August when the pair agreed to work together on batteries, e-axles and other technology.

Analysts at Jefferies said the combination of Honda, Nissan and Mitsubishi would create a top three automotive group with eight million units. Such a tie-up would be the biggest in the industry since the merger between Fiat Chrysler and PSA in 2021 to create Stellantis.

Honda and Nissan on Tuesday issued identical statements saying no merger had been announced by either company.

“As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths,” the companies said in separate statements.

They also said stakeholders would be informed at the appropriate time “if there are any updates”.

Nissan has been hit by weak demand in China and the US. For the six months ended 30 September 2024, global sales volumes were down year-on-year to 1.6 million units. Cost-cutting measures announced last month include a 20% drop in global production capacity and a 9,0000 reduction in its global workforce by 9,000.

According to reports, Nissan has been seeking an investor to replace equity previously held by Renault. In 2023, Renault cut its stake in Nissan to 15% from about 43%.