Japanese auto giants Honda Motor and Nissan Motor will enter negotiations for a merger and join their resources to better compete against bigger global electric vehicle makers

Japanese auto giants Honda Motor and Nissan Motor are set to begin merger negotiations as they face mounting competition from larger global electric vehicle (EV) makers, Nikkei reported on Tuesday.

The two companies have strengthened ties in recent months as they navigate a rapidly evolving EV market. Pressure has intensified due to fierce competition from Tesla and Chinese automakers like BYD, which dominate China’s booming EV market. Simultaneously, demand has stalled in Europe and the United States, adding to the challenges faced by traditional automakers.

On Tuesday, Honda and Nissan both issued identical statements clarifying that no merger had been announced. Reuters has not independently verified the report.

"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, promising to update stakeholders when appropriate.

Renault, a major Nissan shareholder, stated it had no information on the matter and declined to comment.

The global EV price war—led by Tesla and BYD over the past year—has only increased the financial strain on automakers struggling with next-generation vehicles. This has forced companies like Honda and Nissan to seek ways to reduce costs and accelerate EV development, with mergers emerging as a key solution.

Honda currently has a market capitalization of 5.95 trillion yen ($38.8 billion), while Nissan’s stands at 1.17 trillion yen ($7.6 billion). If successful, the deal would mark the largest auto industry merger since the $52 billion union of Fiat Chrysler and PSA Group in 2021, which created Stellantis.

“The idea that smaller automakers can survive and thrive is becoming increasingly difficult,” said Edmunds analyst Jessica Caldwell. “When you factor in the growing dominance of Chinese manufacturers, it’s not just about survival anymore—companies need to pool resources to afford the future.”

Honda’s U.S.-listed shares rose 0.9% in afternoon trading.

Honda and Nissan—Japan’s second- and third-largest automakers after Toyota—have seen their market share decline in China, which accounted for nearly 70% of global EV sales in November alone. More than 1.27 million EVs were purchased there that month, highlighting the gap between Japanese automakers and their Chinese rivals.

In 2023, Honda and Nissan achieved combined global sales of 7.4 million vehicles, but both are grappling with growing competition from EV leaders like BYD, especially in the Chinese market, where rivals have surged ahead.