Honda and Nissan are said to have held exploratory talks about a possible merger to help them compete with electric vehicle (EV) makers, particularly in China.

In March, the two Japanese automakers agreed to explore a strategic partnership for electric vehicles.

Both companies responded to the BBC with identical statements, saying: “As announced in March this year, Honda and Nissan are exploring various opportunities for future collaboration, leveraging each other’s strengths.”

Many car brands are grappling with growing competition as the industry shifts from gasoline and diesel vehicles to electric vehicles and production booms in China.

Honda and Nissan did not deny the story, first reported by Japanese business newspaper Nikkei, but said it “had not been announced by either company.”

It is understood that talks are still at a very early stage and there is no guarantee that an agreement will be reached.

“If there are any updates, we will inform our stakeholders in due course,” they added.

A potential merger between Japan’s second-largest and third-largest automakers could be complicated for several reasons.

Any deal is likely to face intense political scrutiny in Japan as it could lead to significant job cuts. Nissan is also expected to end its alliance with French vehicle manufacturer Renault.

Honda and Nissan agreed to work together on their EV business in March and deepened their ties in August, agreeing to work together on batteries and other technologies.

In August, the two companies also announced a Agreement with Mitsubishi Motors to discuss intelligence and electrification.

The Nikkei also reported that Nissan and Honda may bring Mitsubishi into a potential partnership. Nissan is Mitsubishi’s largest shareholder.

Nissan shares traded more than 20% higher following the reports in Tokyo. Honda shares fell about 2% while Mitsubishi’s rose 13%.

“The idea that some of these smaller players can survive and thrive becomes increasingly difficult, especially when you add in the complexity of all the additional Chinese manufacturers that have come in and are competing quite strongly,” said Jessica Caldwell, an analyst at Edmunds.

“It’s just kind of a survival necessity, not just to survive, but also just to be able to afford the future.”

Honda and Nissan have lost market share in China, which accounted for nearly 70% of global electric vehicle sales in November.

The two brands had combined global sales of 7.4 million vehicles in 2023, but are struggling to compete with cheaper electric vehicle makers such as BYD, whose quarterly sales soared and surpassed Tesla’s for the first time in October.