The world's two largest automotive companies are joining forces.

Honda Motor Co. and Nissan Motor Co. are exploring a merger that would create a single competitor for Toyota Motor Corp. in Japan and better position the combined company to face competitive challenges worldwide. Nissan shares saw their largest intraday jump, rising by as much as 24%.

Honda's Deputy General Manager Shinji Aoyama stated on Wednesday, following reports of discussions between the automakers, that Honda is considering various options, including a merger, capital partnership, or the establishment of a holding company. Aoyama refrained from providing details on when a potential decision might be made.

ANXIETY IN THE COMPETITOR FIRM

TBS reported that the companies could make an announcement on December 23. Honda shares fell by as much as 3.4%. Individuals who wished to remain anonymous due to the private nature of the discussions said that the two companies have held preliminary talks regarding a merger. One of these individuals mentioned that the establishment of a new holding company under which the combined businesses would operate is one of the options being considered. This person also indicated that the deal could be expanded to include Mitsubishi Motors Corp., which has capital ties with Nissan. Mitsubishi shares rose by 17%.

"BOTH COMPANIES WILL BENEFIT"

It was noted that the discussions are in the early stages and may not result in an agreement. Vivek Vaidya, senior vice president of mobility at Frost & Sullivan, stated, "Both players will benefit from this merger. The combined company will be a full-fledged automobile manufacturer."

An agreement would effectively consolidate the Japanese automotive industry into two main camps: one controlled by Honda, Nissan, and Mitsubishi, and the other consisting of Toyota group companies. It would also provide them with more resources to compete with larger global rivals after scaling back their long-standing partnerships with other automakers.

CAN NISSAN SOLVE ITS ECONOMIC PROBLEMS THROUGH A MERGER?

This move towards a merger will follow the two companies' decision earlier this year to collaborate on electric vehicle batteries and software. At that time, Honda's Executive Chairman Toshihiro Mibe had expressed the possibility of a capital merger with Nissan.

Tatsuo Yoshida, senior automotive analyst at Bloomberg Intelligence, stated, "If the merger occurs, it will provide short-term relief for Nissan's financial troubles." According to a report by Nikkei earlier in the day, the two Japanese automakers plan to sign a memorandum of understanding to discuss joint equity stakes in a new holding company. The merger is expected to help the manufacturers compete against rivals in electric vehicles, such as Tesla Inc. and Chinese automakers.