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

In March, the two Japanese car makers agreed to explore a strategic partnership for EVs.

The firms responded to the BBC with identical statements, which said: "As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other's strengths."

It comes as many car brands grapple with growing competition as the industry shifts from petrol and diesel vehicles to electric, with production in China booming.

Honda and Nissan have not denied the story, which was first reported by Japanese business newspaper the Nikkei, but said it was "not something that has been announced by either company".

The discussions are understood to be in the early stages and there is no guarantee that a deal will be agreed.

"If there are any updates, we will inform our stakeholders at the appropriate time," they added.

The two companies are expected to officially confirm that they have held the talks as early as next week, according to Japanese TV channel TBS.

A potential merger between Japan's number two and number three car manufacturers could be complicated for several reasons.

Any deal is likely to come under intense political scrutiny in Japan as it may lead to major job cuts. Nissan is also likely to be faced with unwinding its alliance with French vehicle manufacturer Renault.

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.

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

The Nikkei also reported that Nissan and Honda may eventually bring Mitsubishi into any potential partnership. Nissan is Mitsubishi's biggest shareholder.

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

"The thought that some of these smaller players can survive and thrive is getting more challenging, especially when you add on the complexity of all the additional Chinese manufacturers who have come in and are competing quite strongly," said Edmunds analyst Jessica Caldwell.

"It's just sort of necessary to survive, not only to survive, but also just to afford the future."

Honda and Nissan have been losing market share in China, which accounted for almost 70% of global EV sales in November.

The two brands had combined global sales of 7.4 million vehicles in 2023, but are struggling to compete with cheaper EV makers such as BYD, which has seen its quarterly revenues soar, beating Tesla's for the first time in October.

Jesper Koll, from Japanese online trading platform operator Monex Group, questioned whether a merger could make the companies more competitive.

"Is this really just rearranging the deck chairs on the Titanic in the sense that neither Honda nor Nissan really have any products or any technologies that global consumers want?"

"From that perspective, it's a nice rescue but it's not creating a new national champion." (BBC)

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