(Reuters) – Japanese auto giants Honda Motor and Nissan Motor will begin talks to merge as they face growing competition from the world’s biggest electric vehicle makers, the Nikkei newspaper reported on Tuesday.

The two companies have increased ties in recent months as they face stiff competition from Chinese electric vehicle makers that has added pressure on legacy brands struggling to make enough profit from their electric vehicle ventures.

Honda and Nissan issued identical statements saying the report on the Nikkei merger talks was not announced by either company. Reuters has not independently verified the report.

“As announced in March this year, Honda and Nissan are exploring various possibilities for future collaboration, building on each other’s strengths,” the companies said in separate statements, adding that they would inform stakeholders of any updates at the appropriate time.

U.S.-listed Honda shares were up 1.3% in afternoon trading.

Nissan and Honda, Japan’s third and second largest automakers after Toyota, have been losing market share in China. This nation accounted for nearly 70% of global electric vehicle sales in November, with more than 1.27 million purchases during the month.

The two had combined global sales of 7.4 million vehicles by 2023, but are facing challenges from EV makers, particularly in China, where BYD and others have made inroads.

Global carmakers General Motors and Ford Motor have also slowed investments in electric vehicles as high borrowing costs and poor charging infrastructure hamper their uptake despite government incentives.

In Europe, Volkswagen is locked in acrimonious talks with its union over cost cuts as it struggles with falling demand and rising costs.

The global auto industry is also bracing for a possible rollback of pro-electric vehicle policies by incoming US President Donald Trump, Reuters has reported.

Honda and Nissan in March agreed to cooperate in their electric vehicle businesses, and in August they deepened their ties, agreeing to work together on batteries, electric axles and other technologies.

The automakers want to operate under a single holding company and are expected to sign a memorandum of understanding for the new merged entity soon, Nikkei reported.

Honda and Nissan are also looking to bring Mitsubishi Motors, in which Nissan is the largest shareholder with a 24% stake, under the holding company to create one of the world’s largest auto groups, according to the report.

The two companies’ stakes in the new entity, along with other details, will be decided later, Nikkei said.

Any deal could be the biggest in the industry since the $52 billion merger between Fiat Chrysler and PSA in 2021 to create Stellantis.

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