Japanese car manufacturer Nissan and Honda announced on Monday that they have entered formal talks to merge and merge Create the third largest automaker in the world by sales.

At a news conference on Monday, Honda Chief Executive Officer Mibe Toshihiro Mibe said the two companies needed greater scale to compete in the development of new technologies for electric vehicles and smart driving. Mibe said the business integration would bring “advantages impossible to achieve under the current cooperation framework” to both companies, according to a translation.

He said the deal was aimed at sharing intelligence and resources, achieving economies of scale and synergies while protecting both brands.

A holding company will be established as the parent company of Honda and Nissan and listed on the Tokyo Stock Exchange. The larger Honda will nominate a majority of the combined entity’s board of directors. He said the combined group has the potential to achieve revenue of 30 trillion yen ($191.4 billion) and operating profit of more than 3 trillion yen.

Honda report Operating profit for the full year to March 2024 was 1.382 trillion yen, compared with Nissan’s 568.7 billion yen. The total value of these companies will be close to US$54 billion, of which Honda’s market value contributes US$43 billion.

Discussions will end in June 2025.

Mibe added that if approved, the integration would be a medium- to long-term project and is currently not expected to show significant progress until 2030 and beyond.

Nissan’s strategic partner Mitsubishi has been given the opportunity to join the new group and a decision will be made by the end of January 2025.

These companies are grappling with fierce global competition in the electric vehicle market Tesla and China’s BYD. The high cost of traditional companies transitioning to electric vehicles has long been ignored Expected to drive industry consolidation.

Japanese toyota It is the world’s largest automaker by sales, followed by Germany Volkswagen. Nissan’s tie-up with Honda will see the group overtake South Korea’s Hyundai.

The proposed transaction is Japan’s “Nikkei Shimbun” first reported December 17th.

Nissan shares surged after preliminary reports of the merger were released. analyst Name potential collaborations is a result poor financial performance in company and Restructure its long-standing partnership with french Renault.

In its latest quarterly results, Nissan explain It will cut 9,000 jobs and reduce global production capacity by a fifth.

Honda Chief Executive Mibe Mibe said on Monday that some of the company’s shareholders may view the deal as Honda’s support for Nissan, but noted that the merger “is based on the assumption that Nissan completes its turnaround efforts.”

“Business integration talks will not bear fruit if Nissan and Honda cannot stand on their own,” he said.

Nissan Chief Executive Makoto Uchida told reporters that discussions about integration “do not mean we give up on turning a profit,” but rather to ensure the company’s future competitiveness.

“After taking turnaround actions for future development, future growth, we need to think about ultimate scale and growth. That growth will be through partnerships,” he added.

Peter Wells, professor of business and sustainability at Cardiff Business School’s Automotive Industry Research Center, told CNBC that Nissan “has been struggling in the market, it’s been struggling domestically and it doesn’t have the right fit. product lineup”.European street signs” last week.

“There are so many warning signs, so many red flags around Nissan right now that something has to happen. Whether that’s the answer is another question,” Wells added.

Renault shares closed up 1.2% on Monday. Directly held by the company 17% equity Nissan Motor Co., which owns a stake in Nissan Motor Co. and holds another 18.7% through a French trust, is a strategic investor in Renault’s electric vehicle and software entity Ampere.

In Asian trading, Nissan shares closed up 1.2% ahead of the announcement, Honda shares rose 3.8% and Mitsubishi shares gained 0.6%.

—CNBC’s Ruxandra Iordache and Sam Meredith contributed to this article.