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Nissan and Honda are in exploratory talks about a merger of the two carmakers that would create a $52bn Japanese behemoth, according to people briefed on the matter.

The two companies are exploring a merger that could help them better compete at a time when traditional carmakers are battling fast-growing Chinese electric-vehicle manufacturers, and slower-than-expected consumer demand. demand for EVs.

Talks between Nissan and Honda are at an early stage, and there are concerns about a potential political backlash in Japan because a merger of two of the country’s most storied car brands could result in significant job cuts, one of the people with knowledge of the discussions said.

Nissan and Honda announced in March that they would work together to develop EVs and deepened their talks amid uncertainty over what Donald Trump’s return as US president would mean for the auto industry.

This year shares in Nissan, which has a cross-shareholding structure with France’s Renault, have fallen 40 per cent, giving it a market capitalization of $8.2bn. Honda has a market capitalization of $44bn.

Nissan in November unveiled an emergency restructuring plan that included 9,000 lost their jobswhich says it will cut global production capacity by 20 percent. The company lowered its profit guidance for the second time this year after falling to a loss in the July to September quarter.

Nissan has been looking for an anchor investor for months, and the Financial Times reported last month that “all options” are being considered, including a merger with Honda.

The talks between Nissan and Honda were first reported by Nikkei. Nissan said on Tuesday night: “The content of the (Nikkei) report is not something that any company has announced.”

It added: “As announced in March this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths. If there are any updates, we will inform our stakeholders at the right time.”

Honda issued a similar statement, saying it and Nissan were “exploring various possibilities for future collaboration”.

Renault declined to comment.

Last August, Honda and Nissan said they would launch an EV by the end of the decade, as the two companies agreed to jointly develop software.

A merger between Nissan and Honda would give the enlarged company a major U.S. manufacturing footprint, helping both brands potentially mitigate the impact of Trump’s proposed tariffs on imports from in Mexico. Nissan has significant manufacturing operations in Mexico.

The auto industry also hopes that Trump, a longtime critic of EVs, could slow their adoption in the US, perhaps by loosening emissions rules.

Nissan’s worsening financial performance came after it failed to combat a slowdown in global EV sales with a strong hybrid offering: vehicles that combine battery power with a traditional combustion engine. Selling these cars helped Toyota.

Nissan has recently been targeted by activist investors including Effissimo Capital Managementa Singapore-based hedge fund known for high-profile campaigns against some of Japan’s biggest names, including Toshiba.

Nissan, which owns a stake in smaller rival Mitsubishi Motors, is planning a series of key product launches to try to regain momentum.

If talks of a merger continue between Nissan and Honda, the two companies will have to work out how to reconcile their different corporate cultures.

The FT reported last month that Renault was open to selling a portion of its Nissan shares to Honda as part of a revamp of its 25-year-old alliance.

A person close to Renault said that a stronger relationship between Nissan and Honda would be “only positive” for the French group.

Renault reorganized its alliance with Nissan last year, with the French group cutting its shareholding in the Japanese company to less than 36 percent.

Nissan has acquired the voting rights of its 15 percent stake in Renault. Nissan has a 15 percent voting stake in Renault.